Raise Real Property Gains Tax to curb speculation

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Taxes on the disposal of property within five years must be raised if we are going to have any hope of curbing speculation.

Since 1976, Malaysia had a RPGT rate of 30 per cent for the disposal of property within two years. But in 2003 things changed and it was reduced to zero. When the government realised its mistake, it gradually raised the tax rate to 15 per cent for disposals within two years – but is that enough to curb speculation?

Before the RPGT in 1976, we had a Land Speculation Tax of 50 per cent for disposal within two years. Did we have property speculation back then? Certainly not on the scale we are seeing now! So that tax must have played a part in putting a lid on speculation.

When did property speculation begin with earnest? When RPGT was lifted in 2003? Is that when the seeds of speculation began to sprout?

Instead of GST, why not raise RPGT? It would be a lot easier to implement. And it won’t burden the lower-income group.

Some other countries followed the pattern of reducing the capital gains tax rates over the years. For instance, Australia reduced its top rate from 47 per cent in 2000 to 22.5 per cent in 2012. No wonder property prices doubled in Australia in the space of four years, creating what is speculated to be the largest property bubble in the world.

In contrast, the average top Capital Gains Tax rate in EU countries was raised from 13.7 per cent in 2000 to 23.3 per cent. For example, the UK raised its top rate from 24 per cent to 28 per cent over the same period.

And oh, India and Greece, both facing economic crises, had a top capital gains tax rate of zero per cent in 2012. (India’s was 10 per cent in 2000.) That says something, doesn’t it?


Goh Ban Lee
wrote this column in theSun.


Make property speculation costly

Posted on 26 August 2013 – 08:35pm

Goh Ban Lee

PROPERTY prices have increased rapidly in the last few years. More specifically, properties catering to the middle class have increased by 60-80% in Penang Island and the Klang Valley.

As a result, not only the lower income groups have problems in finding shelter, those with university degrees are also finding it very difficult to buy houses.

While there is no doubt that the increasing costs of materials and labour have made housing development more expensive in the past few years, these do not justify the huge leap in property prices. The culprits are the speculators. Property owners, especially those with multiple houses, just ride along.

While housing developers and multiple-property owners are satisfied with the property market lately, those who speculate in properties, especially members of investors’ clubs and have done nothing positive in building houses, are laughing all the way to the bank.

There is no shortage of houses or living quarters. There has been no sudden increase in the population. In fact, even to casual observers, there are many housing units that are not occupied. In the 2010 Housing and Population Census, several states, including Penang, had more than 20% vacant housing units!

The federal government has been aware of the rapid rise in property prices. It has set up statutory bodies to build houses not only for the poor but also the middle class. An example is Perumahan Rakyat 1 Malaysia (PR1MA) Berhad which is charged to build affordable houses.

Apart from requiring private developers to build low-cost and low medium-cost houses, the federal government has also provided assistance to state governments and local authorities to build Projek Perumahan Rakyat Termiskin (PPRT). These living quarters are rented to the very poor at minimal cost.

The federal government has also reintroduced the Real Property Gains Tax in the 2010 Budget. It has also increased the rate of taxation in the 2013 Budget.

Today, those who dispose houses within two years of purchase are subjected to a 15% tax on the profits and those who dispose their properties within three to five years are subject to 10% tax.

So far, the efforts to curb the rapid increase in property prices have not been successful. Prime Minister Datuk Seri Najib Razak recently organised a workshop to seek ideas and proposals to ensure that the poor and young middle-income families are adequately housed.

According to Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan, the proposals would likely be incorporated in the 2014 budget speech.

Although it is heartening that the government is searching for new ways to ease the building of new houses, the problem is not the shortage of houses, but speculative buying.

The introduction of “Developers’ Interest Bearing Scheme” (DIBS) only makes the situation worse. As pointed out in this column on July 2, it has facilitated speculators to make huge financial gains with comparatively low costs. A profit of 200% within three years is common.

DIBS should be banned if the government is serious in reducing speculation in property.

