Mixed reaction to property tax

PETALING JAYA: The Government’s proposal to reimpose the real property gains tax (RPGT) may ensure a more balanced property market in the long run but industry players see it as counter-productive to the ongoing efforts to stimulate investments in the property sector.

Under Budget 2010, the RPGT of 5% would be imposed from Jan 1 on gains from the disposal of real property irrespective of the holding period and category of owner.

Prior to the exemption of the RPGT in April 2007, tax on gains from property sales was on a progressive basis from 30% to 0% depending on the holding period of the property.

Industry players and analysts see the reinstatement of the RPGT as premature when the property market is just recovering from the global financial crisis.

However, they hope the move to allow Employees Provident Fund (EPF) contributors to utilise their current and future savings in Account 2 for home purchase would compensate for the imposition of the RPGT.

Datuk Ng Seing Liong ... RPGT will adversely impact fragile market’s confidence level

Real Estate and Housing Developers Association (Rehda) president Datuk Ng Seing Liong said re-instating the RPGT after a brief exemption period of less than three years would adversely impact the already fragile market’s confidence level among investors, both local and foreign.

“Worse, the move is also a reinforcement of Malaysia’s infamous ‘flip-flopping’ property investment policies,” Ng added in a statement yesterday.

He urged the Government to review the RPGT proposal and carefully study the cost-benefit analysis of such a move before its implementation.

Rehda also viewed the re-imposition of RPGT at 5% irrespective of number of years of acquisition as “punitive to owners of existing housing units who may have bought their properties decades ago.”

Ng said the owners might want to sell their houses to upgrade to better properties or to relocate.

HwangDBS Vickers Research said in a note yesterday the property tax was a “negative surprise” and would “dampen the velocity of transactions”.

Concurring with the view, CIMB Research said the 5% RPGT “was a shock to us as the Government had suspended RPGT 2½ years ago to give the property sector a boost and attract foreign purchasers.”

Although the real property sector had enjoyed some measure of recovery in the past three to six months, the research house said transactions remained subdued and many developers had yet to undertake new project launches.

“The RPGT of 5%, although low, could make developers pause and gauge market conditions before taking the plunge, which would push back their earnings recovery. Also, the re-imposition of RPGT may stir fears of more RPGT increases in future years, which could have a compounding dampening effect on the sector,” CIMB Research added.

ECM-Libra described the reinstatement of the RPGT as a “shocker.”

“This may dampen property buyers’ sentiment and may deter speculative activities to a certain extent,” it said in a note yesterday.

According to Mah Sing Group Bhd group managing director Tan Sri Leong Hoy Kum, the waiver of RPGT since April 2007 had been effective in boosting sentiment and increasing domestic and foreign demand in the local property market as it had lowered the cost of property sales.

As Mah Sing catered mainly to first-time home buyers, owner-occupiers and the upgraders’ market, Leong said it would not bear the brunt of the impact of the RPGT.

SP Setia Bhd president and CEO Tan Sri Liew Kee Sin said:”We cannot assume that purchasers who have bought these properties are going to sell upon completion. Many are first time buyers looking to set up a home and we also have many purchasers who are upgraders.”

Liew said at 5%, the RPGT would not significantly impact decisions to buy or sell properties, regardless of the holding period.

“RPGT is a tax on gains derived and not proceeds received from the disposal of real property. The reimposition of the tax by the Government at this time indicates their confidence in the health of the sector and also that there are decent gains to be made from property transactions,” Liew added.

Sunway City Bhd managing director of property development Ngian Siew Siong concurred that a tax rate of 5% “is very minimal and should not be a deterrent to buyers and investors.” “Malaysia’s property prices are still comparatively lower than those in other regional countries,” he said.

However, Ngian wants gains from properties acquired more than five years ago to be exempted from tax, pointing out that those who kept their properties for over five years comprised mainly owner-occupiers and long-term investors who did not speculate in the property market.

“After all, the RPGT was introduced to curb speculative buying and as such, owner-occupiers and non-speculators should not be burdened by it,” he said.

By The Star (by Angie Ng)

Real property gains tax and green tech incentives

This is the final of a three-part question-and-answer series provided by PricewaterhouseCoopers on various aspects of Budget 2010

Q. I have owned my house for 10 years. I am thinking of selling it next year, or maybe consider giving it as a gift to my son. I am a Malaysian citizen. Will I need to pay real property gains tax (RPGT)? At what rate? Will there be any special exemptions available to me?

A. If you sell the property, the rate of RPGT applicable would be 5% of the chargeable gain as per the intention of the reintroduction of RPGT.

As an individual, under the Budget proposals, you will be entitled to an exemption of RM10,000 (previously RM5,000) or 10% of the chargeable gain, whichever is the higher.

