RPGT won’t hurt genuine buyers

November 9th, 2013 Leave a comment

Banning DIBS is the right move

FOR many years, the National House Buyers Association (HBA) has been urging the Government to take measures to stem the steep rise in property prices to avoid a “homeless generation” as current property prices are far beyond the reach of many low and middle-income families in urban and suburban areas.

This is a ticking time bomb that will result in many social problems if left unchecked.


Real Property Gains Tax (RPGT)

The announcement of the revised rate of tax on gains made in the disposal of properties, namely, the Real Property Gains Tax (RPGT), formerly known as the Anti Speculation Act, under Budget 2014 is far more superior to what had been proposed under Budget 2013 (See table above)

This is because, typically, if the property is purchased directly from the developer, it takes two years (for landed properties) and three years (for strata properties) to be completed.

Hence, under the previous RPGT, speculators could purchase properties from property developers upon their launch and then flip these properties on completion (after two years) and having to pay 10% (i.e. within the 3rd to 5th year).

It is hoped that the revised RPGT rate will deter speculators and, at the same time, not punish genuine house buyers who buy for their own stay or long-term investment. It is worth noting that buyers of residential property could seek a once-in-a-lifetime exemption from the tax.

Budget 2014 is best described as an “excellent mathematical formula” to curb the unbridled escalation of house prices, which has in the last three years skyrocketed. The Government has taken a step in the right direction with measures to slow down the steep rise in property prices due to false demand caused by excessive speculation fuelled by easy housing loans and the previously low RPGT.


Foreign purchasers to pay more

HBA applauds the move to increase the minimum price of property that can be purchased by foreigners from RM500,000 to RM1mil. Foreigners must be prevented from “snapping up” property meant for the lower and middle income.

This artificially inflates prices and creates a domino effect which can result in higher property prices across the industry. This is especially true for development corridors such as Iskandar Malaysia which has seen foreign purchasers arriving in droves and scooping up properties with their advantageous exchange rate.


Banning the Developer Interest-Bearing Scheme (DIBS)

DIBS is popular with speculators as they pay nothing to make a profit. Their initial down-payments and deposits are sometimes factored into the purchase price by the collusive developers, and some unethical financial institutions do not even require that the developer collect the deposit that has to be paid by the so-called purchaser.

This is one of the factors which induces “bogus” house buyers (which I have written about in this column on Aug 31 entitled: Of Speculators and bogus house buyers) who merely flip the property at the right time.

Kudos to Bank Negara for heeding our call and banning DIBS. It may be worth noting that Singapore banned DIBS in 2009.

Considering the deep pockets of property speculators, the effectiveness of these measures remain to be seen. However, they are expected to make speculation unworthwhile. HBA praises the Prime Minister for putting a stop to DIBS, which is one of the reasons attributed to the steep increase in property prices for three reasons:

1. DIBS encourages speculation as the house buyer does not need to “service” any interest/instalment during the construction stage. This will “lure” and tempt many house buyers to speculate and buy into DIBS projects hoping to flip on completion and make a quick profit with little or no capital upfront. Connivingly, the interest element is “serviced” by the participating developers.

2. DIBS artificially inflates prices as all interests borne by the developer are ultimately imputed into the property price. This in turn creates a domino effect which pulls up property prices in surrounding locations.

3. Bank and financial institution staff conniving with developers using the DIBS model should be investigated on their “modus operandi” in financing those artificially inflated prices (DIBS + sales price) and ignoring guidelines on prudent lending.

Banks and financial institutions are to be prudent and only provide mortgage financing up to the fair value/market value of the property. In this respect, a benchmark of fair value or market value is the current properties available. Somehow, properties sold under DIBS are always priced much higher; 15% to 20% higher compared with those without DIBS.

For standard condominiums costing RM500,000 without DIBS, should the developer market such properties under DIBS, the selling price could be as high as RM650,000. This creates a potential property bubble should the developer default in “servicing” the interest and the borrower/purchaser also defaults. The bank would only be able to recover up to RM500,000 if the said property is auctioned at market value.

In the event of an economic downturn, banks saddled with too much DIBS end-financing could collapse as the losses from such DIBS end-financing will erode the banks’ capital.

The collapse of just one bank/financial institution could cause a systemic collapse of the entire financial industry.

Bank Negara should take action against such bank and financial institution staff who have provided both project financing and end-financing to DIBS projects under the newly-minted Financial Services Act, 2013.

With the RPGT increase, banning of the DIBS and the Government’s aspiration to supply more ‘ownership housing schemes’ at affordable pricing, it is hoped that speculative demand for properties will stabilise to a more realistic level. I have heard that many businessmen do not do business anymore but indulge in property speculation as a livelihood and for income.

It is akin to the stock market dealings that were rampant during a ‘bull run’. Certain things have to be stopped before they become worse like the sub-prime crisis in the US.

If readers were to take a drive around completed projects, they will find signboards advertising units for sale upon the delivery of keys. If the purchaser is purchasing for his own occupation, why is there this need to put up these signboards or appoint estate agents to dispose of the units? It goes to show that some purchasers are merely speculators (not investors) from day one and the banks and financial institutions choose to “close one eye” despite knowing this.

Have the banks ever gone to the ground to check whether the units purchased and financed are actually “owner occupied”? If the property is “owner occupied”, the risk rating is lower and thus, he enjoys a lower interest rate. But if it is non-owner occupied, it should have higher interest rates. Borrowers of “owner occupied” properties are normally required to make a declaration to that effect to enjoy a lower interest rate.

