Malaysian Budget 2014 and Impact to Property Investing in Malaysia
The Malaysian 2014 Budget announcement was made today 25th October 2013. There are several property market cooling measures in the new budget. Here we would like to highlight these cooling measures and the impact. All new measures are effective 1st Jan 2014 unless specifically mentioned.
1. Increase in Real Property Gain Tax (RPGT)
Generally there is an increase across the board. The biggest impact are to foreigners who now will be required to hold the property minimum of 5 years to avoid the 30% RPGT. After 5 years, the impact of 5% RPGT as it will only be a small amount and should not be a problem. For new launches, speculators who are looking to flip directly at completion will have to pay a 30% RPGT and this would reduce their profits as most projects would complete in 2-4 years and still within 30% RPGT timeframe.
Do take note that RPGT timeframe is calculated from the date the Sales & Purchase agreement is signed. We expect this to deter the hardcore speculators, though those with some holding power will probably see this as a minor irritant.
2. Threshold for foreigner property purchases increased to RM1million from RM500,000
The first thing to take note is that Medini in Iskandar Malaysia is probably not affected by this ruling as there are no price restrictions there in the first place. We are waiting to get full confirmation on this fact but it is likely to be the case. What does this mean? Medini will boom as foreign buying will now flock to this location. It will also concentrate foreign purchases in Medini and create a more vibrant market there.
Other beneficiaries of this measure will be gated guarded landed property price at RM1million at above. A buyer with a RM1million budget is more likely now to buy a gated guarded landed property versus a condominium due to the better value for money.
Buyers who are holding property at the RM500,000-750,000 price range and expecting to sell to foreigners will have a hard time now. This is especially for condominium units where at those price ranges, locals are more likely to buy landed. Here, the product that you are holding is key.
The impact to property prices is yet to be seen. I expect among the options developer will consider is to go up the value chain such as offering better quality finishing, furniture packages, rental schemes in order to justify the RM1million price tag. Otherwise the products will now be more tailored for the local market and we may see foreign buying move heavily into Medini instead.
If you are a foreigner looking to buy a property below RM1million, you still have a chance to do so before 1st January 2014.
3. Developer Interest Bearing Scheme (DIBS) is now banned
This measure was put in place to kill property speculators. But this measure also has a side effect to all first time house buyers as they now will have to service interest for the property they bought on top of the rents they are paying on the property they are living in today.
The removal of DIBS also means that developers do not need to price in this cost anymore. We may see new launch prices staying flat as a result and developers use this savings to offset the higher cost of construction. This will likely achieve the desired effect of stabilizing the prices, but potentially this could be for a short timeframe of the next 6-9 months only. If new launches in 2014 come in at attractive prices and good product offering, the price stabilization might only be temporary. Hardcore speculators again will be deterred by this measure though buyers with some holding power may use this opportunity to pick up good choice and well priced units in the next year.
If you have an existing loan with DIBS, it will not be affected as it is already ongoing. If you have a loan application with DIBS pending, please get it approved and signed before 1st Jan 2014 to lock in this benefit.
4. Introduction of 6% Goods and Services Tax (GST)
Introduction of GST is a necessary measure for the Malaysian government to resolve one of its biggest economic concerns, which is to eliminate the budget deficit. GST allows the government to increase the tax base (increase revenues) and is a more fair tax versus the existing Sales and Service Tax (SST) which will be abolished. However do take note that GST implementation date is targeted for 1st April 2015.
GST implementation might also mean that commercial property purchases are subject to GST, and companies will now have to plan for GST registration. More clarity on this will be provided in the coming months once the tax accountants sort out the new rulings.
The Malaysian government will also start reducing subsidies such as sugar (effective immediately) and a structured approach to subsidy reduction in other goods such as petrol in the years to come.
Personal income tax will also be reduced between 1-3% and corporate income tax reduced between 1-2%. This is in line with GST implementation which usually results in reduction in income tax.
All these initiatives are good in that the government is finally taking concrete steps to re-structure the tax base and ensure the government finances are in good shape and avoid fiscal problems that have hit other emerging economies recently like Indonesia and India. Ratings agencies/ analysts should see these initiatives as good news and should put Malaysia in favourable position moving forward.
Ryan & Melissa
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Want to understand more about Iskandar Malaysia? Not sure who to talk to or get good information from? This book aims to clarify and provide perspective on why Iskandar Malaysia has been so popular in the past 5 years as an investment destination and also to debunk popular myths and misconceptions on Iskandar Malaysia. Written by Ryan Khoo, a seasoned investor in Malaysia, he hopes this book will foster better understanding of the region and improve relationships between the 2 countries.
Available in major Popular, Kinokuniya and Times bookstores in Singapore and retails for SGD20.
Singapore Market Report for Q4 2013
And Why You Should Start Re-Balancing Your Singapore Portfolio
Confidence levels on the property market is negative right now and its a good time to share our quarterly report on the Singapore Property Market (Q4 2013).
The data is as per predicted and Singapore has clearly entered the “autumn” phase. Winter is coming and if you want to avoid the downswing, its time to rebalance your portfolio now. There may be good property investments out there but Singapore as an investment market is generally to be avoided now.
If you need help re-balancing your Singapore portfolio, the good news is that we have solutions for it and there is still a window of opportunity to do so now. That is where we come in.
Best regards and happy investing
Ryan & Melissa
Why D’Pristine Medini is our Number 1 Recommendation in Iskandar Today
With a plethora of investment choices in Iskandar today, it is important for investors to focus on the most prime locations that will emerge over the next 3-5 years (the typical exit timeframe for an investor). We at Alpha Marketing have narrowed down Medini as one of the key locations investors should watch out for due to the tax incentives, catalytic projects in the vicinity and modern designs, all of which will create jobs, economic activity and population growth in the future.
But even within Medini, there are several projects to choose from and D’Pristine Medini stands out due to its super-prime location (check out map above), reasonable pricing, mixed development on commercial title allowing dual usage, and generous investor friendly package. With these factors in place, we expect D’Pristine Medini to achieve a healthy 30-40% appreciation at completion and it is our number one choice for retail investors right now.
For more info, you can find out more at our sister site www.dpristine.com or you can drop us an email at email@example.com or give us a call at +65 81261626 for more details. Limited units are still available, and we advise to consider the project properly before they are all gone.
Otherwise do catch us at one of our future events on Medini and listen to our detailed presentation on Medini Iskandar to find out more.
Ryan & Melissa