SOME analysts have already downgraded the property sector amid speculations that Budget 2013 will implement tough measures on the industry.

Soaring property prices are on most people’s minds but any steps taken to counter this may not be positively viewed by industry players. Yet, public outcry has been loud and clear – affordable living tops the rakyat’s budget wish list .

As a listening Government, I expect that they will include strategies to address this issue in Budget 2013. At the same time, the Government will need to make sure that the Malaysian property market remains robust and attractive, to both local and foreign investors.

In managing this, the Government should take a two-pronged approach – giving incentives and support to increase affordability, and curbing spiralling property prices.

Increasing affordability

Expectations are high as to how the Government will deal with this issue. It launched the PR1MA project to provide affordable housing to first-time homebuyers, but critics say that the loan approval process has been slow and there has been a large number of rejections due to stringent lending requirements. The eligibility criteria should be reviewed – with lower interest rates and the loan repayment period extended.

It is still early in the game to evaluate the success of PR1MA as its first property launch happened only in November last year. But I firmly believe that it is a step in the right direction and the Government should continue pressing on – allocating more land and accelerating project launches, particularly in the Klang Valley, Penang island and Johor Baru, which are the areas worst hit by high property prices. The Government also recently announced its plan to build 50,000 units in Kuala Lumpur alone in 2013, which is another piece of good news.

But the current requirement for private developers to build low-cost homes may not yield its full benefits as this is obviously not their focus. Instead, each state could set up a trust fund or foundation, which developers can choose to contribute to. The fund would then coordinate the construction, allocation and maintenance of affordable housing.

For other first-time homebuyers, the Government could introduce a tax relief on interest expenses incurred to buy residential properties. Such a move wouldn’t be new as it was introduced during the 2009 economic stimulus package to address the dampening property market then.

Also, while full stamp duty exemption has been given to property bought under the PR1MA scheme, property in the medium price range should not be forgotten. The current 50% stamp duty exemption for properties valued RM350,000 and below will expire this year.

I hope the Government will extend the exemption period, and increase it to a 100% exemption moving forward. In addition, looking at the prevailing market prices, the threshold should be increased to at least RM500,000.

Managing property prices

There is a strong sentiment that property prices are soaring beyond what’s affordable. But if we compare ourselves to neighbouring countries, our residential property prices aren’t all that bad. Except, perhaps, in some urban areas like the Klang Valley and Penang island.

To curb property prices, Bank Negara has tightened measures – a 30% loan-to-value ratio for third mortgages onwards is required, and loan affordability is now based on net income instead of gross income. These measures have yielded some positive results, but may not be enough.

Stamp duty on property acquisition can be used as a tool. Singapore, for example, recently introduced additional buyer stamp duty (ABSD) of up to 10% for foreign buyers and 3% for subsequent property purchases by Singapore citizens and permanent residents. The ABSD is imposed on top of the normal stamp duty rates. Our Government could consider adopting this.

Real property gains tax (RPGT) is also a good way of managing property prices. There’s been talk that the Government may reintroduce RPGT in its original form i.e. with a tax band of 30% to 5% for corporates, and 30% to 0% for Malaysian residents. (see figure 1) The current RPGT regime was brought back in 2010, following the revocation of full RPGT exemption since April 1, 2007.

The existing RPGT rate of 10% is rather mild in addressing the speculative nature of the property industry so a rate of 30% would have greater impact. The existing three-tier low RPGT rates are not effective as properties generally take two to three years to complete development. By that time, the rate would have dropped to 5%.

While these are all good measures to counter property prices, we need to be careful that any move to increase affordability could also dampen market sentiment. This could have adverse effects on the property market’s growth.

In fact, the property market has already started to show signs of cooling with home loan approval rate dipping in the first half of 2012. Despite the recent Asia Property Market Sentiment Report 2012, which revealed that Malaysians continue to be upbeat about the property market, we need to be mindful of the current economic calamity facing the world which may soon hit our shores. The softening market demand, both locally and abroad, coupled with counter measures could severely impact the property industry.

With elections looming round the corner, any aggressive counter measures are unlikely. Nonetheless, the Government should seriously consider RPGT as a long term strategy for managing the speculative nature of the industry.

It’s fairly certain that the property sector will be one of the priority areas for Budget 2013. The rakyat will invariably expect some goodies to be handed to them. And property players will have to keep their fingers crossed that any measures taken should not significantly dampen market sentiments and property demand.

Source: The Star

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GEORGE TOWN: A group of shop owners of Prangin Mall are crying foul over the developer’s failure to issue them with strata titles over the past 12 years.

Prangin Mall Joint Body Management chairperson Terri Yeoh Mooi Sim said the shop owners had suffered great losses as the market value for the 611 shoplots at the mall were all devalued.