You are entitled to a once in a lifetime exemption from RPGT for disposal of a private residential property. If you give the house to your son as a gift, you will be exempted from tax, as it is proposed that all gifts of real property between parent and child, husband and wife, grandparent and grandchild would be exempt from tax.

I took a loan to finance the purchase of a piece of property a few years ago. If I sell my property, can I incorporate the interest that I have been paying on the loan as part of the purchase price of the property when calculating the RPGT liability?

Based on the proposals in the Finance Bill 2009, you will no longer be able to include any interest incurred on capital employed to acquire the asset as part of the acquisition price of your property in calculating the RPGT liability.

I sold a piece of property in January 2007, which at the time, resulted in a loss to me for RPGT purposes. However, the government then announced the RPGT exemption from April 1, 2007 onwards. As a result, I have not been able to utilise the tax relief from that RPGT loss ever since. Can I still use that tax relief when RPGT is imposed again from next year?

Based on the transitional provisions proposed in the Finance Bill 2010, if you were entitled to a tax relief for RPGT purposes and have not utilised that tax relief at March 31, 2007, you will be entitled to claim that relief as a deduction against any RPGT assessed in the first year of assessment subsequent to the year of assessment 2009, and so on for subsequent years of assessment, until the whole amount of the relief is fully allowed as a deduction.

The principal activity of my company is the manufacture of food products. The board of directors decided to register trademarks of some of our products with the Domestic Trade and Consumer Affairs Ministry. I understand that the recent budget announcement proposes that the expenses incurred on the registration of trademarks in Malaysia will be allowed as tax deduction for purposes of income tax computation. Can you please confirm?

The proposed tax deduction on the expenses incurred on the registration of trademarks will only apply to companies which have a paid-up capital in respect of ordinary shares of RM2.5mil and less at the beginning of the taxable period.

Note that the company should not be related to a company which has a paid-up capital in respect of ordinary shares of more that RM2.5mil at the beginning of the taxable period.

In addition, the company should not have full-time employees exceeding 150 persons nor annual sales turnover exceeding RM25mil respectively.

The registration expenses include fees or payments made to trademark agents registered under the Trade Marks Act 1976.

This deduction is essentially targeted for small and medium enterprises. This proposal is effective from Year of Assessment 2010 to 2014.

To expand the use of green technology, the government launched the Green Building Index (GBI) on May 21, 2009. Can you elaborate on what GBI pertains to and some of the tax incentives available.

GBI was developed by Pertubuhan Akitek Malaysia and the Association of Consulting Engineers Malaysia.

Under the GBI assessment framework, points will be awarded for achieving and incorporating environment-friendly features which are above current industry practice.

Two different sets of GBIs have been developed for both commercial and residential properties.

The assessment criteria include:

·Energy and water efficiency

·Indoor environmental quality

·Sustainable management and planning of building sites in respect of pollution control and facilities for workers

·Usage recyclable and environment friendly materials and resources

·Adoption of new technologies

As a measure to encourage the construction of buildings using green technology, it is proposed that the owners of buildings awarded the GBI certificate be given exemption equivalent to 100% of the additional capital expenditure incurred to obtain the GBI certificate.

This incentive is applicable on new buildings and upgrading of existing buildings.

The proposal is effective for buildings awarded with GBI certificate from Oct 24, 2009 until Dec 31, 2014.

Further details on GBI can be viewed at http://www.greenbuildingindex.org.

By The Star

Rush to beat property gains tax deadline

Thinkproperty.my has reported an unusually high number of new listings after the 2010 Budget announcement as well as a high number of price cuts for properties on sale

The reintroduction of a real property gains tax (RPGT) from January 1 next year appears to have triggered a rush to sell properties but agents said it will be very tough to beat the deadline.

Thinkproperty.my, a website that lets people advertise their properties for free, said it has seen an unusually high number of new listings after the 2010 Budget announcement.

There have also been a high number of price cuts for existing properties that are on sale. However, it did not provide detailed numbers.

Last Friday, Prime Minister Datuk Seri Najib Razak said the RPGT will return next year at 5 per cent after it was scrapped in 2007.
But agents think it is just a knee-jerk reaction. Property consultant Sharizal Supian said a property deal takes between three and six months to complete, which means it will be very hard to beat the January 1 deadline.

The RPGT has not been well-received as many think it would halt the growth of the property market.

Thinkproperty.my chief executive officer Asim Qureshi believes the re-introduction of the tax has been a year or two too soon.

"We need some of the feel good factor to gain momentum and this tax can only slow down that momentum.

"Furthermore, I believe that having a tax exemption for property owned for a certain number of years would be better as the tax would target property speculators," he said in a statement.

Asim said Malaysia is increasingly seen as an international property hot spot and the RPGT will somewhat undermine that view.

However, he thinks that at 5 per cent, the reintroduction has been gentle and it may not significantly disrupt the market.

