Property Investment 101: Vacancy Tax – Scary or Necessary?

Property Investment 101: Vacancy Tax – Scary or Necessary?

What is Vacancy Tax?

This is a tax on homeowners who owns a property but is NOT staying in it or is NOT renting it out etc. In other words, left empty and thus considered an unproductive asset. So, if it’s unproductive, you will be taxed because as an owner, you should not leave it empty. Wow… Sounds like it’s for advanced property markets. Yes, you are right. This is the vacancy tax in Singapore.

How can Vacancy Tax help the property market?

When there are a lot of demand for rental properties but the supply is not readily available, this will push rental upwards. For example, in a certain area, maybe many people would like to stay there. However, there is not enough supply. Thus, the rental will go up. Imagine the owners of units in these areas refusing to rent out the units unless they have extraordinarily high rental. The reason they were hoarding these units is to have a much higher rental because they know they can wait for it. However, if they will also be taxed on the vacant units, then they will more likely release the units and help to increase the available supply in the market too.

I know, at the same time, this could also push prices down too since if there’s an oversupply and everyone is doing their best to rent the units out. Well, for oversupply situations, whether tax or no tax, the owners would already do their best to rent out their units.

It’s not just for rental market yeah. It also helps to reduce the property overhang. This is more applicable to developers who has completed their development but has yet to sell all the units. However the developer is rich enough to just keep the units and only sell as and when there are potential buyers. This meant that the supply numbers (overhang) will always be very high in the overall market. This is not good for the market because some people will be very worried to enter the property market when they see such a high overhang number of units.

At the same time, they could not buy these units at a lower price because the units does not necessarily come with discounts. However, if there is a vacancy tax, then the property developers would be more willing to sell them off perhaps with some discounts versus keeping them…

Of course the main reason for vacant tax is as a deterrent. Property developers would not simply build and property investors with deep pockets would not just simply buy. In other words, the market will not have those imbalances which happen. Supply will be made available when there is demand for it versus simply building and hoping demand will come.

Here’s that latest Vacancy Tax Article in nst.com.my

“When you have nearly 20 per cent vacancy in high-growth states like Selangor and Penang (DOSM 2020), something is broken.

So if we want to rebuild the Malaysian housing dream, we need to treat housing as infrastructure, not just investment. We need a market that rewards circulation, not stagnation.

We need a policy environment where flipping is discouraged, not celebrated. And we need to start asking: Who are we really building for?

A well-designed vacancy tax may not solve everything—but it could spark the kind of mindset shift that modern Malaysia needs: from trading homes like chips on a roulette table, to making homes livable, affordable, and equitable again..”

Read the full article here: Article in nst.com.my

Do I agree with Vacancy Tax?

I think if a country whom Malaysia kept using as a benchmark is having it (yes, that country down at the south), perhaps we can also do something to alleviate the level of overhang in the property market today. Just need to ensure this is NOT suddenly implemented because we want a healthy property market and doing anything suddenly does not help the market to balance itself yeah. Worse case, even the property prices of all other secondary market units also dropped tremendously due to the sudden availability of every overhang property at a huge discount. That’s not clever at all.

Please feel free to share this article too. (links are all below) Thank you!
Sign up for daily investment news updates (FREE since Nov 2013 and FOREVER). 

Please LIKE kopiandproperty.com FB page to get daily updates about the property market beyond kopiandproperty.com articles.

Else, follow me on Twitter here.