With the Budget 2019 being announced on 2 November 2018, the Malaysian government has introduced quite a number of measures hoping to tackle the housing affordability issues. Some measures, like the peer-to-peer funding scheme 'Crowdfunding Property', are innovative, although its effectiveness in the real world has not been tested yet. However, probably the most concerning for the property investors out there is the changes to the Real Property Gains Tax (RPGT), which increase the tax from 0% to 5% for citizens and permanent residents when disposing of their properties for gains in the sixth year and beyond. For non-residents, the increase is from 5% to 10%.
I get a lot of customers asking if property price will fall from next year as investors find property being less attractive as an investment vehicle, thus driving down demand?
Quite the contrary, actually.
Think about this for a minute. Say you bought a property 10 years ago for RM200,000. Now the market price has grown to RM400,000. If you managed to sell it next year for RM400k you would have to pay a 5% tax which is RM10k, leaving you a net profit of RM190,000. Now, you would probably think, if it was still 0% tax you would have been able to absorb the full RM200,000 profit.
So what do you do?
You increase the selling price to RM410,527 (+ RM10,527), so that even after selling the property and paying 5% tax, you still end up with RM200,000 profit.
What the government just did there, is an increase in its tax revenue, at the expense of property buyers. All it is doing is pushing up property price even more.
What does this mean for me?
Property prices are affected by macro and micro economic factors, but a 5% increase in tax is not going to be a major driver for it. New property prices will not be affected as they are largely determined by cost of construction and developers' profit margin requirement. That being said, if you are in the secondary property market, you might be able to pick up a few bargains from panic sellers who want to offload their properties before the new legislation kicks in from 2019.
Happy wealth building.
Wesley Tan
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