“The developer Gerak Unggul Sdn Bhd did not apply for the strata titles from the land office under the Strata Titles Act 1985.”

She added that under the Act, the developer has to apply for the strata titles within six months of the certificate of fitness being issued.

“Without strata titles, we are facing a lot of problems. For example, an owner who bought a unit for RM200,000 in 2000, can only sell the unit for RM80,000 according to market prices three months ago.”

Yeoh was speaking to reporters at a press conference held at the mall in Jalan Lim Chwee Leong here yesterday.

Komtar assemblyman Ng Wei Aik, who was also present, said that the problem started when Prangin Mall land was sold to a company in 1994.

“But the Lebuh Lintang stretch leading to Jalan Lim Chwee Leong in between the mall was not sold so this means the road still belongs to the state government.

“The mall technically ‘belongs’ to two owners, and this is the reason why the strata titles cannot be issued to the shop owners,” he said.

Prangin Mall opened for business in 2001.

Source: The Star

PETALING JAYA: Exorbitantly high selling prices, stringent banking rules and a generally cautious sentiment that has been having an impact on the Malaysian property market this year could continue into 2013.

Malaysian Institute of Estate Agents (MIEA) deputy president Siva Shanker said property transactions in the first half of 2012 had slowed down, adding that this trend showed no signs of abating any time soon.

“Asking prices are too high. The buying frenzy is over. In 2010 and 2011, some residential sectors saw an increase of about 30%, which is way too high and moving towards a bubble. This trend has somewhat plateaued.

“What’s happening now is there is no meeting of minds between the asking and the accepting price. The gap is just too wide and there are fewer transactions taking place,” he told StarBiz.

Siva also said transactions had been affected because there was a disparity between the asking price of the property and the actual price listed on the valuation report.

“For example, the asking price of a property is RM1mil but the valuation amount might only be RM800,000. There’s a shortfall of RM200,000 and banks lend you money based on either the selling price or the valuation price whichever is the lower.

“So if the valuation price is RM800,000 and you’re eligible for a 70% loan based on that amount, you get a sum of around RM560,000. This means the buyer is going to have to top up RM460,000 on his own!

“Funding becomes a problem and the sale gets aborted!”

Siva said a number of sales this year had been aborted because of this issue.

“We don’t think 2013 is going to be much different, but we don’t see the Malaysian property market crashing and burning like during the US subprime crisis.

“What we see is things slowing down, prices will stagnate a bit and not move up so much. In some cases, it won’t move up at all.”

Siva said Bank Negara’s responsible lending guidelines that were implemented this year also had an impact on the Malaysian property market.

Effective Jan 1, banks have been using net income instead of gross income to calculate the debt service ratio for loans. This is said to be a pre-emptive move by the central bank to contain the rise in consumer debt.

“Prudent lending guidelines are important in maintaining a stable economy, but I think some flexibility must be allowed for individual purchasers that have the capacity to repay their loan, but for whatever reasons, are unable to show that they can,” said Siva.

He also noted that there were many individuals having side incomes which were not declared.

“You could be a teacher earning a RM3,000 salary. However, you could be providing tuition classes on the side to earn extra income but can only show to the bank the salary that you earn.

“Prudent lending should involve assessing the customer, to some extent, on an individual basis. If he’s an old customer with a good track record, you should have the discretion to offer him a little bit more. That discretion is now not available because of the lending guidelines.”

Siva also said the Malaysian public was cautious in light of the global economic uncertainties.

“The general slowdown has affected everyone. The US is not recovering as well as it should and Europe is in turmoil. However, in a sense we’re not so exposed as Singapore, because we are more inward looking. Singapore is a bit more international, so their exposure is higher.”

“It’s also sentiment. People are adopting a wait and see approach, and this creates a slowdown. If enough people do this, it creates a market!”

Source: The Star

THE coming Budget 2013 is expected to address two interesting issues – how to curb the speculative property market and how to address the issue of affordable housing.

In a recent report, Kenanga Research says market talk is that the Government will consider hikes in real property gains tax (RPGT) and increase stamp duty for house purchases.

The research unit opines that Budget 2013 measures will likely address the affordable housing segment such as the 1Malaysia People’s Housing (PR1MA) and My First Home schemes.

Kenanga in its research report says: “We foresee the Government hiking RPGT to indicate its willingness to reign in property prices.”

However, the research unit says across-the-board hike in buyers stamp duty is unlikely as it will hurt the first-time home owners’ market, unless the stamp duty hikes are tiered according to house prices and first home-ownership status.

Low cost housing is capped at RM42,000, while affordable housing cost between RM85,000 and RM300,000.

