Budget 2014 Property Tax Changes

COVER STORY 2 Recently on Friday, 25th October 2013, Budget 2014 was tabled by the Prime Minister, Dato’ Sri Najib Tun Razak to the Parliament. The budget tabulated includes new ruling and taxes that affects the property market starting 1 January 2014. In line with the government initiative to curb speculation, stabilise and make the property market more aordable to local property buyers, the government has revised the rate of Real Property Gains Tax (RPGT) imposed on both the local and foreign property buyers alike. RPGT is applied on the capital gains when the buyers wish to dispose a property. The revised RPGT rates are as Table 1. Although there is a signicant increase in the rates of RPGT for both locals and foreign buyers, for the rst 3 years both are taxed at 30%. While locals are required to pay a lower RPGT of 10% to 15% in the fourth and fth year respectively, foreign buyers are still taxed at 30%. On the downside, this could dampen the foreign investors interest in a short by Aisyah Mahzan & Veena Loh BUDGET 2014 PROPERTY TAX CHANGES to medium term of investments in Malaysian properties and likewise for the speculators and non-genuine buyers. Speculative investors are an important group of buyers for Malaysian property developers as they help to speed up sales for new launches. When the RPGT takes eect, we may see more investors choosing to hol d on to their money. The move could indirectly soften prices in the high-end properties and make developers look more into catering towards the aordable market segment where the demand is strong. The government also revised the current minimum property price that can be bought by foreigners from RM500,000 to RM1,000,000. However , individual state government may still have the nal say on this new ruling. This is still considered reasonable compared with Singapore which imposed Seller Stamp Duty (SSD) if the property is sold within the rst four years after property acquisition based on the selling price or market value whichever is higher as tabulated below:- For example: A property worth SGD1 million (RM2.5 million) was bought in 2013 with a capital appreciation of 5% after one year would still be a viable proposition for a property owner in Malaysia rather than in Singapore. After 1 year, if the property appreciates by 5% and the owner wishes to dispose of it, the computed taxes in Singapore and Malaysia are the following: (continued next page) On a good note, since the RPGT is not an upfront tax, it would not have a signi cant effect on owner-occupiers and long- term investors. The increment will help to subdue speculation and stabilise the property prices in Malaysia. Indirectly, it is a good move by the governmen t in preventing a possible property bubble from arising. The increment of RPGT will help to subdue speculation and stabilise the property prices in Malaysia. Local /Residence Foreigner/Non-residence T able 1: Real Propert y Gain Tax Comparison Table Source: MPI Research Before Budget 2014 After Budget 2014 Year 1 15% Year 1 30% Year 2 15% Year 2 30% Year 3 10% Year 3 30% Year 4 10% Year 4 20% Year 5 10% Year 5 15% Year 6 & above Exempted Y ear 6 & above Exempted Before Budget 2014 After Budget 2014 Year 1 15% Y ear 1 30% Year 2 15% Y ear 2 30% Year 3 10% Y ear 3 30% Year 4 10% Y ear 4 30% Year 5 10% Y ear 5 30% Year 6 & above Exempted Year 6 & above 5% Seller Stamp Duty (SSD) Year 1 16% Year 2 12% Year 3 8% Year 4 4% Year 5 & above Exempted Table 2: Seller Stamp Duty (SSD) rate in Singapore Source: MPI Research

Budget 2014 Property Tax Changes

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