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Monday, October 26, 2009

5% cap for real property gains tax

PETALING JAYA: The Government will issue an order to cap the real property gains tax (RPGT) at 5%.

Second Finance Minister Datuk Seri Ahmad Husni Hanazdlah reiterated the RPGT of 5% was imposed on gains from the disposal of real property irrespective of the holding period and category of owner.

“In the Budget 2010 presentation, the Government proposed that real property gains tax at a fixed rate of 5% be imposed on the gains from the disposal of real property effective Jan 1, 2010,” Husni said in a statement yesterday.

“The rate imposed is irrespective of the holding period and the category of the owner,” he added.

The 5% rate will be implemented through the Real Property Gains Tax (Exemption) Order 2009.

“This order will be gazetted as soon as possible and is effective Jan 1, 2010.

“Therefore, the current rate of RPGT, which is higher than 5% as in Schedule 5 of the Real Property Gains Tax 1976, will no longer be applicable,” he said.

However, exemptions to individuals are given as follows:

● The level of exemption is increased from RM5,000 to RM10,000 or 10% of the chargeable gains, whichever is the higher;

● Gifts between parent and child, husband and wife, grandparent and grandchild; and

● Disposal of a residential property once in a lifetime.

There was some confusion when after the budget announcement last Friday, Deloitte Malaysia country tax leader Ronnie Lim said in a statement that the highest rate for RPGT was 30%.

Based on the Finance Bill, Lim said, disposal within two years of acquisition will be taxed 30%; in the third year, it will be 20%; in the fourth year 15%, while disposal within five years and beyond, will still be subject to 5% tax.

“Through our press release of Oct 23 in connection with Budget 2010, we reported on the proposed changes to the Real Property Gains Tax (RPGT) Act 1976 as a result of the Finance Bill.

“The Finance Bill retained all the holding period sensitive rates of RPGT in force prior to the suspension of that tax (in April 2007) but, in respect of individuals, introduced a 5% tax rate in place of a nil rate for disposals which take place after the fifth year from acquisition date.

“Apart from this rate change, the existing rates of RPGT in effect prior to the suspension of that tax were not altered by the Finance Bill,’’ Lim explained in a statement yesterday.

“The Ministry of Finance has issued a press release on the matter and explained that a 5% rate of RPGT, irrespective of holding period and category of tax payer, individuals or companies, will be introduced through a ministerial exemption order.

“When the ministerial exemption order is issued and gazetted, the rates of tax in the RPGT Act will be modified by the rates in the order.

“Generally, such orders are temporary in nature and specify a commencement and cessation date. These orders may also be renewed or revoked.

“As long as the order is in force, the rates of RPGT in the Act, which begin at 30%, will be over-ridden by the rates to be specified in the order,’’ Lim said, adding that a flurry of property transactions was expected before the end of the year.

By The Star

Developers, builders fall on property tax

IJM Land Bhd led Malaysian real estate stocks lower and builders fell after Prime Minister Datuk Seri Najib Razak imposed a capital gains tax on property and the government cut development spending.

IJM Land, Malaysia’s fifth-biggest developer, slid 2 per cent to RM2.44 at 10.28 am local time, outpacing the FTSE Bursa Malaysia KLCI Index’s 0.4 per cent decline. IGB Corp lost 3.3 per cent to RM2.07.

The property tax is a “negative surprise” and will “dampen the velocity of transactions,” HWANGDBS Vickers Research said in a report today.

The government aims to bolster revenue and cut spending to help trim a budget deficit to 5.6 per cent of gross domestic product next year from a 22-year high of 7.4 per cent in 2009.
Malaysia plans a 5 per cent capital gains tax on property from January to help broaden the base of revenue collection, Najib said on October 23. Development expenditure will be reduced by 4.4 per cent to RM51.2 billion next year.

Gamuda Bhd, Malaysia’s second-biggest construction company, lost 1.2 per cent to RM3.30, set for the biggest decline since October 9. IJM Corp dropped 1.2 per cent to RM4.87.

“Although we believe the property market has bottomed, we view this measure came too soon,” Citigroup Inc said in a report today, referring to the property tax. It’s a “negative for the sector as it would curb buying interest.”

Sunway City Bhd and Sunrise Bhd had their stock ratings cut to “hold” from “buy” today by HWANGDBS, which also lowered the target prices of SP Setia Bhd, DNP Holdings Bhd and Eastern & Oriental Bhd.

Shares of Sunway were unchanged, while Sunrise fell 2.9 per cent to RM2.32. SP Setia lost 1.3 per cent to RM3.83, headed for the lowest level since July 13. DNP sank 2.7 per cent to RM1.47 and Eastern & Oriental declined 4.1 per cent to RM1.18.

