2010: RPGT Kicks In

This article in the Malaysian Insider was written by Lee Wei Lian

I will abridged and highlight the salient issues.

The real property gains tax (RPGT), which takes effect in 2010, is likely to hit long-standing homeowners and foreign investors the most.

The five per cent tax, which was announced in October, is normally imposed to curb speculation but due to its flat structure does not differentiate between homeowners who have been holding a property for 20 years or those who are flipping properties within one or two years for a profit.

The property sector was also taken by surprise by the announcement and worries that it will send a message to potential investors that the government has not been consistent in its policy-making.

An exemption on the RPGT was given in 2007 and its removal two years later with little warning could heighten the feeling of uncertainty among investors.

Real Estate and Housing Developers Association of Malaysia (REHDA) president Datuk Ng Seing Liong said the RPGT should be structured so that it curbs short-term speculation and take into account interest paid on the property as well as inflation.[Such a logical proposal]

"The RPGT will hit those who hold property for more than 10 years the most," Ng told The Malaysian Insider. "It also does not ensure that the interest that was paid is tax deductible like in Australia. If you pay a housing loan over 20 years, the interest you pay is substantial and it should be deductible."

Ng said the RPGT has also introduced an element of uncertainty for foreigners looking to invest in property in Malaysia, noting that the exemption was introduced fairly recently.

"They will now feel that government policy is not consistent and the five per cent tax can be increased anytime in the future," says Ng.

One leading property developer told The Malaysian Insider that the impact will not be as bad as it originally seemed right after the announcement.

"The government has clarified some things since then," he said. "However, it would be good if they can keep their policies consistent."

This perception of "flip flopping" in policy-making could pose a challenge for the Najib administration which is trying to chart a new growth path for the country with an emphasis on private investment.

Property website thinkproperty.my says that investor confidence has fallen as a result of the RPGT.

Its Property Outlook Index dropped to 29 per cent at the end of November 2009, down from its all-time high of 68 per cent on the day before the re-introduction of RPGT was announced.

"The level of RPGT at 5 per cent is de minimis. However, people are concerned that this will make Malaysian real estate less attractive relative to other options for both local buyers and foreign investors, the latter of whom have plenty of other countries where they can invest their money. In addition many are worried that this is the first step towards further increases in RPGT, something that the government has not ruled out," said thinkproperty CEO Asim Qureshi.

It will indeed be a sad day for many potential property sellers when January 2nd dawns on the eastern horizon.