THE vacancy tax being formulated in an effort to reduce the overhang of residential units in Malaysia can come as early as 2021, bringing negative impact to property developers, said AmInvestment Bank.
“Such a measure may be able to curb the property overhang in Malaysia, in the short term, we believe our developers will be negatively impacted by the additional tax or offering larger discounts to clear their unsold inventories,” said AmInvest analyst Thong Pak Leng today.
The vacancy tax is being formulated by the Housing and Local Government Ministry.
Minister Zuraida Kamaruddin on Wednesday said the introduction of the tax could induce developers to be more sensible and responsible in the projection of their projects, particularly high-rise developments.
The minister also said the government would provide a lead time of between six to nine months for houses to be filled when they are completed.
“Based on the latest financial statements, the average inventory turnover of development
projects in Malaysia for developers under our coverage is about 6.5 months. With the government offering a threshold of six to nine months on unsold completed units, most of the developers may not need to pay or pay very little vacancy tax.
“However, we are cautious on IOI Properties Group Bhd and Malaysian Resources Corporation Bhd with their average inventory turnover of more than nine months,” said Thong.
He added after performing a sensitivity test on the impact to net earnings, a 1% vacancy tax rate will reduce FY21 net profits by between 1.1% and 7.1% based on their carrying value.
This assumes the current level of unsold units remains the same by the end of FY21.
A tax rate of 2% will see earnings reduced between 2.3% and 14.2%, while a 5% tax rate would see earnings hit between 5.7% and 35.6%.
“With the introduction of the vacancy tax, we believe developers will be more rational and careful in planning their future launches. Moreover, we reckon that developers are already doing their best to sell all their units,” said Thong.
AmInvest maintains a neutral view on the property sector as the research house does not anticipate huge changes in property sales and earnings in the short to medium term.
On the same note, the ministry has not revealed the details of the guidelines on this measure as well. – Aug 21, 2020