“The government needs to ensure that the Malaysian tax system is equitable and able to generate revenue for development purposes,” Najib said in his budget speech. Property tax exemptions for families will remain, he said.

Malaysia scrapped a three-decade old capital gains tax on property in April 2007 in a bid to help clear a backlog of unsold homes and attract overseas funds.

Previously, the capital gains tax on property was 30 per cent within the first two years, falling to 5 per cent by the fifth year. For foreigners, the old tax started at 30 per cent for the first five years, dropping to 5 per cent in the sixth and subsequent years.

Neighboring Singapore said in August it wouldn’t proceed with an earlier plan to impose a tax on some property transactions after receiving negative public feedback. It had planned to tax individuals who sold more than one property within a four-year period to deter speculation.

By Bloomberg

Naza TTDI set to bag RM14b job

The property arm of the Naza Group is set to bag the job to build Malaysia's largest international conference and exhibition centre for heavy industries

NAZA TTDI, the property arm of the Naza Group, is set to clinch a RM14 billion property development project on a 24.2ha parcel of land near the Malaysia External Trade Development Corp (Matrade) headquarters in Kuala Lumpur.

Sources said the flagship project will be the construction of Malaysia's largest international conference and exhibition centre.

It will specifically cater to heavy industries like shipping, machinery, trains as well as high technology industries such as aerospace.

"The expo centre is part of the government's vison to elevate Malaysia as a regional hub at par with South Korea, China and Japan as well as bolster innovation among Malaysians," said a source.
The project will also include residential units such as condominiums as well as commercial buildings and may take at least five years to complete.

It is understood that the project will be signed between the government and the Naza Group as early as the end of this month (October 2009).

"The expo centre will offer something different because traditionally people always go to the Putra World Trade Centre, Kuala Lumpur Convention Centre and Matrade headquarters for small- and medium-scale events, furniture fairs, export-import fairs or auto shows.

"This massive expo centre will offer something never done before, which are heavy industries such as ships and airplane components and even aerospace," said the source.

Sources said the Naza Group is currently seeking financial partners and is willing to do the project on a joint-venture basis.

It has approached banks like CIMB Group Holdings Bhd, the AmBank Group as well as government-owned funds like the Employees Provident Fund and Permodalan Nasional Bhd.

Neither Naza TTDI managing director SM Faliq SM Nasimuddin nor other Naza officials responded to questions sent by Business Times.

The Naza Group, traditionally known for its automotive operations, also aims to gain equal prominence in its property business as it targets to become among Malaysia's top three developers in five years.

The group is sitting on 180.59ha of land in the Klang Valley with a potential RM7.6 billion gross development value (GDV).

Naza TTDI raked in a net profit of RM86 million on revenue of RM239 million last year.

It has secured orders of RM1.8 billion from projects like the Platinum Park near the Kuala Lumpur City Centre, of which RM1.5 billion has yet to be billed.

By Business Times (by Zaidi Isham Ismail)

SP Setia in US$16.2m Vietnam JV

KUALA LUMPUR: SP Setia Berhad Group's subsidiary, Setia Lai Thieu Ltd is teaming up with Vietnam's Investment and Industrial Development Corp (Becamex IDC Corp) to undertake a mixed-use project in Vietnam valued at US$16.26 million.

The project would be carried out in Lai Thieu, Binh Doung province. The site is 16km north of Ho Chi Minh City and an hour's drive from Tan Son Nhat International Airport.

The development will encompass shophouses, terraced houses, semi-detached houses, commercial centres, club house and apartments which will be for lease and for sale.

"The project is expected to take six years to complete and has a gross development value (GDV) of US$250 million," said SP Setia.

The site is 2.5km from Phase 1 of the Vietnam Singapore Industrial Park with 230 international manufacturers from 22 countries with investments of more than US$1.4 billion. The working population is more than 40,000.

The project will be SP Setia's third project in Vietnam after EcoLakes at My Phuoc Industrial Park, 40 km north of Ho Chi Minh City and EcoXanh at Saigon Hi-Tech Park in District 9 of Ho Chi Minh City.

SP Setia made its maiden foray into Vietnam in mid-2007 when it teamed up with Vietnam’s state-owned conglomerate, Becamex to develop EcoLakes, a 558 acre eco sanctuary, conceptualised after SP Setia’s award-winning Setia Eco Park in Shah Alam.

The success of EcoLakes has reinforced SP Setia's confidence in the Vietnamese property market - in particular that of the Binh Duong Province.

