Steady growth in the sub-sale property market

The sub-sale property market in Malaysia is witnessing positive growth and the trend is expected to continue next year, says Malaysian Institute of Property and Facility Managers (MIPFM) president Adzman Shah Mohd Ariffin.

According to the National Property Information Centre’s (NAPIC) latest report, the first half of 2019 showed a significant increase.

The sub-sale property market transactions account for about 80% of all property transactions in Malaysia.

While primary market properties offer a great buy for some, the secondary market offers an exciting opportunity for many, the report says.

It adds that there were 99,922 transactions totalling RM34.65 bil recorded in that period which reflects an increase of 6.1% in volume and 9.5% in value from 1H18.

The sub-sale market refers to the market for second-hand homes, where all matters pertaining to buying and selling are between homeowners.

Steady growth

Didian Realtor Sdn Bhd director Chow Nam Kit says the sub-sale market is generally stable but is not doing as well as the primary market which has seen a strong improvement in numbers due to the government’s incentives for the six-month National Home Ownership Campaign 2019 (HOC).

“We hope that the government can extend the HOC campaign as it has proven to be very effective in stimulating the property market.

“Based on the latest report, total sales for the first HOC hit RM14.65 bil as at Sept 13, 2019, surpassing the Real Estate and Housing Developers’ Association’s (Rehda) initial target, a conservative RM3 bil,” Chow tells FocusM.

The Malaysian Institute of Estate Agents (MIEA) feels that the HOC should be extended to first-time homebuyers of secondary market residential properties.

It was earlier reported that the MIEA board of directors urged the government and stakeholders to weigh the importance of the secondary residential property market.

“It is important for all parties to recognise that the secondary market is the ‘bedrock’ of the property sector which sustains the real estate market and provides the thrust for its sustained growth,” MIEA points out.

It also notes that the incentives for buyers of properties registered under the HOC should not just be limited to properties offered by developers as there are significantly more choices of affordably-priced homes for first-time homebuyers in the secondary property market.

The HOC 2019 was from Jan 1, 2019 to June 30, 2019.

Chow Nam Kit

During the HOC period, Malaysian home buyers enjoyed stamp duty waivers for the purchase of residential units registered under the HOC.

For properties registered under this campaign, the stamp duties on instruments of transfer for properties priced up to RM1 mil and for loan agreements of up to RM2.5 mil were waived. Homebuyers also got a minimum 10% price discount from developers.

“We should allow for the exemption of stamp duty (on the instrument of transfer and loan agreement for sales and purchase) to cover the purchase of homes within the secondary market by first-time buyers.

“This will also support the government’s overall goal of encouraging homeownership,” MIEA contends.

It also urges Bank Negara Malaysia to set up a “Rent & Buy programme” as well as study and implement a fair, equitable and streamlined loan approval process for first-time buyers or set up a special revolving fund to aid buyers.

PPC International Sdn Bhd executive director Datuk Thiruselvam Arumugam says the sub-sale market for properties below RM500,000 is currently doing well compared to last year.

“However there is not much movement on the high-end properties in the sub-sale market,” he tells FocusM.

He says the release of the 1H2019 property market data shows that in the first quarter, the total residential overhang in the high-end segment was valued at about RM8.74 bil, which translates to about RM2 mil per unit.

The NAPIC report states that it is relevant to note that the government has now taken upon its shoulders to market both unsold completed units and unsold under-construction units which are priced at RM1 mil and above as high-end residential homes under the sub-sale market.

It adds the residential high-end segment priced at RM1 mil and above per unit is worth some RM100 bil in terms of unsold properties.

Rehda admits that the high-end market is a specific market that most locals cannot afford while homeownership among wealthy migrants remains relatively small.

Attracting interest

According to the PropertyGuru Consumer Sentiment Survey 1H2019, the ongoing oversupply of residential properties in Malaysia is making projects in the primary market lose their appeal.

The survey, based on 958 respondents, highlighted a year-on-year drop in exclusive interest in the primary market to 37% in the first half of this year from 53% in the first half of 2018.

However, there was a rise in overall interest in sub-sale properties to 62% from 47% last year.

The figure, includes purchasers interested in both secondary and primary market properties, comprised 48% of respondents in the first half of this year.

Based on a recent report, PropertyGuru Malaysia country manager Sheldon Fernandez has identified a growing disparity between new project launches and actual demand, in terms of pricing, location or other considerations.

