Property speculation in Malaysia. [Updated, April 2012]

By Jackie, Researcher

The impact of property speculation towards the younger Malaysian generation, the causes and effects of this speculation as well as the future predictions and forecasting about potential property investment in Malaysia. [Updated, April 2012 with 2012 Real Property Gains Tax (RPGT)]

From stylish, contemporary homes to luxurious condominiums with lush greenery

Introduction

The objective of this research is to get a clearer picture on property speculation issues which have started to happen in Malaysia since 2007. Well, after seeing some real-life examples through buying and selling (as my family is dealing with this kind of business), doing ample researches through property news investment like attending Gavin Tee’s seminar, following up government plans [eg. Malaysia My Second Home (MM2H) programme and 2012 Real Property Gains Tax (RPGT)], studying the “conversion strategies” played by the broker and developers and analysing the increase rate of oversea investors, I have decided to share my experiences here.

Overview

The real estate market had gone through a “roller coaster ride” in the recent years, from a soaring market in 2008 to a depressed market in 2009 and skyrocketing again in 2011. There is a lot of controversial points related to this current issue whether Malaysia is currently facing “real estate bubble” [also known as property bubble as well as housing bubble] or not? Steps and measurement have been taken by both government (by implementing RPGT) and banking sector (by disallowing full-loan to Malaysian property buyers).

What is wrong with Malaysia My Second Home (MM2H) programme?

The objective of this programme is to encourage or attract foreigners to retire in Malaysia or spend extended periods here. The major advantages offered by the government include low cost of living, developed infrastructure, friendly Malaysians, attractive tourist destination, quality environment, good climate and variety of food. This programme however, has induced some foreign investors to invest instead of staying here. As most of them are very rich, they used to left their house here waiting for the price to shoot up and then sell back to earn an attractive capital gain.

“Conversion strategies” played by unethical brokers and greedy developers.

Honestly, most of them prefer to sell house to foreigner. Why? The reason is simple. This is because they have a higher purchasing power than Malaysian. Also, please note that some of them are come from Middle East, Japan, Korea, China and Singapore. Ok, now let's take at look into a deeper ground. Have you ever feel that developers always build high luxury condos, semi-detached houses, bungalows instead of low price apartments or moderate double storey houses? This is all about Economics! Land is limited. Why they want to build a lower priced house when they can build a higher priced house on the same land? They are not afraid of unable to sell all the units because now their strategy is to build in a smaller scale instead of large. Plus, they are not afraid of having no customers as they have found the “new higher purchasing power customers from other countries”.

What will happen in the future?

Well, a fresh degree graduate can only earn an average of RM2,000 to RM3,000 per month. The cost of living in Malaysia is rising plus most of them need to pay installment for cars normally when they need to go to work as there is still some “lacking” in public transport in Malaysia [Not all place is reachable, mismatch of time and inconvenient]. Recently, banks only lend up to 70% of the house in value. The new mortgage lending rule applies only to borrowers taking up a third housing loan to curb excessive investment and speculative activity in urban areas. In short, "the rich will become richer, while the poor have to work harder". Some experts spark up rumors by saying that Malaysian young generation will turn into a condition, so called "homeless generation" too, and indirectly speed up the government's plans to handle this worrying situation. 

Steps and measurement taken by the government to solve this issue.

Implementation of 2012 Real Property Gains Tax (effective from 1 January 2012) with chargeable gains from disposal of real properties are as follow:

1. Sold within 2 years = RPGT 10%

2. Sold above 2 years and below 5 years = RPGT 5%

3. Held more than 5 years will be exempted from the Real Property Gains Tax (RPGT)

Predictions and forecasting

Potential property investment in the future kindly refer to this talk given by President of SwhengTee International Real Estate Investors Club, Gavin Tee’s on Ipoh Property Talk at The Haven Lakeside Residences:

Part 1: http://www.youtube.com/watch?v=zN3eFYU-GHE&feature=channel

Part 2: http://www.youtube.com/watch?v=anPCu-eGO2M&feature=channel

Part 3: http://www.youtube.com/watch?v=YUfSg-cgtjM

Upcoming issue***

"In order to tackle the rising of house prices in Malaysia, the government is now considering whether is it appropriate to double the minimum price of houses which the foreigners can purchase"

Further reading:

http://biz.thestar.com.my/news/story.asp?file=/2012/4/10/business/11075217&sec=business