By The EDGE Malaysia

Tax plan spurs new property listings: Website

The government's move to re-introduce Real Property Gains Tax (RPGT) from Jan 1 next year seems to have spurred some borderline sellers to put up their properties on the market, according to

The move has also encouraged others to reduce their prices to make sure they sell before the end of this year, the property website said in a statement today. said it saw an unusually high number of new property listings over the weekend as well as an unusually high number of listings where the price had been reduced from an earlier stated price.

Its chief executive officer Asim Qureshi said the re-introduction of the tax will play in important role in stamping out speculative investments in property.
"Speculations in property markets have caused the boom and bust cycles we have seen in many other real estate markets across the world and avoiding that kind of instability would be a positive," Qureshi said.

"However, while we have seen a surge in confidence in the property market in recent months, I cannot help but feel the re-introduction of the tax has been a year or two too soon," he said.

Qureshi said that having a tax exemption if the property was held for a certain number of years would have been better as the tax would have been more targeted at property speculators.

"One concern I do have is the message that this move will send out to foreign investors. Malaysia is increasingly being seen as an international property hotspot, and the re-introduction of the tax will somewhat undermine that view," he said.

"There is a big difference between 100 per cent tax-free property gains, which jurisdictions like the United Kingdom, the United Arab Emirates, Singapore and Hong Kong offer and a low rate of tax of five per cent."

On a positive note, Qureshi said the rate of tax was only five per cent of the gains, adding that the government has done the right thing by re-introducing the tax gently so as not to significantly disrupt the market.

"In terms of opportunity, I believe it will be a good time to buy in the secondary market from now until year-end, which is where the tax will have its most direct impact," he said.

"A lot of property owners will want to sell their properties before the deadline which means more supply, yet in the backdrop we have increasing confidence in the Malaysian property market and the country's strong economic fundamentals.", launched in October 2007, is owned by Think Media Sdn Bhd. The website has over 20,000 members and a rapidly growing database of over 70,000 quality property listings.

By Bernama

Malaysia clarifies Real Property Gains Tax

SECOND Finance Minister Datuk Seri Ahmad Husni Hanadzlah clarified that the Real Property Gains Tax, effective January 1 next year, is fixed at 5 per cent, irrespective of the property disposal year.

"The Real Property Gains Tax for the first year is 5 per cent and is the same for the second, third, fourth and fifth year," he reportedly said on Saturday.

In a statement released from Putrajaya yesterday, Ahmad Husni reiterated that in the 2010 Budget, the fixed 5 per cent tax to be imposed on the gains from the sale of property is irrespective of the holding period and the category of the owner.

This rate of 5 per cent will be implemented through the Real Property Gains Tax (Exemption) Order 2009. This Order will be gazetted as soon as possible and is effective January 1, 2010.
Therefore, the current rate of RPGT, which is higher than 5 per cent as in Schedule 5 of the Real Property Gains Tax 1976, will no longer be applicable.

The Second Finance Minster said there are three circumstances where the property owner is exempted from the 5 per cent gains tax.

The first is where the level of exemption is increased from RM5,000 to RM10,000 or 10 per cent of the chargeable gains.

The second, is when the property sale are gifts between parent and child, husband and wife, grandparent and grandchild. And finally, when the disposal of a residential property is a once in a lifetime transaction.

By Business Times

Exemption order on property tax out soon

The Finance Ministry is expected to come up with an exemption order on the Real Property Gains Tax (RPGT) this week to clear the confusion surrounding the RPGT proposal.

Under the 2010 Budget, the government proposed a fixed tax rate of five per cent imposed on gains from the disposal of real property effective Jan 1 next year.

However, based on the Finance Bill, disposal within two years of acquisition will be taxed 30 per cent, 20 per cent in the third year and 15 per cent in the fourth year while disposal within five years and beyond will still be subjected to five per cent.

"As far as the Act is concerned, the rate is still there, which is five per cent to 30 per cent. Exemption order has yet to be gazetted but it is coming out very soon, maybe around this week," Finance Ministry's Under Secretary, Tax Analysis Division, Siti Halimah Ismail, said today.
She was speaking to reporters after the 2010 Post Budget Dialogue, jointly organised by the Malaysian Economic Association and University of Malaya's Faculty of Economics and Administration, and supported by Standard Chartered Bank Malaysia Bhd.

Gains from the disposal of property are subject to tax under the Real Property Gains Tax Act 1976 to curb speculative activities in the propoerty sector. However, the RPGT was exempted in 2007 to help the property sector.

Siti Halimah said the government is expected to collect some RM500 million from the real property gains tax in 2010 but lost RM240 million in individual income tax due to the reduced one per cent from 27 per cent to 26 per cent.