"In terms of opportunity, 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.

Emkay Group chief oper ating officer Peter Teh has a different take. He thinks that any sudden surge in sales in the next few months would be mainly due to a recovering property market.

He said the tax will not deter serious home buyers. "They are also not really buying now but over a few years and they will not fell the pinch as it will pass through in the next coming years."

Property stocks took a beating yesterday as the property tax was "a negative surprise" to investors, analysts said.

IJM Land Bhd, the country's fifth biggest property developer, fell 2 per cent to RM2.44, while Sunrise Bhd slid 4.6 per cent to RM2.28. Eastern & Oriental Bhd shed 6.5 per cent to RM1.15.

By Business Times (by Zaidi Isham Ismail)

Flurry of property transactions on the cards

KUALA LUMPUR: The proposed flat tax rate of 5% on gains from any property transacted, irrespective of the number of years it is held before being sold, is expected to create a spike in transactions of property held for five years and more, said a tax consultant.

The consultant said that in a bid to minimise the effects from the tax that was proposed in the Budget 2010, the number of property transactions is expected to significantly increase over the next few weeks leading up to the end of the year.

The proposed tax is to take effect from Jan 1, 2010.

In tandem with developments that are expected to negatively impact the property sector, stock prices of property counters on Bursa Malaysia have declined.

The property index fell 15.12 points to 805.26 with IGB Bhd and IJM Land Bhd being the top losers. IGB, which is the ultimate parent company of MegaMall and Properties surrounding it in Mid-Valley, shed 14 sen to close to RM2. IJM Land, which is fast gaining ground as the next “S P Setia”, lost 12 sen to close at RM2.37.

The tax consultant said that medium- and long-term property investors and companies holding property for more than five years would dispose the property within the next few weeks.

The consultant said that since 1976 when the real property gains tax (RPGT) was introduced, property transacted after five years of ownership were not taxed.

“But the new proposal calls for tax on all property transacted irrespective of the number of years it is held. This will disadvantage those holding properties for more than five years and that have seen an appreciation in its value,” said the consultant.

He cites an example of a person or company that has held a property for more than five years and looking at a gain of RM1 million.

“After Jan 1 next year, the tax would be equivalent to RM50,000 for a gain of RM1 million. If the property is transferred before January 2010 for say RM1 million and sold a year or two later for about RM1.1 million, the tax will only be on the gain of RM100,000 which is RM5,000,” said the consultant.

However not all are of the view that the ruling would spark a slew of transactions by people owning property for more than five years.

KGV-Lambert Smith Hampton executive director Samuel Tan said that it was too early to tell whether there would be a spike in property listings or transaction.

“But I foresee people becoming more careful when it comes to purchasing and selling a property, thus slowing down the momentum we are just starting to gain which is detrimental to our marke,” he said.

However, nearly all players in the property sector agree that the proposed tax was not fair to long-term holders of property.

According to YY Lau, a director of YY Property Solutions General, the people who are being penalised are those who own properties for many years.

“Long-term owners will feel discriminated. When they bought their properties 20 to 30 years ago, they were not told they will have to pay a 5% RPGT. That is why, there should be an exemption for properties owned for more than five years.”

He also said that it was not clear as to why the RPGT would be imposed.

“If it meant to curb speculation, then I’m afraid it’s counter-productive. In fact, it will encourage speculation, as there is no difference whether you sell within a year or five years like previously where a progressive rate based on the years of ownership was in place. If there is no differentiation, what’s to stop a speculator from selling and buying?”

Raine & Horne International Zaki and Partners Sdn Bhd executive director Lim Lian Hong expected the proposed tax to be an immediate shocker but in the long run, it won’t be a big deal.

“However, this will affect those who own properties for longer number of years. If you bought a house over 30 years ago, the prices would have appreciated and it would cut into the profit they will make from the sale. The government needs to take another look at the ruling as tax should not be imposed on properties owned for more than five years.”

By The EDGE Malaysia (by Jacqui Chan)

Exemption order on real property gains tax likely this week

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 5 per cent on gains from the disposal of real properties effective January 1 next year.

However, based on the Finance Bill, disposals 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 disposals within five years and beyond will still be subjected to 5 per cent.

"As far as the Act is concerned, the rate is still there, which is 5 to 30 per cent. Exemption order has yet to be gazetted but it is coming out very soon, maybe around this week," the Finance Ministry's Under Secretary, Tax Analysis Division, Siti Halimah Ismail, said in Kuala Lumpur yesterday.
She was speaking to reporters after the 2010 Post Budget Dialogue, organised by the Malaysian Economic Association and University of Malaya's Faculty of Economics and Administration, and supported by Standard Chartered Bank Malaysia Bhd.

