Affordability, Availability, GST and More Money (new income tax rate)

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CTThis article was first published in the Property Hunter Magazine, Nov 2014 Issue. For more articles, please refer to their online portal here. Property Hunter

Budget 2015 tries to address two chief concerns in the property market; affordability and availability. In KL, the average price for property has reached RM700,000 and has shown no signs of weakening despite transactions on a downtrend since 2012. Within the Penang island, it is almost impossible to get a family-sized condo within the ranges of RM450,000 – RM550,000. My term for family-sized is a minimum of 1,000sf and higher. Let’s get real, landed properties are no longer an option for any hot areas. Well, since we are talking about affordability and availability, if we look at the Malaysian property market today, is it heading towards a bubble in the near future? After all, the average prices of properties in major property markets like KL, Penang, Iskandar and even Kota Kinabalu, has been rising even with the downtrend in transactions since 2012. My personal opinion after referring to a few major property portals in Malaysia? No.

Let’s look at the first concern; affordability. Most of the time, this is the first sign of bubble. In Malaysia, no bubble is waiting to burst because those who could not afford or could barely afford just could not get a loan to buy any unit. Fortunately, the banks are very strict as they are also afraid of having bad loans. Unfortunately for buyers, this has made it much harder for them to get their dream home. Malaysia is still a young country and with continuous urbanization, majority of us are working and living in bigger cities. This meant demand is strong but if affordability is not addressed, we are looking at one whole generation of people without homes. For this, Budget 2015 gave the married youths between the ages of 25-40 something to cheer about. If they are buying for the very first time, they can get a 10% loan guarantee and this facility is available to the first 20,000 units only. The property price should not exceed RM500,000. This is a smart partnership between the government, Bank Simpanan Nasional, Employees Provident Fund and Cagamas, If you are still single, it may be time to get married. Trust me, its fun. I have been married for over 11 years.

Besides this, a total of 143,000 low cost housing units would be built. There were not much details made available for this yet but my guess is that it includes all the affordable schemes that the government has announced including PR1MA. This is good news because one latest study has shown that there are still 2 million Malaysian households living on less than RM3,000 per month. A roof over their heads is of utmost importance. Failing to address this sufficiently is likely to cause social problems which will escalate to many other negative issues. Let us not go into that.

The only reminder would be on the implementation and the rules governing the 20,000 units. I feel that everything must be made transparent as much as possible. Target the needy and not just anybody. Once they are accepted as a buyer, they should not be allowed to profit from this. Not just RPGT but beyond that. Perhaps a period of 10 years like what the Penang state government has announced? Seriously, those who are really buying it for their family and trying their best to avoid loan rejection would not be moving home so soon. Strictly only for those buying first property, whether its residential or commercial. 20,000 units are really not that many to begin with.

Second concern is availability. Availability of properties in areas we want. For this concern, Budget 2015 is addressing this through the expenditure on infrastructure. New LRT extensions between Shah Alam and Klang as well as the second MRT Line from Selayang to Putrajaya. This meant that areas that was once hard to reach or considered outskirts would now be just a train ride away. These new infrastructure would help to expand the choices available instead of everyone trying to buy where everyone wanted to buy cause prices to move up too fast. If you think Selayang is not as great as Cheras, think again. Why not? Cheaper today for better convenience tomorrow. I am staying on the fringes of Sungai Buloh and have faced much less jams compared to many other hotter areas. One major reason? MRT Line 1 which is less than few minutes of drive away and affordability.

What about GST? Would it affect property price? GST is well on track and the proof is the reduction of both the individual income tax and corporate income tax. I do not believe GST would affect the property market too much beyond a one time tiny adjustment, if any. Looking at the few latest property fairs in KL and the crowd, I think the developers would be glad to absorb that increase if they can sell faster.

What about subsidy? With lesser subsidy, some say that the affordability may be lower. I am not sure if anyone relies on subsidy to buy homes but I do not think it works. Subsidy rationalization would continue to happen and the next step would be to ensure those who really needs it gets it. I am firm believer of targeted subsidy and not for all. I know that since I am driving a 1.6 litre car, the revised petrol subsidy may just miss me. It is ok. There are only two ways to go about it. Get used to it if we can afford it or make ourselves poorer so that we will get the subsidy. You decide.

Instead of supporting the property market, Budget 2015 is mostly focused on the first-time buyers. For now, this is okay even though transactions are still on a downtrend. A prolonged downtrend plus a negative sentiment is however not healthy for the country. Imagine if no developers are interested to build because no buyers are interested to buy and this continues for many years. Stop speculation, without any doubt but the right market growth needs to be proactively supported. Just look at China. After much cooling, it has started ‘warming’ recently. More importantly, Budget 2015 must be followed through with effective and efficient implementation.

written on Oct 14 2014

next suggested article: Budget 2015 – Property Related, Overall Summary

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