On the sources of tax revenue, she said that Malaysia's tax base was narrow.

"Being a narrow base, the revenue is not sustainable actually. For example, the import duty, because our commitment to free trade agreements, we have no choice but to reduce the rate," she added.

Come Jan 1, 2010, an estimated 98 per cent of the goods that come from Asean countries will be at zero import duty.

Siti Halimah said Malaysia's tax revenue was dependent on petroleum income, which contributed over 40 per cent to the total federal government revenue.

"Therefore, we have to find new sources of revenue for the government and we have a lot of new sources of growth, namely biotechnology, green technology, information and communications technology, and financial services," she said.

On the Goods and Services Tax (GST) which is expected to increase the government''s revenue collection, Siti Halimah said: "That is the reason why the government would like to push for the GST."

The government was in the final stage of its GST study, she said.
On the restructured fuel subsidy scheme, Siti Halimah hoped that the scheme would help to reduce the subsidy burden on the government.

"We hope to save government expenditure and the scheme is focused on only the targeted group," she said.

By Bernama

New York's biggest ever US$5.5b real estate poised to flop

NEW YORK: It was the most expensive real estate deal in U.S. history. Now it's poised to become one of the biggest flops.

At the height of the real estate bubble in 2006, an investment group led by New York City real estate firm Tishman Speyer Properties and BlackRock Realty Advisors paid US$5.4 billion for a pair of gigantic Manhattan apartment complexes known as Stuyvesant Town and Peter Cooper Village.

The price seemed outrageous to many, but the company believed it had a winning strategy: It would aggressively convert thousands of rent-regulated apartments occupied by middle-class families into luxury units that would fetch top dollar.

Three years later, to the glee of many New York renters, the tactic has been a bust.

Tenants fought back, conversions happened much slower than expected and a state court ruled Thursday that about $200 million in the company's new rent increases were improper.

Real estate analysts say the ownership group is now just two to three months away from a likely default on the $3 billion mortgage it used, along with a $1.4 billion secondary loan, to buy the property.

Foreclosure looms as a strong possibility.

Even before the state Court of Appeals ruling on a lawsuit filed by the apartment complex tenants, ratings firms had estimated that the value of the 80-acre (32-hectare) property, home to 25,000 people, had fallen to as little as $2 billion - far less than the outstanding loan balance.

Given the math involved, "I wouldn't be surprised if they just want to walk on it," said Steve Kiritz, a senior vice president at the credit ratings agency Realpoint LLC

"The whole master plan with this project had been for Tishman to come in and ramp up the number of units that were paying market rent," he said. New York state's rent regulation laws place restrictions on how much landlords can charge renters for many apartments.

Regular folks - especially those who have had home financing problems of their own - might laugh at the folly until they realize that some of their own money might be tied up in the deal.

Some of the biggest equity investors in the deal are public pension funds that manage retirement system benefits for millions of government employees.

Florida's State Board of Administration had put $250 million into the project. It has already written off the entire investment as a loss.

California's two largest government pension funds, the California Public Employees' Retirement System and the California State Teachers Retirement System, invested a combined $600 million.

CalSTRS has also already written off its $100 million stake.

Tishman, by comparison, stands to lose much less.

Its share was $112 million, less than 2 percent of the purchase price.

A spokesman for the company declined to comment Friday on the project's future.

Tishman Speyer's co-chief executive, Rob Speyer, told The New York Times in a recent interview that win or lose on the court case, "the asset is going to require a restructuring."

"Once the court case is resolved," he said, "we'll speak to our debt holders as well as our fellow equity investors."

Teams of lawyers will likely spend the next few months fighting over who gets control of the complex and which lenders are entitled to get some money back, said Dan Fasulo, a managing director of Real Capital Analytics.

How much they recover, and who is wiped out, may come down to how much appraisers decide the buildings are really worth, based on more realistic rent projections.

"I had a number, put together last week, that I thought was fair. I don't think that number is fair anymore," Fasulo said.

"No one could give you an honest appraisal right now."

Stuyvesant Town isn't the only such project to run into trouble after plans to increase rents went poorly.

An investment group that purchased Riverton Houses, a big development in Harlem built around the same time as Stuyvesant Town, ran into financial problems after its bid to convert hundreds of rent-regulated units to market rates went slower than expected.

One analyst estimated the value of the complex in September at $108 million, about half the value of the $225 million mortgage on the property, which is currently in default.

Any debt restructuring process at Stuyvesant Town is likely to be complicated.

The mortgages that financed the deal were chopped up, repacked and sold as Commercial Mortgage Backed Securities to a variety of investors.

Fasulo said the complexity of the arrangement and the size of the property itself mean that a traditional liquidation still might not happen.

