Property prices have been spiralling and Budget 2014 introduced tough measures to cool prices down.
AHYAT Ishak was in the midst of selling off a property when Budget
2014 was tabled which saw hikes in the Real Property Gains Tax (RPGT).
It was higher and tighter than he expected. “Because of this announcement, I would have to make several different decisions. I bought that house less than three years ago.
“Previously, I would have been taxed 10% as RPGT, but with the
recent announcement, I would need to fork out 30% of my profits for the
RPGT.
“So right now, I am thinking that I should not sell it,” says the
30-something Ahyat, who has been investing in properties for the past 10
years and also runs workshops for wannabe property investors.
“If you have been strategic about investment, you would have known
that the RPGT can go up anytime and you would have taken that into
account in your investment plan. The worst strategy is when you have
only one strategy,” he stresses.
Change of strategy: Property investor Ahyat
is having second thoughts about selling a property he bought less than
three years ago because of the higher RPGT. >
So he is not worried about hanging on a bit longer to the property
that he had originally wanted to sell, because one of the rules he goes
by is to make sure what he buys is an “investment-great asset”.
For him, this means two things – that the property is “tenant-able” and that it has good potential for capital appreciation.
As a player, he also makes sure he has the holding power to hang on to a property and service the loan.
“But it’s seen as uncool and yucky to talk to young investors about
tenant-ability and capital appreciation. ‘Buying for rent’ is so old
school to them. I’ve had people calling me a ‘sissy investor’ .
“Everyone was talking about ‘I buy, I get the keys, I flip’. How can that be sustainable?
“When I advocate responsible and sustainable investment, it is like a joke,” he says.
But those flip-happy property “investors” – or rather, speculators –
are not laughing now with the new stringent government measures to rein
in excessive speculation.
Other than the higher RPGT, the government is also prohibiting the
developers interest-bearing scheme (DIBS), making developers spell out
details of the house price and all the so-called “freebies” included, as
well as making it a regulation that foreigners are only allowed to
purchase properties that cost RM1mil and above.
Viewing the budget announcement as “very positive”, marketing and
strategic consultant for developers Dr Daniele Gambero thinks this is
what the market has been looking for.
“It is necessary to curb completely the investment of investors or
speculators who are using property as if it is a forex or stock exchange
market (where there is massive buying and selling in a short period).
“Property is not an asset for the short term. It is for the medium
or long term, otherwise it becomes unhealthy and the market blows up,”
he warns.
Gambero, who has been in the business for 15 years in Malaysia, says
the kind of packaging housing developers have been offering over the
past five years has been “ridiculous”.
“They are offering renovation packages, ‘free’ trips to, say, China and some even had a lucky draw for a Mercedez Benz.
“It’s ridiculous because these are actually not free. It is factored
into the pricing and this is what has been pushing house prices up by a
good 20%,” he says, stressing that developers are not angels and are
merely responding to what the market is asking for.
He also takes to task the buyers for their “short-sightedness” in
following their “emotions” instead of using practical and logical
consideration when they buy property.
“If the value of the house is RM400,000 and these ‘free, free,
not-so-free’ things bring the house price up to RM500,000, do they
calculate how much this extra RM100,000 will cost them at the end of the
loan tenure?
“At the end of the 35-year period, they might end up having paid
RM180,000 extra in loan for these ‘free-free, not-so-free’ things the
developer has thrown in to sweeten the deal. Don’t look at how much you
are paying today but how much it will cost you in 20 to 30 years’ time,”
he advises.
Besides, Gambero’s personal feeling is that most of the renovation
offers built into the house price in fact ends up going down the drain,
because about 40% to 50% of buyers end up having to renovate again
because they want something that suits their personal taste.
One other thing that people should really sit up and take notice of
is that with developers having to come clean with all the pricing, how
will this impact on the amount of loan they can get to buy a property.
Both Ahyat and Gambero talk about the repercussions from banks.
“How is the banking industry going to react to this?
“When it is stripped bare and developers have to be transparent with
details of the pricing, such as club membership, aircon, renovation and
so on, the banks are going to be looking at that RM600,000 house and
saying ‘Hey, this property’s value is actually RM500,000’ and that extra
RM100,000 is just ‘fluff and whip cream’.
“Valuers from banks would give ‘zero’ value to those elaborate
plaster ceilings, aircon and chandeliers. In the world of valuers, it is
a big sin adding on all these add-ons.
“You can’t give loans on something that is inflated. You give loans
based on the fundamental value,” says Ahyat, warning that the
repercussions could be massive.
Concurring, Gambero says, the purchaser is at a “double losing end”.
“Say you bought the property for RM600,000 and a few years down the
line you want to sell it for RM800,000, and find someone willing to pay
that price.
“But when that person goes to the bank to ask for financing, the
bank will look at the sales and purchase agreement and get their valuer
to do a valuation and the valuer will give a value for the bricks but
‘not the plus, plus free-not-so-free’ package added in by the developer.
“And that real value of the house might only be RM700,000, so the
bank will slash the margin of financing. So you might not be able to
sell the house at RM800,000,” he says.
But will these new measures bring down the price of property?
Adrian Un, the founder and CEO of a property education arm, says the
Budget announcement brought in the first wave and caught new young
investors, aged 25 to 35, who came into the market with minimum
downpayment, by shock.
The second wave, he believes, will come in when the details of the actual guidelines are spelt out.
“What has been announced is very general and the tip of the iceberg.
Investors want to know in detail ‘if I do this or that, do I get a
waiver’,” he says.
He thinks seasoned players will wait for a while and that after the
Chinese New Year, when the news sinks in, they will continue to buy.
Un notes that developers with new launches planned will have to
launch “no matter what” and they will now strategise on how to innovate
and find new ways to entice people to buy.
“When they do away with the DIBS (a scheme where the developer bears
the interest during the construction period and buyer pays nothing
because that interest had already been factored into the price of the
house), people might now be asking if it is worthwhile to buy the
property.
“Developers might find a way to reimburse the buyer on the interest
in a different way. For example, they may ask the customer to pay it
first and then give a rebate or reimbursement every quarterly,” he says.
Un says it’s hard for house prices to come down.
“The cost of raw material has gone up, developers are going to have
to pay GST from April 2015 (on supplies and material), the cost of
labour has gone up, inflation is going to creep up with the introduction
of GST and land cost is not getting any cheaper.”
Coming back to Ahyat, he says he doesn’t disagree that the property
market is overvalued and that DIBS, among other things, had helped fuel
speculation.
And he wonders too if other fiscal policies might be in the offing, like a hike in interest rates.
“We are in a low-interest environment right now and cheap credit fuels speculation.
“If there is a rise in interest rate, some say it would signal the
bursting of the bubble because more people would die standing as their
holding power would reduce significantly. And people can’t get loans or
buy too if interest rates are too high.
“My question is, can Malaysia afford to let the development and
construction industry contract and cool down? This is a very scary
question to ask,” Ahyat notes.
Contributed by Shahanaaz Habib The Star
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