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Budget 2010 Real Property Gains Tax (RPGT)

Note: this post was written purely based on my personal opinions.

The Malaysia government has recently announced Budget 2010. To be honest, there are not much good news for this time’s budget. But whether there’s bad news or not, it is really up to you to decide.

Anyway, for this post, I will talk about one of the most talked about changes – the reintroduction of the Real Property Gains Tax or RPGT.

From BERNAMA:

The real property gains tax (RPGT) will be fixed at five percent on the gains from the disposal of real property effective 1 January 2010.

Reiterating this on Sunday, Second Finance Minister Datuk Husni Hanadzlah said that the rate imposed is irrespective of the holding period and the category of the owner.

However, exemptions to the individuals are given as follow;

* The level of exemption is increased from RM5,000 to RM10,000 or 10 per cent of the chargeable gains, which ever is the higher;

* Gifts betwen parent and child, husband and wife, grandparent and grandchild; and

* disposal of a residential property once in a lifetime.

To be honest, there are pros and cons here.

Pros:

• This will deter property investors from acquiring too much properties. Most often than not, the property price fluctuates because of flipping and holding activities. If a place is too crowded with property investors, the price will go up and down pretty fast. This is quite bad for people who are looking for a place to stay, and not investors. So by having this, it will limit the property investors’ activities, thus keeping the property price under control.
• Lesser property investors also mean the number of mortgage loans defaulters will decrease.
• More people would be able to purchase properties for their own stay since they don’t need to fight with so many property investors anymore.
• There could be a number of good bargains on the secondary property market from now until end of 2009. Existing property owners might want to offload their properties without incurring the 5% tax, and due to the competition, it could end up as a buyer market where the sellers are more willing to bargain.
• The fluctuation in prices for properties in prime areas will be minimized. This is because the demand will drop due to the big property gain often associated with properties in prime locations. Remember the more profit you gain, the more tax it’ll incur, and the more tax it incurs, the more property investors would avoid it.

Cons:

• Unfortunately, despite what the government wants, I believe the property price will still increase. The secondary market will have to include the 5% RPGT. As a result, a property which is selling for 500k now as compared to 300k when it was first bought, would cost additional 10k in 2010. As for primary market, the price will also go up because home buyers would turn to new properties instead of the expensive secondary market.
• Luxury property developers would take a hit. A 1,000,000 condo in Mont Kiara (bought 3 years ago at 700k) would cost an additional 15k in RPGT if the owner decided to offload it in 2010. That is quite a huge amount. That’s why I believe the luxury property projects would take a hit due to this RPGT especially when most of the buyers are property investors who would want to maximize profit.
• Some property investors are foreign investors who are investing their money in our country. By implementing this, the foreign investors might stop to pour in more money into our property sector.
• The banks are likely to increase their interest rate as the economy recovers, and this will be worse for those home buyers who have to pay for the extra 5% and then pay the higher interest rate.

Many people say that the reintroduction of the RPGT is not really helpful but I believe there are pros and cons to everything. The main question here is whether the cons far outweigh the pros and whether this RPGT is really able to achieve what the government is trying to do – to make homes more affordable to the middle and lower income groups.

Feel free to post up your opinions on this. Again, this is based purely on my opinions and views.

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