Interview: Michael Yam
How would you assess current government efforts to curb property speculation and control prices for the local population?
MICHAEL YAM: According to our research, we are seeing two issues that the government is trying to deal with; the first being speculation and the second being price increases due to foreign purchasing. The introduction of the real property gains tax (RPGT) may help curb speculation in certain areas of the country, but not everywhere. The primary and secondary markets may be affected, especially for those homeowners that want to sell and upgrade within the first five years of acquisition. While measures such as the RPGT aim to curb speculation in certain market segments, the overall presence of speculation is fairly insignificant. Of the value of residential transactions in 2012, which totalled RM67bn ($20.9bn), more than RM50bn ($15.6bn) came from secondary property transactions, a segment rarely targeted by speculators. The remaining RM17bn ($5.3bn) are transactions in new developments made up of by both speculators and domestic homebuyers. Some believe that the introduction of the RPGT may backfire, thus increasing property prices. For example, a homeowner may elect to hold onto a property longer than expected in order to avoid paying the RPGT during the five-year holding period, thereby impacting the secondary market and subsequently reducing supply.
With regards to purchases by non-citizens, I find that foreigners do not often buy properties in Malaysia as an investor proposition. Most of the working expatriates are on shorter term contracts and may not know where they will be posted in the future. Most foreigners in Malaysia rent, and their company takes care of this, and thus there is no compulsion to buy.
In what ways will the changes to the RPGT affect foreign investors?
YAM: I think there will be some negative feedback. For instance, there are some situations in which foreign investors may get a little upset. When the RPGT was revised, the tax was revised to 30% for properties sold within the first three years, 20% for properties sold in the fourth year and 15% for properties sold in the fifth year, with properties sold in the sixth and successive years excluded from the tax. The RPGT is applicable to the time that you sell a property, not the time that you buy. For example, in 2011 my salesman tells me that property is the best thing you can invest in because when you sell there is zero tax imposed. Three years later, when you take delivery, you are now hit with a new revised rate, which is 30%, because the new tax rate has come into effect. With cooling measures, governments have to be very quick with implementation to be effective.
What effects will multi-modal transportation projects in and around the country’s urban areas have on property development patterns?
YAM: In 2013 the world’s population reached 7bn, and early in 2014 Malaysia’s population hit 30m. As sure as the sun rises, population will continue to increase, and in some regions, at a quicker pace than before. In Malaysia, home purchases will continue to grow in line with population growth, at a rate of around 2% a year and we need to meet this demand or risk price escalations beyond the norm. The development of an inclusive transportation web is a way to mitigate a serious spike in prices by increasing the physical footprint of accessibility for inhabitants. If you look at the greater Klang Valley, which is about the size and footprint of Singapore, the country will need 1m houses over the next five years due to urban migration. When the high-speed rail comes into effect, residents will be able to purchase a double-story terrace house in Seremban, the capital of the neighbouring state of Negeri Sembilan, for around RM300,000 ($93,630). We just have to educate the younger generation that commuting is happening in all parts of the world. The effective footprint of a transport network improves accessibility, reduces travel time and allows people to buy further away from urban areas at more affordable prices.
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