On May 31, 2021, the government announced the RM40 billion PEMERKASA + aid plan, and one of the measures was to extend the residential stamp duty exemption regime as part of the campaign for the Homeownership (HOC) for six months until December 31, 2021.
Although the aim of the extension is to reactivate the real estate sector and also to stimulate economic growth, the measures again seem ill-conceived.
It is still very difficult to understand why taxpayers’ money is “sacrificed” to facilitate the niche of buyers and for the benefit of real estate developers, because that is exactly what is being done here.
How else do you explain the fact that the government is waiving stamp duties for transactions? A lower collection of these fees and revenues means that public expenditure is paid from other tax sources.
Remember, we’re talking about developer inventory – those completed and unsold properties. Why should the rest of the country subsidize the marketing of their products by these developers?
They made a bad business decision. Should the rest of us subsidize its loss? Why don’t these developers just give a “higher” percentage off on these properties? It’s basic economics that when a product can’t sell, you sell it for less in a soft market, especially in these times of Covid-19.
For the buyer, there is no difference between buying a RM 1 million property with the RM 24,000 stamp duty removed by the government and buying a RM 976,000 property from the developer and paying the RMB stamp duty. government stamp of 24,000 RM.
The adage “privatize the profits and socialize the losses” is the most apt to describe the situation.
Price is at the heart of the problem
This (extended) HOC movement obviously aims to help real estate developers get rid of their unsold inventory that has been statistically classified as “excess unsold” properties.
The real reason most developers haven’t been able to sell their homes is the price. It’s no secret that even without HOC developers are known to have given discounts and rebates, sometimes up to 25%. Advertisements of 20 to 30% discount have been seen and recognized by market players.
If, with all of these discounts, developers are still struggling to sell their homes, it’s surprising the government is associating them again with HOC and just a 10% discount.
It’s really not hard to see why the developers are offering such high prices – purely to provide discounts, discounts, and other freebies. If developers couldn’t sell their products at discounted prices in normal times, how could they sell under the (extended) HOC, unless the new 10% is on top of the “miscellaneous” discounts already given?
Transparency in price discovery is lacking. Financial institutions seem to be aware of discounts and rebates, but it is not clear how these translated into loans.
The government should let the market play its role, with the banking sector sticking to real prices. More responsibility needs to be placed on developers to account for selling prices, discounts and rebates.
Raising the price and then offering a discount seems to help buyers, but it actually does more harm than good in the long run. These discounts, rebates and “cashbacks” actually result in higher costs for buyers.
Why are secondary properties not included?
The secondary market or sub-sales have also been severely affected by the Covid-19 pandemic and the resulting movement control orders.
If the government’s intention is to reactivate the housing market, the incentives offered under the HOC should also be extended to first-time homebuyers looking to buy on the secondary market.
According to the National Property Information Center, the secondary market accounts for 80% of all real estate transactions in 2019.
Transparency in price discovery
We reiterate the need to have all loans, whether from the primary or secondary market, backed by a detailed independent valuation report, as a control and balancing mechanism.
This will ensure that the bankers lend on the market value of the property and not on “shadow prices” as unilaterally stated in the sale and purchase agreements.
It is necessary to carry out an appropriate market and feasibility study for new projects even before they are approved. Financial institutions should obtain a complete market and feasibility study before approving any project and its pricing. When valuations are performed, false information must be eliminated so that it does not exacerbate price discovery, which leads to an endlessly spiraling valuation.
Real estate investment clubs or real estate gurus who influence potential buyers to buy certain projects the first of which have been assured of substantial commissions should be investigated. In fact, shouldn’t they be banned?
There are enough licensed and government regulated real estate agents who can advise potential buyers on the properties they are purchasing. At least these real estate agents are subject to a code of ethics and are accountable to the College of Experts, Experts, Real Estate Agents and Real Estate Managers.
The so-called investment clubs do not and cannot serve the interests of the buyers and there would be no legal recourse if the buyers were deceived.
What is there for buyers of affordable housing at PEMERKASA +?
Housing and Local Government Minister Datuk Zuraida Kamaruddin said in 2019 that the official definition of “affordable housing” must meet three criteria.
● Prices must be between 150,000 RM and 300,000 RM (between rural and urban)
● The building must be conducive to family life with a minimum built area of 900 sq. Ft. And have at least three bedrooms.
● The location should be in areas accessible to public transport, public facilities, public schools and hospitals
There was no mention of the benefits of the (extended) HOC for affordable home buyers, but it is the affordable buyers who need to save every penny they can. Stamp duty incentives and exemptions will obviously benefit them.
The rich don’t need handouts. If they are rich enough to buy a million ringgit property; stamp duty is just “chicken feed”.
Government Should Cancel HOC Extension
To ensure that government policies and measures are able to address the real problems in the housing market, HBA suggested the following:
● Real estate developers should offer higher discounts for offloading their excess unsold inventory instead of the government bailing them out through waivers using taxpayer money.
● The government should cancel the (extended) HOC proposal and put in place a sustainable tax.
● An initial subsidy should be given to first-time home buyers to enable them to purchase the affordable homes available to them. This could encourage more people to buy houses as well as solve the problem of housing shelters. First-time buyers can also benefit from stamp duty exemptions to encourage them to buy a home for themselves.
● Perhaps the government could be more specific in reintroducing HOC. Developers who own properties not sold but completed with a Certificate of Completion and Compliance or Certificate of Occupation for more than three years may be supported by HOC.
● Whatever the benefits or exemptions, they should also include the secondary market and not just the developers’ products, ie the primary market.
● Homeowners might consider refinancing their properties since interest rates have been reduced by banks to stimulate the domestic market.
HOC presumably makes it easier for rakyat to become homeowners through certain government incentives, including:
● Stamp duty exemption for residential units priced between RM300,000 and RM2.5 million but capped at RM1 million, which means that the 100% exemption will be for the first million. RM and any price above will carry a 3% stamp duty.
● 100% exemption from stamp duty on loan contracts for residential properties priced between RM300,000 and RM2.5 million
Among the conditions are:
● Residential properties must have at least a 10% discount and must be certified (exclusively) by the Real Estate & Housing Developers’ Association Malaysia (REHDA), Sabah Housing & Real Estate Developers Association (SHAREDA) or Sarawak Housing & Real Estate Association of Developers (SHEDA)
● Exemptions only apply to Malaysian citizens
Datuk Chang Kim Loong is the Hon. Secretary General of the National House Buyers Association (HBA).
HBA can be contacted at the following address:
E-mail: [email protected]
Phone. : +6012 334 5676
This story first appeared in the EdgeProp.my E-weekly on June 11, 2021. You can access back issues here.
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