With RPGT, no more property investment

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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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