“Just a year ago, new launches were the clear favourite, accounting for the majority of interest, with just 14% of home seekers willing to consider the secondary market.

Today, 48% of Malaysians are looking for both new and sub-sale properties, with 14% exclusively targeting properties in the secondary market,” he says.

He adds that this shift in preferences for subsale properties predates the HOC, with exclusive interest in the primary market among the survey respondents falling to 39% in the second half of 2018.

“It’s possible that location is the driving factor behind these changes, with purchasers prioritising older projects in central, more mature townships.

“Another possible factor is immediacy, as sub-sale properties are available for home seekers to move into right away,” says Fernandez.

While consumer preferences may have shifted from the primary to the secondary market, purchasing patterns remained steady, with established suburbs and satellite townships surrounding city centres continuing to account for much of the demand.

Fernandez mentions two areas of interest – current residence and intention to purchase.

In both respects, the Klang Valley and its associated neighbourhoods ranked at the top of the list for the survey, he says.

In terms of current residence, most respondents (52%) are located in the Klang Valley. Of these, 12% reside in Petaling Jaya, 10% each in Shah Alam and Subang Jaya, Kuala Lumpur city centre (8%), Cheras and Puchong (both 7%), Ampang (6%) and Damansara (5%).

Impact on RPGT

In Budget 2020, for the real property gains tax (RPGT) imposed on the disposal of properties after five years, the base year for asset acquisition was changed to Jan 1, 2013, for assets acquired before Jan 1, 2013 compared with the previous base year of Jan 1, 2000.

Adzman Shah Mohd Ariffin

“The change in the date for the basis of valuation for RPGT is a good move as a compromise.

“However, this tax imposed on the owners who have been holding their properties for a long period, 10 years or more, and wanting to upgrade to larger and higher-priced properties discourages sales due to the higher cost.

“For instance, the agency fees of 2% to 3% of RPGT and touching up/repairing the property to make it marketable now costs more,” MIPFM’s Adzman Shah says.

Nevertheless, Didian’s Chow says the RPGT has curbed speculation, which explains why property prices in the sub-sale market are stable.

“The majority of property buyers in today’s market in both the sub-sale and primary markets are buying for their own use.

“However the sub-sale owner will not hike the price further. This is unlikely to happen as it’s currently already very challenging to sell property on the sub-sale market,” Chow opines.

PPC International’s Thiruselvam says the introduction of RPGT has certainly curbed speculation and it has controlled the flippers – those who buy properties to sell them – who have been making quick bucks.

“It is a good thing to control unnecessary price increases. But I feel that the government should abolish the rate of disposal after Year Five for residential properties for individual owners.

“The change of the base year from 2010 to 2013 for the computation of RPGT is also a good thing. The movement in price from 2013 to now compared to 2010 is lower,” says Thiruselvam.

He sees no further hikes in the sub-sale market due to the RPGT as well as upgrading or renovation done by the house owners.

“They cannot be increasing the price as they like. It must be market-derived.

“Anyway, increasing the price will cause them to pay higher RPGT.

“Upgrading and renovation will fetch a higher price and also reduce the RPGT payable,” he says.

According to the Real Property Gains Tax Act 1976, RPGT is a form of capital gains tax levied by the Inland Revenue Board (LHDN). It is chargeable upon profit made from the sale of land or real property, where the resale price is higher than the purchase price.

Sub-sale market outlook

Chow says Didian is cautiously optimistic that the market will improve following the latest government measures in Budget 2020.

“Although we are hoping that the situation will improve, we have to bear in mind that the trade war between China and the US might impact the property market for next year. The growth is uncertain,” he says.

He notes that the property overhang is due to the mismatch between house supply and prospective buyers, particularly in the case of properties priced above RM500,000 and the buyers’ affordability.”

Nevertheless, Thiruselvam says that in the sub-sale industry, there is a mismatch between the price of the house and the ability of the buyer to purchase.

“We should do something to increase income. Maybe in the next budget, one initiative that can be considered is for the government to reduce the corporate tax by 1% and the companies’ savings can be channelled to employees who earn less than RM3,000 a month. This will indirectly increase the income level.”

He suggests that improving productivity in the economy will increase the income and be another way to stimulate the sub-sale market. The issue of property overhang, according to Thiruselvam, is also due to the supply and demand mismatch, wrong location, no proper market and feasibility studies and overpricing.

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