Malaysia's revised Real Property Gains Tax (RPGT) rates that take effect from Jan 1, 2019, will dampen market sentiment and sales in the near term, according to industry players.
In a follow-up to the measures announced under Budget 2019, the Finance Ministry had made several additional announcements on Dec 29 and 30, 2019, on taxation matters related to property transactions which will take effect from Jan 1, 2019.
Among them were:
1. RPGT exemption for Malaysian property owners who dispose of their residential properties priced below RM200,000 — Earlier, under Budget 2019, the government has decided to introduce RPGT on gains from disposals of properties and shares in property holding companies (5% for individuals and 10% for companies) in the sixth year onwards from Jan 1, 2019.
2. For properties that were acquired before the year 2000, the market price on Jan 1, 2000 will be used as the acquisition price in calculating the RPGT for the disposal of the property.
3. Service Tax exemptions for those registered for Service Tax in Group G (Professional Group) who provide their service to registered persons within the same group.
"Imposing RPGT for sales beyond the fifth year of acquisition will definitely discourage people to sell their properties especially in a soft market but it could help to cool housing price growth which has exceeded the majority wage earners' affordability," said Malaysian Institute of Estate Agents (MIEA) president-elect Lim Boon Ping.
Chur Associates founder and managing partner Chris Tan concurred, saying that it will now be more difficult for property owners to decide whether to sell or not and to determine the asking price as they will need to take the 5% RPGT (10% for company owners) into consideration.
Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) President Michael Kong also expects property owners to be even more reluctant in selling their properties now in view of the RPGT.
"Most would wait for a review of this tax, unless they are desperate to sell. In addition, sellers would factor in the RPGT in their selling price, making it even more difficult to dispose of their property in this soft market," he added.
Eventually, property owners with holding power will choose not to sell their properties or may want a higher price to cover the tax. However, the market is expected to adjust itself in the long run, said Malaysian Institute of Professional Estate Agents and Consultants (MIPEAC) deputy president See Kok Loong.
"While the first half of 2019 will be tough for the secondary market because of the RPGT, the exemption of RPGT for property transactions worth below RM200,000 is good for the B40 group and those in the smaller cities or towns. For owners in major cities such as Kuala Lumpur, Penang and Johor Bahru, most medium-cost apartments or affordable housing are beyond RM200,000," See added.
For Henry Butcher Malaysia chief operating officer Tang Chee Meng, the RPGT exemption for transactions below RM200,000 will be a welcome relief to owners of homes in this category although the amount of savings may not be a lot.
As for the disposal of properties acquired before year 2000, Tang also welcomed the move to peg the acquisition price for the calculation of RPGT to the market price as at Jan 1, 2000. This means that if one purchased a property at RM10,000 in 1970 and the property was valued at RM100,000 in 2000, the property transacted for RM250,000 from Jan 1, 2019 will have its RPGT calculated based on the RM100,000 market valuation price in the year 2000.
"The move to fix the price is a bit of a relief although I personally feel that this group of owners should not be taxed at all as they have held their properties for 18 years or more. They should not be considered speculators or short-term investors," Tang said.
Tan from Chur Associates opined that the government could refer to the stamp duty assessments made or issued in the year 2000 on similar property transactions as reference to determine the valuation price of the property.
"There is an existing safeguard mechanism that a seller has the right to appeal if he or she is not happy with the valuation," he added.
MIEA's Lim said the assessment tax could serve as a price reference for the government as well as the tax is calculated based on government valuation every year.
PEPS' Kong noted that if the price valuation is based on Valuation and Property Services Department (JPPH) data, the government should also consider having an avenue for property owners to contest or question if they disagree with the valuation figure.
Meanwhile, the Royal Institution of Surveyors Malaysia (RISM) vice-president Allan Sim said the exemption of service tax for the persons registered for Service Tax in Group G (Professional Group) could prevent double taxation issues amongst professionals performing property transaction services
MIEA's Lim however, noted that more clarity and details are needed as there are many services engaged in the transaction process.
"MIEA will seek our members' opinions on this and discuss it with tax consultants before meeting with the related government agencies for clarification on the scope of exemption," he added.