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.

Therefore, I personally feel that everyone of us should start saving money as much as possible. Here are some simple ways that I can think of.

• Car pool - fuel price is not high now, but the toll rate is. It does save up a lot of traveling cost if you car pool with other people in your area (home/office).
• Eat at home – eating outside is way more expensive than eating at home. It’s less healthier too.
• Spend on needs, not wants – there’s no way you can avoid buying stuff like food and necessities. But for those WANTs, you can always avoid them. Furthermore, most of these WANTs are not cheap.
• Find reasons NOT to buy things – if you want to buy something, try to find few reasons why you shouldn’t buy it. Is it too expensive now? Maybe you can’t afford it? Maybe you can just borrow from one of your friends who has it?
• Find free alternatives - there are a lot of free alternatives around. For example, one can easily use the internet to browse for any news, rather than spending RM 1.20 a day on newspapers.
• Look for sales/promotions – there will be a lot this year, and most of them will be very crowded. It’s okay if you have the time and it’s even better if you can find few people to car pool with you to go there. I’m pretty sure you can get some items for a very cheap price.
• Sell your old stuff – you can do it in lelong.com, ebay.com, or those second hand shop. Things like old computer, old books, used newspapers, etc might not fetch you a lot of money, but it’s better than pilling them up in your home.
• Do part-time or side business – you can opt for freelance, doing part-time, or start your own side business. Online business is pretty popular these days and not much cost to set up.
• Find extra income – introduce your friends into your company and earn the bounty fees, or helps your company to sell a product and earn the commission. These things are always right in front of you. Maybe it’s time for you to fully utilize these opportunities?

Those are some of the things that I can think of. What about you? Are you doing your part to save as much money as possible? What are the things that you are doing to achieve that?

Anyway, a few friends of mine started asking people (I’m one of them) whether is it okay to buy property now? Most of them want to take advantage of the tax deduction incentive and, well, most of them are starting their own family soon. Here are some of the questions that they’ve asked.

Should I buy a property now, since there’s such a good incentive?

This is a very good opportunity to have your very own house/condo. But the main question here is, can you support the house during this economy crisis? How stable is your job or your monthly income? If you feel that you might lose your job in a few months time, then it could be risky to commit yourselves to another long-term loan.

I still want a property but I might not be able to pay the monthly interest, can I still get a property?

Yes. There are few property developers who managed to come out with certain promotions. I know that SPSETIA has this 5-95 plan which means you only need to pay for 5% down payment and the remaining 95% after the property has been completed (which is normally 2 years from now). And if you can’t find such plans, then don’t commit. It’s too risky. Also, beware of hidden charges since some of such promotions do have hidden costs.

Will the property price drop further?

I don’t think so. In my opinion, property developers will not be stupid to launch a housing project which is cheaper than their previous projects. This will decrease the market value of their properties and also make the previous buyers angry. They will either delay the launching date, or come out with more freebies and promotions. The property price drop might occur in the secondary market though since some buyers might not be able to pay off their housing loans.

Will the interest rate drop further?

It’s possible, seeing how our economy is turning from bad to worse. But I don’t see the impact as very big since most of the housing loans nowadays have flexi interest rates.

Then what should I do? To buy or not to buy?

I believe the best course of action now is to see whether your job is stable and how desperate you are in getting a property. If you’re not desperate, then wait for a few more months. I’m sure things will be clearer then, and there might also be more promotions.

You can also check this blog post from ChampDog – Tax Deduction Incentive for Property – Should I go for it?

Remember that during this difficult period, the best investment is property but provided you can support it.