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Vacancy Tax will crash the property market?

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What is a vacancy tax? Well, this is a tax levied to developers who were unable to sell their properties upon completion of the project. Okay, one may wonder, if they have not fully sold the whole development, why did they fully complete those properties in the first place? Well, sometimes it may due to the ever changing market situation too. There were also occasions where they were over-bullish.

FOMO time

If we remember, those periods from 2009 till 2012? At that time, developers were all having that FOMO (fear of missing out) feeling and they definitely were rushing to launch everything they could into the market. Of course, it may also be because of a mismatch in what was built versus what was needed. Reasons include type of property, price of property and even location where the properties are. This is why it is important not to look at the situation and just come up with a generalised solution which seems easy to implement.

Article in theedgemarkets.com – Imposing a tax on unsold and vacant properties will be a disaster. It shared that the only country with an unsold property tax is Singapore. The government imposes an ABSD (additional buyer’s stamp duty) of 30% (5% non-remittable upon stamping) on unsold properties after five years from the date of acquisition of the land. This is not all. There’s also a QC (qualifying certificate) tax of 8% on foreign developers. Basic idea is that the development must be completed in five years and all units to be fully sold within two years of completion.

The article also shared the possibility that the tax will cause an avalanche of falling residential property prices across the board. Though the aim was the 30,000 unsold homes, when developers are forced to lower their prices aggresively, this will also impact the existing stock of 6 million homes in Malaysia. As most Malaysians are homeowners and their properties are mortgaged, this may mean that we are going to be paying our mortgages for a property which price is lower than what we are paying! The article is a comprehensive one. Do read it here. Article in theedgemarkets.com

Why would prices be falling across the market?

A newly completed development has 10% of its units unsold. The 90% of the units were sold at RM500,000 4 years ago and the owners are all paying their mortgages based on this value. Now, we assume that the vacancy tax is 10% for every unsold unit. It meant that the developer has to sell the unsold units quickly or they will be levied RM50,000 per unsold unit.

Developer’s Action?

Guess what will happen? Of course the developer will choose to provide 10% discount to quickly sell off the property. Else, the taxes they pay will be even higher with every passing year! Assuming there are buyers in the market, do we think they will buy from the owners or from the developer who’s now selling at RM450,000? What happens to owners who needed to sell as they needed the money? Now, if they sell, they will lose even their 10% downpayment since the price they could sell is definitely not at RM500,000 anymore but at RM450,000.

Never Ending Story

This does not stop here. It will also affect other properties within the neighbourhood. When this happens to all the 30,000 unsold units, assuming it affects just 1 extra unit, that means another 30,000 home owners would most probably lose money from selling their units which they paid full price previously. By the way, this will be a never ending story yeah.

Frankly, I think we need a more comprehensive solution yeah. Pushing the developers to “DUMP” their unsold properties into the property market and potentially affecting other home owners is not a good choice. Definitely not at this point in time too. There are many more issues in order for a more orderly reduction of the unsold units as well as the increase of needed units for Malaysians. Perhaps we need a wider consultation yeah. Perhaps kopiandproperty.com should also be invited since we are pretty neutral and does not represent the developer or the real estate agencies or even the banks. 🙂

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