By Datuk Chang Kim Loong
THE government announced three specific measures to reactivate the property industry in the Penjana economic recovery plan in housing. While the thought to consider the property market as a sector that will help in improving the economy is laudable, the measures appear to be not well thought out.
Going ‘overboard’ to peddle unsold high-end properties with stamp duties waivers
The Home Ownership Campaign (HOC) is presumably to enable house buyers to own a house or residential unit. The incentive given by the government under the Penjana economic recovery plan is a waiver in the stamp duty for residential units prized between RM300,000 to RM2.5 mil but capped at RM1 mil.
It is still very difficult to understand why taxpayers’ money is being “sacrificed” to facilitate the niche market buyers and for the benefit of the housing developers. And that is exactly what is being done here. How else do you explain the fact that the government is waiving stamp duties for the transaction? Less collection of such fees means government expenditure is being paid from other tax sources.
Why should the rest of the country subsidise these developers’ marketing of their product? They made a bad business decision and the rest of us have to subsidise their loss? Why don’t these developers just give a “higher” percentage of discount on these properties? It’s elementary economic that when a product can’t sell, you sell it cheaper in a soft market, especially so in these Covid-19 times. There is no difference between a property of RM1 mil with the stamp duties (tax) of RM24,000 waived by the government and a developer selling the property at RM976,000 and the purchaser paying the RM24,000 stamp fee to the government. The adage “privatising profits and socialising losses” is most apt to describe the situation.
Pricing is the core of the problem
This HOC move is obviously to assist housing developers to “dispose of” their unsold stock that have been statistically categorised as “unsold overhang” properties. The real reason why most developers were and are not able to sell their houses is the pricing. It is not an unknown fact that even without HOC, developers are known to have given discounts and rebates, sometimes as much as 25%. Advertisements of 20% to 30% have been sighted and acknowledged by market players.
If with all these rebates that were given, developers find it difficult to sell their houses, it comes as a surprise that the government has come out partnering in the HOC again and at a mere 10% discount. Will this move help or will it work? It is really not difficult to understand why developers pitch such steep prices and only to give discounts, rebates and other freebies. If they cannot sell it in normal times, it is difficult to understand how they can sell under the HOC, unless the new 10% that the government has mentioned is after the “various” discounts that they would normally give.
Transparency in price discovery is lacking. The financial institutions seem to be aware of the discounts and rebates, but how these have been translated into loans is not known. The government ought to let the market play its role with the banking sector sticking to the real prices. Greater accountability must be enforced on developers to account for selling prices, discounts and rebates.
The act of increasing the price and then offering a rebate appears to help the buyers but this actually does more harm than good in the long run. These rebate, discounts and “cashback” actually lead to higher cost for the buyers.
RPGT zero rated
The second measure is to reduce the Real Property Gains Tax (RPGT) to zero rates and applicable between the period of June 1, 2020 to Dec 31, 2021. And individuals are allowed to enjoy this RPGT for three properties.
If this measure is to allow individuals to realise their gains and increase consumer spending, then it is not well thought out. RPGT is a move towards containing inflation and speculation. If prices shoot through the roof, as they would, there will be calls for bringing back the 30% tax bracket. Such volatile changes in the tax system will not help the economy. What is needed is a sustainable RPGT. With the removal of RPGT, the property turnover rate maybe artificially be increased to enjoy the gains made, and it will help “hot money” to surface. Bank Negara has to be vigilant in monitoring the sources of the money moving into property.
Financing of up to 70% for the third home and beyond
The third measure is to relax the loan to value ratio for the third house and more. How this measure will help the property market is difficult to comprehend. Why the government has to introduce this measure is unclear, unless it is to encourage the already “well-to-do” to borrow more funds from the banks and create more risks to the banks. A sustainable lending policy based on prudent and responsible lending supported by genuine prove of ability to pay, with sufficient credit risk and property risk analysis, would help the industry better.
At this juncture, the government must take note that there are property “self-proclaimed experts” or “gurus” who are drumming up campaigns how they owned tens of properties and how they can teach people to secure several loans at the same time. These gurus (mushrooming in Facebook) are behaving like financial advisers without licensing, tempting those who are naive with hopes. The measures pronounced by the government only help people like them. If they have 19 properties, they can sell three, keep the gains and buy four or more properties with the gains. Should the government help these handful of people or should it have policies for the people?
The following are our suggestions:
- Housing developers should offer higher discounts to off-load their unsold overhang stocks instead of the government bailing them through waiver of taxpayers’ monies.
- The government must rescind the above proposal and implement a sustainable tax. The RPGT tax should be maintained with the repealing of perpetual tax of 5% beyond the fifth year.
- The 70% loan margin is the prerogative of the lenders, ie banks and financial institutions. There is no economic benefit generated by this measure except perhaps to make the rich buy more properties and the banks to shoulder the risks.
- An initial grant to first-time house buyers to enable them to buy the affordable houses that are being offered. This could attract a larger number of people to buy houses and as well as to resolve the housing shelter problem. First-time house buyers can also be assisted by waiving the stamp duty for the first house that they buy. This will further encourage the first-time buyers to buy a house for themselves.
- The government could perhaps be more specific in the reintroduction of HOC. Developers who are holding properties not sold but completed with CC or OC for more than three years can be supported by HOC.
- Whatever benefits or waiver should include secondary market sales too and not just developers’ products, ie the primary market.
- Owners could consider refinancing their property since the interest rate has been reduced by the banks to stimulate the domestic market.
Transparency in price discovery
We reiterate the need to have all loans whether from the primary or secondary market, supported by an independent detailed valuation report, as a check and balance mechanism. This will ensure that the bankers lend to houses on market value for the property and not on “fictitious prices” as unilaterally stated in the sale and purchase agreements.
There is a need for a proper market and feasibility study of new projects before they are even approved. The financial institutions should obtain a full market and feasibility study before they approve any project and their pricing. When valuations are made, the false information exacerbates price discovery which leads to an ever-spiralling valuation.
Property investment clubs or property gurus who are persuading potential buyers to buy from projects which they had previously booked and been assured of substantial commissions ought to be investigated. Shouldn’t they be outlawed? There are sufficient estate agents licensed and regulated by the government who can advise any potential buyers on the properties that they are buying. At least these estate agents are subject to a code of ethics and are answerable to the Board of Valuers, Appraisers, Estate Agents and Property Managers. The so-called investment clubs do not and cannot serve the interest of the buyers and there is no legal recourse, if the buyers are cheated.
What’s in it for affordable housing buyers in Penjana?
Housing Minister Zuraida Kamaruddin last year declared that the official definition of “affordable housing” must meet three criteria. Price should be between RM150,000 and RM300,000 (between rural and urban), built-up must be conducive for family living and must have minimum built-up area of 900 sq ft and have at least three bedrooms, and its location must be in areas that are accessible to public transportation links, public amenities, government schools, and hospitals.
There was no mention of the benefits for affordable housing in the Penjana economic plan vis-à-vis housing aspect – or perhaps, the government overlooked. – June 27, 2020
Datuk Chang Kim Loong is the honorary secretary-general of the National House Buyers Association, a non-governmental, not-for-profit organisation wholly manned by volunteers.