Furthermore, according to Chang Kim Loong, the secretary-general of the House Buyers Association (HBA), the tax rates are inadequate. He practically calls for the doubling of current tax rates for those who sell their properties within two years of purchase.

He also advocates that those who sell their third or more properties within 10 years of purchase should be taxed 30% of the profits.

Although Chang’s proposals are double that imposed by the RPGT, they are not as drastic as the taxes imposed on house speculators when these were first imposed in 1974.

The Land Speculation Tax 1974 imposed a 50% tax on the profits on the sale of a property within the first two years. This was later changed to 40%. This law was replaced by RPGT in 1976.

Hopefully, the federal government will see it fit to endorse the proposals of Chang and the HBA in imposing higher taxes.

Those who think that HBA’s proposals are too extreme should read Progress and Poverty by Henry George (1839-1897), a prominent political economist. His advocacy of single tax on land states that all unearned income from land ownership should be taxed 100%.

Datuk Dr Goh Ban Lee is interested in urban governance, housing and urban planning. Comments: [email protected]

Ban Lee is spot on. What do you think?

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susan

Yes, strongly agree that DIBS to be banned.

Hamtaro

Developers turn to higher end developments not only for better profits, but because they cannot survive in the affordable housing segment.

http://www.kinibiz.com/story/corporate/47466/%e2%80%98we-can%e2%80%99t-afford-to-build-affordable-housing%e2%80%99.html

tunglang

It’s like suddenly McDonalds or KFC announce they cannot continue to serve the profitable big markets of fast-food but have to ‘morph’ into KongKee KimmyGarish or Soulish Korean to capture a small but super-richie segment.
Thinking Malaysian housewives & husbands are fools!!!

McMinion

Here’s wishing Anil and all readers a Happy Merdeka Day.

I am not flying Jalur Gemilang in protest of the screening of Tanda Putera where Suhaimi Baba used her ‘creative licence’ to fabricate lies (the scene of Chinese peeing at menteri besar house). Suhaimi Baba should watch the PETRONAS Merdeka TV ad to understand the meaning of muhibbah.

One does not have to fly or wave flag to be patriotic, that is only applying to those who do not pay tax but pretend to be loyal to get goodies.

SamG

LGE & Penang Govt logo for 2008-2013 was CAT. 2013-2107 as MUD, Management Under Developers. The State has no political will to come down hard on speculators and Developers. All MPPP and Land Office under state govt, could put up a High transfer/documentation fees for properties transferred within the 1st 1-5 years.
What so difficult about it? maybe LGE wants Penang exclusively for foreigners and drive the true Islanders over to Kedah or mainland

Tigerz67

I think these measures are quite good.
I also have a feeling, the prices are already too high even for Malaysians working overseas and will correct itself. There is an oversupply of high rise units – next year will be interesting.

Penang investors are for the most part depending on appreciation to earn a profit. You can see the corresponding rent to their sale price (for high rise units) is not good at all. For example, you can rent a RM650K unit for RM1.5 – 2K (fully furnished).

Suria
Yang

It means that those who buy LMC and MC property will not be willing to sell of their property within 5 years because of the RGPT. Couple with the current shortage of LMC and MC homes, it will means that the shortage will be further aggravated. This shortage will make the developer go for higher price apartment. With RGPT controlling the speculators and market, the developer will have a field day building and increasing the price of properties themselves.

Kevin

Those who buy LMC and MC/affordable housing should not be allowed to sell their property within 5 years. In fact I would up it to 10 years. Public funds are being used to give you a roof over your head. It is meant to be lived in and not to be sold to make a profit. In Sg HDB flats cannot be sold for a long duration. If the owner needs to sell it for money, the govt will buy it back for the same price they sold it for, making it not profitable to sell LMC/MC units.