A sale, he said, "would be very disadvantageous at this time," given the state of the real estate market.

"There would be tremendous demand," he said, but at such a depressed price that the lenders might be better off holding on to the troubled property.


Existing home sales surge

WASHINGTON: Sales of existing US homes surged a record 9.4 per cent in September as Americans rushed to take advantage of a tax credit for first-time buyers before it expires next month.

Purchases rose to a 5.57 million annual rate, more than forecast and the highest in more than two years, the National Association of Realtors said on Friday in Washington. The median price fell at the slowest pace in a year as the number of houses on the market shrank.

While sales may cool unless Congress decides to extend the US$8,000 (US$1 = RM3.38) credit due to expire November 30, lower prices and mortgage rates have also made houses more affordable and may cushion any decline. Smaller price decreases show the market is stabilising as demand improves, easing the strain on consumer finances that deepened the worst recession since the 1930s.

"The excess supply of unsold homes has declined a lot and this reduces the downward pressure on home prices," said Harm Bandholz, an economist at UniCredit Global Research in New York.
"An improvement in house prices is an important condition for a rise in housing wealth and therefore higher willingness of households to start spending again."

By Bloomberg

Major US real estate lender files for bankruptcy protection

In its bankruptcy filing Sunday in Delaware bankruptcy court, the company listed total debt of $21 billion and assets of $20.1 billion.

CHICAGO: Capmark Financial Group, one of the largest U.S. commercial real estate lenders, has filed for bankruptcy protection amid mounting bad debt, becoming the latest casualty in the still turbulent U.S. real estate market.

Capmark has been hurt by rising losses on mortgage loans, and has had to foreclose on properties such as the Equitable Building in Atlanta because borrowers were not able to make loan payments.

In its bankruptcy filing Sunday in Delaware bankruptcy court, the company listed total debt of $21 billion and assets of $20.1 billion.

It seeks to reorganize under court protection, reducing its debt while continuing to operate its businesses.

Many U.S. banks and real estate investment trusts have been hurt by increasing losses on commercial real estate loans.

With millions of jobs lost and office space remaining empty during the recession, developers have been forced to default on loans.

Analysts predict that commercial real estate defaults will rise rapidly.

"We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies," said Capmark President and CEO Jay Levine, in a statement.

"By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses."

Last month, Pennsylvania-based Capmark posted a $1.6 billion quarterly loss, as it set aside $345.8 million to cover loan losses during the quarter ended June 30.

The company had been in talks with lenders and bondholders to restructure its debt so that it could stay in business.

Capmark in September agreed to an option to sell its North American servicing and mortgage businesses to Berkadia III LLC - a joint venture of Warren Buffett's Berkshire Hathaway Inc. and Leucadia National Corp.

Now that Capmark has been forced to file for bankruptcy protection, it will receive $415 million in cash and a $75 million note in the deal, minus any losses on a portfolio of mortgages.

Had the transaction been completed outside of bankruptcy court, Capmark would have received $375 million in cash at the closing.

Berkadia would have held $40 million to cover indemnity claims and pay the $75 million note.

Capmark was created in 2006 after a private equity group led by KKR & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners bought the commercial real estate business of lender GMAC LLC for $1.5 billion in cash.

According to the bankruptcy filing, the group owns 75.4 percent of the company.

GMAC owns 21.3 percent, with most of the remaining shares owned by employees and directors.

Messages left for KKR, Goldman Sachs and Five Mile were not immediately returned on Sunday.

In a statement, Capmark said its Capmark Bank subsidiary is not part of the bankruptcy filing.

The bank, which recently received $600 million in new equity from Capmark Financial, will continue to serve its customers.

As of Friday, Capmark and its units involved in the filing had more than $500 million of cash and cash equivalents available to fund operations.

Capmark said it believes it has enough liquidity at this time to allow it to pay vendors for goods and services and to pay salaries and continue benefits to its employees, and has filed motions with the court to allow it to do so.

"The Chapter 11 process will give Capmark the opportunity to restructure our balance sheet while continuing to focus on maximizing value for our principal stakeholders," said Mohsin Meghji, the company's chief restructuring officer, in a statement.

Capmark's filing marks the latest in a string of commercial real estate-linked bankruptcies.

General Growth, the second largest shopping mall owner in the U.S., in April filed for bankruptcy protection in the largest U.S. real estate bankruptcy case in history with $27 billion in debt.

Extended Stay Hotels LLC in June also filed for bankruptcy protection, citing massive debt stemming from its 2007 acquisition by the Lightstone Group at the peak of the hotel market and a sharp drop in business travel due to the recession.