By Bernama

SP Setia: Pact execution extended to Feb 20

PROPERTY developer SP Setia Bhd said its wholly-owned unit KL Eco City Sdn Bhd and Datuk Bandar Kuala Lumpur (DBKL) have agreed to extend the period for the execution of a privatisation agreement up to February 20 2010.

Both the parties were supposed to execute the agreement within two years from the date of a memorandum of understanding (MOU) entered on August 21 2007.

Under the MOU, SP Setia has agreed to pay, through DBKL, compensation to a maximum of 600 squatter families amounting to RM3.6 million for the land near Mid Valley in KL, to be developed into a mixed residential and commercial development as a privatisation joint-venture project.

By Business Times

SP Setia in Viet deal

SP SETIA Bhd, through its subsidiary, Setia Lai Thieu Ltd, has signed an agreement with Investment and Industrial Development Corp for the assignment of 27 acres of land worth US$16.26 million (RM54.96 million) in Lai Thieu Town, Vietnam.

The land will be developed into a US$250 million (RM845 million) mixed-use project, which is expected to take six years to complete.

The development will include shop houses, commercial centres, a club house and apartments.

Lai Thieu Town is located 16km north of Ho Chi Minh City and an hour’s drive from Tan Son Nhat International Airport.

This will be SP Setia’s third project in Vietnam.

By Business Times

SP Setia plans Vietnam project

PETALING JAYA: SP Setia Bhd plans a mixed property project with gross development value of US$250mil in Vietnam.

SP Setia said its subsidiary, Setia Lai Thieu Ltd, had entered into an in-principle agreement with Investment and Industrial Development Corp (Becamex) for an independent mixed-use real estate project in Binh Duong Province.

“It shall entail a mixed development of about 1,700 units comprising shophouses, terrace houses, semi-detached houses, commercial centres, a clubhouse and apartments,” it said in a filing with Bursa Malaysia.

The project would be on 26.79 acres and would be transferred from Becamex to a newly-formed company for US$16.26mil, it said.

“The US$16.26mil was arrived at by aggregating all the costs and expenses for compensation and payment of all land-related fees,” it added.

By The Star

Builders fall on property tax

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

IJM Land, Malaysia’s fifth-biggest developer, slid 5% to RM2.37 while IGB Corp lost 6.5% to RM2.

The property tax was a “negative surprise” and would “dampen the velocity of transactions,” HwangDBS Vickers Research Sdn Bhd said in a report.

The Government aims to bolster revenue and cut spending to help trim a budget deficit to 5.6% of gross domestic product next year from a 22-year high of 7.4% in 2009.

Malaysia planned a 5% capital gains tax on property from January to help broaden the base of revenue collection, Najib said last Friday. Development expenditure will be reduced by 4.4% to RM51.2bil next year.

Gamuda Bhd, Malaysia’s second-biggest construction company, lost 1.4% to RM3.30, set for the biggest decline since Oct 9. IJM Corp Bhd dropped 1.2% to RM4.86.

“Although we believe the property market has bottomed, we view this measure came too soon,” Citigroup Inc said in a report yesterday, 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” by HwangDBS, which also lowered the target prices of SP Setia Bhd, DNP Holdings Bhd and Eastern & Oriental Bhd.

Shares in Sunway were unchanged while Sunrise fell 4.6% to RM2.28. SP Setia lost 1.3% to RM3.81, headed for the lowest level since July 13. DNP sank 6.6% to RM1.41 and Eastern & Oriental declined 6.5% to RM1.15.

“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 would 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% within the first two years, falling to 5% by the fifth year. For foreigners, the old tax started at 30% for the first five years, dropping to 5% in the sixth and subsequent years.

Neighbouring 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.

The city-state had planned to tax individuals who sold more than one property within a four-year period to deter speculation.

By Bloomberg

MBAM to host construction summit

The Master Builders Association Malaysia (MBAM) will hold the second Malaysian Construction Summit on November 10 at the Sunway Pyramid Convention Centre.

Industry players and government officials will gather at the one-day event to talk about issues and produce some practical solutions for the industry.

For further details please contact Zharraine Chang, senior executive officer at 03-7984-8636 or email mbam02@mbam.org.my.

By Business Times

Malaysia builders, steel firms lower

STEEL makers and select property stocks suffering further selling pressure after the government slashed development spending goal for 2010.

AMONG builders, Gamuda was down 0.3 per cent, WCT dipped 0.37 per cent and IJM, the country’s largest construction group by assets, fell 0.62 per cent.

Steel maker Ann Joo slid 2.65 per cent and Perwaja, the country’s largest steel firm by output, was unchanged after a weak opening.

Prime Minister Datuk Seri Najib Razak last week said development spending will be cut by 4.5 per cent next year as the government moves to contain ballooning budget deficit following this year’s big stimulus plans.

By Reuters