To deal with issues relating to the negative economic impact of COVID-19 on the Malaysian economy and businesses, the Malaysian Prime Minister Tan Sri Muhyiddin Yassin on 5 June 2020 made several important announcements on Malaysia’s Short-Term Economic Recovery Plan (PENJANA).
Several important incentives for the property sector to stimulate the property market and provide financial relief to homebuyers are in the approximate quantum of up to RM 1 Billion, taking effect from June 2020. Also announced in PENJANA, a new Home Ownership Campaign (HOC 2020) will take effect from 1 June 2020 to 31 May 2021.
Real estate interest groups such as the Real Estate and Housing Developers’ Association of Malaysia (REHDA) also gave a statement, where REHDA President Dato’ Soam Heng Choon welcomed the announcement and has also praised the Government over its incentive.
Image from: penjana.treasury.gov.my
From the perspective of homebuyers, homeowners and also property investors, here is a summary of some major expected impact of PENJANA on the property sector:
Exemption from Real Property Gains Tax (RPGT)
• Residential homeowners and property investors that are looking at cashing out from their home value will have additional motivation to sell. This is provided that certain specific conditions are met, they will be exempted from Real Property Gains Tax (RPGT) if they dispose from 1 June 2020 – 31 December 2021.
• Allow for a better room for price negotiation for property buyers in the secondary market. Hence, property buyers with financial ability to pay for deposit, ancillary fees and renovation may have more room to negotiate a better selling price with sellers (for sellers that are exempted from RPGT) in the residential secondary or sub-sale market.
Incentives Under the Home Ownership Campaign 2020 (HOC 2020)
Image source: unsplash.com
• Potential homebuyers and property investors that missed out on the previous Home Ownership Campaign 2019 (HOC 2019) can take advantage of the incentives offered by the HOC 2020. Property buyers that are looking for an easy entry into property purchase will be motivated to purchase new projects sold by HOC eligible developers under the new HOC 2020 (from 1 June 2020 – 31 May 2021) as a minimum of 10% discount needs to be provided by the developer.
Some of the savings under the HOC 2020 include:
i) Stamp duty exemption on the instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 to RM2.5 million (subject to at least 10% discount provided by the developer).
ii) The exemption on the instrument of transfer is limited to the first RM1 million of the property price, while full stamp duty exemption is given on loan agreement effective for Sales and Purchase Agreements (SPA) signed between 1st June 2020 to 31st May 2021.
The overall property market is expected to recover during and after the period of the new HOC 2020. The property overhang is expected to be reduced in the next 12 months due to the HOC 2020. As reported on 15 January 2020, the residential property overhang fell 3.8% to 31,092 units in the first nine months of 2019, representing 25.7% of total units launched, while the total value of overhang units fell 5.5% to RM18.77 billion as at end of Q3 2019. The HOC 2019 generated total sales of RM23.2 billion in 2019, surpassing the government’s initial target of RM17 billion.
Lifting of 70% Margin of Finance (MOF)
Image source: unsplash.com
Bank Negara Malaysia (BNM) has cut interest rates three times this year, amounting to 100 basis points (bps), with the most recent cut (50bps) on 5 May 2020. It had earlier cut the Overnight Policy Rate by 25bps in January 2020 and by another 25bps in March 2020. The current OPR rate stands at 2% and there are market talks that further rate cuts by BNM may be in the pipeline.
In a low interest rate environment (both fixed deposit rate and mortgage lending rates), it is a good time for higher net worth investors intending to invest in two or more properties to take advantage of the low bank mortgage lending rates. Property investors who intend to own more than 2 properties can now look at the higher leverage of 90% loans (subject to bank approvals) compared to the previous limitation of 70% Margin of Finance (MOF) for their third property and beyond.
Note that based on the announcement so far, the lifting of the 70% MOF is applicable for certain segments of residential properties priced at RM600,000.00 and above only. Pending further information, this move also serves to discourage speculative buying in more affordable mass-market segments of properties below RM600,000.00.
Conclusion
Image source: pexels.com
Many may not realise that the construction and property development sectors actually impact at least 140 upstream and downstream sectors of various other industries, creating many jobs and have a large impact to Malaysia’s Gross Domestic Product (GDP). Hence, these measures will have a positive spillover effect on the overall Malaysian economy.
Although easy homeownership schemes allow many first home buyers to get on the property ladder, buyers must also exercise caution. A property purchase is a big-ticket item and a long-term commitment. Buyers should perform adequate financial planning and not over gear to ensure that they are comfortable with the long-term financial commitment.
When homebuyers are scouting for the best deal, it is also very important to do adequate research. Do compare prices from new under-construction properties (primary market properties) sold, versus completed properties (secondary market) in the surrounding areas to ensure that you know the differences in the offerings (types of product, price psf and overall pricing).
For investors, property investment can be a good form of medium to long term savings/investment provided good research and preparation is done. For those speculators looking at fast gains (high risks, high returns) they should also tread cautiously and consider worst-case scenarios in this unprecedented new normal living alongside COVID-19.
More incentive considerations should be given for the secondary sub-sale market which forms approximately 80% of real estate transactions in Malaysia in 2019. But overall, the above are positive measures for the Malaysian property market and which we hope will generate a lasting positive impact on different segments of the market in the next 2 years.
This article is contributed by former REHDA Institute general manager and property investor David Shieh Chong.
David Shieh Chong is an avid property investor who manages and co-owns more than ten properties, since 2009. He is passionate about real estate and relaxes during the weekend by viewing properties and keeps abreast of the property sector.
A corporate lawyer by profession, he has experience on various aspects of real estate, including in government real estate promotion at Malaysia Property Incorporated (under Economic Planning Unit Minister), real estate agency work and also has worked with top property developers at the Real Estate and Housing Developers Association (REHDA) Institute.
(Written by David Shieh Chong, 9th June 2020)