But does the bank participate in this booking of credit risk?

If the property is non-owner occupied, the lending will fall under ‘real estate classification’ and not ‘housing’.

So, there may even be misreporting to Bank Negara and subsequent national statistics.

Source: StarProperty.my

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  1. Well Said
    November 10th, 2013 at 08:38 | #1

    This is a very good article, and very well said.
    But can some one help me in differentiating between “speculator” vs “investor”?

  2. Chocolate
    November 10th, 2013 at 09:37 | #2

    Speculator hold property in short term and investor hold property in long term.

  3. Bochap
    November 10th, 2013 at 10:47 | #3

    Definition of long term and short term? @Chocolate

  4. Chocolate
    November 10th, 2013 at 11:01 | #4

    2-3 years (flipper) and at least 5 years above (to me).

  5. YH
    November 10th, 2013 at 12:48 | #5

    Many super expensive projects still on going,those speculator who enjoyed dibs are they sure can sell their unit with higher price after completion?

  6. Eager
    November 10th, 2013 at 13:06 | #6

    “Have the banks ever gone to the ground to check whether the units
    purchased and financed are actually “owner occupied”? If the property is
    “owner occupied”, the risk rating is lower and thus, he enjoys a lower
    interest rate. But if it is non-owner occupied, it should have higher interest
    rates. Borrowers of “owner occupied” properties are normally required to
    make a declaration to that effect to enjoy a lower interest rate.”

    Please let us know which banks require owners to make a declaration to
    enjoy a lower interest rate.

  7. its true
    November 10th, 2013 at 15:28 | #7

    Bank just want to make profit, dont bother want the ownet going to do with property.
    If the owner cannot make payment, just blacklist the owner and declare bankrupcy.
    Internal bank office are involved in dirty job, Rasuah, my frens sister doing business, having problem to settle
    Her hutang with Along, but she able to obtain loan 100k from bank with help from middleman and banker, once lian approved,
    Of course from 100k loan, 10% she need to pay for banker and middleman.
    They help to create payslip with income 4k.
    One more case involve women age 60, she not working, able get payslip from one of the fren working in clothing shop, the boss help to create three month payslip, pay some many to the owner, she manage to get personnel loan 80k.
    Dont what to said about the bank, can easily approved the loan dont bother to do any further clarification.
    Do you think the same bank bother to check what the owner doing with the unit purchased.
    BNM need to take action on bank easily approve bank loan to those not afford to pay bank.

  8. its true
    November 10th, 2013 at 15:42 | #8

    Anyway i like all the article from this writer.
    Thanks for his article on :-)’Bogus house buyer publish on Aug.
    Continue write for thestar property column, its true that businessman stop doing business and involved in property as agent, speculator, conduct seminar in hotel, force ppls to join as club member, more then 15k,
    Need for those became property speculator and promise to make profit in three year time.
    BNM need to monitor this club activities, before things get worst.
    For sure like other scheme cepat kaya, more ppls will trapped with this scheme.

  9. tan
    November 10th, 2013 at 17:03 | #9

    Intel set to lay off 300 employees

    GEORGE TOWN: Intel Corp, the world’s biggest chipmaker, is expected to part ways with some 300 employees in Malaysia by year-end

    Read more: Intel set to lay off 300 employees http://www.btimes.com.my/Current_News/BTIMES/articles/20131108232853/Article/index_html#ixzz2kEPXTXV9

  10. max
    November 10th, 2013 at 20:39 | #10

    As announced yesterday, Intel Penang to retrench 300 employees.

  11. SiaoLang
    November 11th, 2013 at 22:54 | #11

    300 employees? no issue lah. Our state admin declared they can absorb them, maybe they need many engineers in their newly formed “speed bump” department to design state-of-the-art speed bumps to be implemented state wide!…:)

  12. Rich or Poor
    November 14th, 2013 at 10:12 | #12

    KL folk cry foul over proposed to increase accessment fees, this will really hit out those ppls own mamy
    property, just image if same thing proposed for Penang??????

  13. HiaoLang
    November 14th, 2013 at 10:46 | #13

    @Rich or Poor

    Well, if you own many properties, but with rental income, increasing assessment fees shouldn’t be an issue. Buy if you hold many vacant properties, then that’s an issue. However, I see this as a good move to discourage people from holding vacant properties (therefore reducing speculation in a way). I personally would suggest an additional vacant property tax for owners who hoard vacant properties….:) What do you think?

  14. tomyam
    November 20th, 2013 at 07:35 | #14


    If need to discouraging people to holding extra property, they can have other method like lowering the loan % to get 2nd and 3rd home.
    I saw my friend in KL told me their tax is raise from <1k to now few k. Imagine for those who already retire but still stay at home or those big family, their did not own many house but this few k per year is still a burden to them. This just add more $$ to gov pocket but will not benefit public. Once tax up, again.. many inflation coming ..

  15. YesYes
    November 30th, 2013 at 11:56 | #15

    @Well Said

    Speculator = gambles/hopes that property prices will rise and make a profit from the capital gains. That is why it’s called speculating.

    Investor = buys and hold property for the sole purpose of getting an income from the property (rent) and hedging against inflation (preserving the power of their money). The investor doesn’t care if property prices go up or down, the investor looks to get a steady stream of income. Any capital gains is a bonus.

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