Yang

Problem is in Penang the LMC are not real LMC but actually medium cost (MC) disguised as LMC and the result the developer did not build any real LMC

Yang

Stop selling to foreigners coupled with some RGPT and forced the developer to build medium cost houses, the the market will be controlled. With no foreigners buying up such high end condo and houses, the developer will be forced to built lower end houses. With more lower end houses there will be more supply and it will bring the price to a stable level. But what to do. It seem the govt PR and BN are too afraid of the developers. List of new projects that are beyond the cost of the average wage earner. The Turf, Batu Gantong 1300… Read more »

Smurf Smurf

RE : How many Penangite can really afford such houses.

The ghosts of the Penang War Museum (8th most haunted places in Asia per National geographic series airing now) may seek refuge at empty vacant condos (to expensive for living beings).

$Guru

Many Property Agents in Penang are on “exit” plan hint : already hit price ceiling for speculated condos. On surface of course they say everything is rosy. Some, however, still in greedy mood, and besides ily advise genuine buyers, they are also in the process of sinking. At the moment, oversupply of speculated condos in penang hence many vacant units for rental. Cheaper to rent now at good rate while waiting for the bubbles to burst. The sign is there. So people like Yang better be smart to dispose speculated units fast. 916 America new economic fiscal policies may spin… Read more »

Yang

Increasing RGPT will make the situation worse and make the developers more happy. Price increase of goods including houses are based on supply and demand. When there are more supply price will come down and when there are less supply price will go up.. Its as simple as that. REHDA or the housing and developer association are calling for increase in RGPT because it will benefit them. Currently the housing situation is acute only in the low, low medium and medium range with prices ranging from 72k – 400k and the area from 650 sq ft to 850 sq ft.… Read more »

Cannot afford to buy house

Without RPGT, developers, banks and speculators made money.

With RPGT, BN government joined the party to make money.

With or without RPGT, poor rakyat are screwed when buying a house, if they could afford it in the first place.

G Dorai

Truly bad news to speculators with impending RPGT tax besides the shaky stock markets in the region and diminishing in value of ringgit and return of the haze !

najib manaukau

The actions of the ruling regime is similar to that of a farmer who tries to close the gates after the thieves have escaped. Just like what the immigration department is trying to do now, to arrest the millions of illegal immigrants. to begin with how can such big number of illegals were let into the country ? If these were not done with help and approval from someone with authority , it would appear Malaysia do not have an immigration department to enforce the border of Malaysia. We are not talking of hundreds or thousands or even ten of… Read more »

Kevin

Taxing 100% is extreme but 50% is still too low a rate. 80-90% for a time of 5 years is a fair rate. If I buy a new scheme now for say RM 800k on the DIBS I only have to fork out 1-10% depending on the scheme. I don’t have to pay a single sen more than that until it is complete. In two to three years when the development is complete and I have to start servicing my loan, I sell it off for RM 1 million. I just made a profit of 200k in two to three… Read more »

$Guru

http://hornbillunleashed.wordpress.com/2013/08/30/49669/ According to the Reuters, as the countdown to the end of the US quantitative easing has begun, heavily indebted Malaysia which relies on primary products might become the next target by speculators. In addition, if the withdrawal of hot money is sped up, economists do not rule out the possibility that the ringgit’s value might depreciate to RM3.70 against the dollar, repeating the history of the 2009 US subprime mortgage crisis. The substantial reduction of current account surplus might lead to a deficit and this would further weaken the ringgit. The ringgit has greatly depreciated and if the situation… Read more »

Don Anamalai

Those borrowing money to buy 2nd or 3rd property for speculation better have exit strategy.
Those with ready cash should be ready to step in for bargain when the market crash and the property bubble burst. Think about it if you have got nothing to celebrate today.

Two contrasting fortunes await, just make sure you are not on the wrong side of the deal.

tunglang

What I heard (hearsay) is some developers give outsourced housing agents good margins of profit ‘bundled’ into publicised market price so as to increase sales at super-fast rate. The exhilarated agents will close sales with discount incentives to potential home buyers which reduce his already more than good margins but still will not feeling any pain. The industry logic of practising such exhilarated margins is greed beyond the realistic home pricing, which as claimed by developers after factoring inflations. The real losers are the home buyers & those who cannot afford to buy but be squeezed out of owning any… Read more »