Last month, Housing and Local Government Minister Datuk Seri Chor Chee Heung said the Government would not hesitate to tighten fiscal policies to curb property speculation, and ensure reasonable and affordable property prices.

He noted that most Malaysians felt property prices were “far too high” and wanted the Government to look into this.

During the 15th National Housing and Property Summit, Chor said the Government was expected to allocate more affordable housing projects such as the People’s Housing Project (PPR) and PR1MA in the coming budget.

He added that the maximum household income of RM2,500 eligibility for PPR houses might be too low nowadays.

“Perhaps the maximum eligible household income for PPR houses can be increased to RM3,000,” Chor said.

Rising prices and affordability are issues being grappled by the Government and the private sector.

It should be noted that the Real Estate and Housing Developers’ Association (Rehda) has proposed measures for Budget 2013 that are aimed at reducing business costs for property developers in order for property prices to be managed at more affordable levels eventually.

Rehda has proposed that private utility companies should not be imposing capital contribution charges on property developers, which are presently required to lay infrastructure in their projects.

Rehda points out that the duty of providing infrastructure such as sewage treatment plants and surrendering land for power substations add to development costs.

Based on its research, compliance costs payable to various authorities can be as high as 30% of the selling price of the housing units.

“All these contributions imposed on developers would eventually be passed on to buyers, thus increasing the prices of properties,” REHDA says.

Rehda has also proposed that developers be relieved from the role of providing low-cost housing, as well as an automatic release mechanism for unsold bumiputra units to the open market (50% of unsold bumiputra units to be released after six months from the sales launching date, 25% to be released after 12 months and the balance 25% to be released after 18 months).

Rehda has also asked for a reduction of stamp duty rates for property transfers, which the association says would help to lower the costs of home ownership, encourage house purchases and help sustain home affordability levels.

It was noted that the majority of annual residential property transactions were below RM300,000 (more than 78% in 2012, and more than 75% in 2011).

However, National House Buyers Association (HBA) secretary-general Chang Kim Loong tells StarBizWeek that there should be hikes in the RPGT and stamp duty rates, in order to curb excessive speculation in the property market.

HBA has proposed that RPGT be increased to 30% for the first two properties sold within two years after acquistion or completion (whichever is later).

“Subsequently, RPGT rates should drop to between 10% and 20% for the first two properties sold after the first two years, but within the first five years after acquistion or completion (whichever is later). There should be no RPGT after five years.”

HBA has also proposed that for the third and subsequent properties sold within 10 years, RPGT should be at 30%.

“After 10 years, there should be no RPGT.”

HBA also wants the current stamp duty rates to be maintained for the first two properties.

However, HBA has proposed that stamp duty rates to be increased to 5% of the purchase price for the third property, 7.5% for the fourth unit, and 10% for the fifth and subsequent properties.

To further curb property speculation, HBA also proposed tighter lending guidelines by imposing a maximum loan-to-value (LTV) ratio of 60% for the fourth housing loan, and a maximum LTV ratio of 50% for the fifth and subsequent house financing facilities.

Chang says HBA’s proposals will not punish genuine house buyers, or those who buy for long-term investments, or to fund their children’s education.

He also says HBA sent numerous proposals to the Government to increase the supply of affordable housing.

“We have called for the Government through PR1MA, to ensure that the maximum allocation for affordable housing is set aside when land is unlocked for property development.”

Chang also voiced his concerns about vested interests lobbying to build commercial properties such as shopping complexes and high-end properties when the government unlocks its land bank.

He has also asked for more incentives for property developers who build affordable properties such as lower tax rates.

“Incentives for lower income earners to buy their first property can include preferential interest rates,” he says.

Chang also opines that there is currently a huge mismatch between what the average household income can afford compared with what is available in the market.

“A homeless generation will emerge to create various social problems,” he says.

Based on HBA’s estimates, he says families with a monthly income of less than RM3,000 a month can only afford a house which costs less than RM150,000 while those with a monthly income of up to RM6,000 can only afford a house which costs less than RM300,000.

“Based on government statistics, these numbers makes up almost 80% of our working population.”

The concerns surrounding affordable housing was brought up by Deputy Finance Minister Datuk Donald Lim Siang Chai who recently said that affordable housing would be a Budget 2013 highlight.

Lim says the Government had proposed to increase the limit of house prices under the My First Home scheme from RM220,000 to RM400,000 to fulfill the needs of those earning below RM3,000.

Property consultancy CB Richard Ellis (M) Sdn Bhd executive director Paul Khong says that increasing the limit of house prices under the My First Home scheme to RM400,000 for purchases within Klang Valley and Penang may be more relevant in today’s scenario.

“House prices have moved up substantially over the last three years. The amount of up to RM220,000 may not be too meaningful especially for residential properties within the Klang Valley areas,” says Khong.

Source: The Star