With RPGT, no more property investment

Someone shared in facebook recently that with RPGT at 30%, the property price would have to increase 40% in order to earn any meaningful profit. Perhaps there’s a confusion here. RPGT is Real Property Gain Tax. In other words, you pay tax on your net profit. If you sell at a loss, you pay nothing. Let’s examine this in numbers. We will only concentrate on the gross profit itself and see if it is still ok to invest if the property price increased by just 10%. We will not look at lawyer’s fee, valuation fee etc.

Property Price: RM500,000

Downpayment: RM50,000

10% up after 1 year, sell?

RM500,000 x 10% up = RM50,000 gross profit.

RPGT = RM50,000 x 30% = RM15,000.  Giving you a remaining profit of just RM35,000.

Considering your downpayment of RM50,000, the profit of RM35,000 gives you a return per annum of 70%.

Even if 10% increment happens only after 2 years, after doing back the same calculation above, your profit % is still 35% per annum.

When compared to FD rate, Unit Trust return rate or whatever typical investments, 70% or even 35% is a number you will never be able to get except perhaps gambling which gives you 100% return or even higher, IF you win.

So you can see, it is not true that with 30% RPGT, you need the property price to increase by 40% before it is worthwhile to invest. The main reason why RPGT comes about is not to punish people who buys one or 2 properties. It is meant to curb everyone stretching themselves too thin and keep out speculators who loves flipping out of the market. I do not think any of us want any property bubble to build and burst in Malaysia, right? Remember, if the sentiment turns negative with all these cooling measures, you may not hit the 10% profit above. Perhaps you may only hit 10% price increase after 3-5 years? Haha… Redo the calculation and you decide if it is still worthwhile. Remember, you must include ALL other costs into your calculation.

written on 1st dec 2013

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  • Robert on May 10, 2014

    Down payment 50k, profit 35k, I still rugi right?

    • chialih on May 10, 2014

      Down payment 50k n profit of 35k within one year is 70% gross return. Over two yrs would b gross return of 35%. It is still 10x higher than fd. If u invested in fd rm35k, after one yr u get only 1050.

      • S B Lim on September 11, 2014

        this is still the best investment ever; I mean property investment.. Buy a property a year, on the 5th year sell the one you bought 5 years back & you are free of RPGT, this will reduce your risk of buying at the peak too..

  • Ang on September 12, 2014

    Most of property high rise is double in price… the capital appreciation is not a good as before, some more, it is not so easy to find a new buyer for secondary market.

    • chialih on September 12, 2014

      Agree and disagree. If you are willing to reduce price a bit, in other words, earn less profits, it’s easy. Actually, the price appreciation was so much, even if reduce 10% on your asking price your gross profit still a lot!

  • Ang on September 12, 2014

    yeah, agree, if the asking price is attractive in reducing 10%, it is good to consider and anytime is the right time for purchase. good deal always exist in the market. but generally, the price has double.

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