In Budget 2020, YB Tuan Lim Guan Eng, Minister of Finance, set out a vision of fresh growth for Malaysia, with a sweeping range of policies designed to steer the country in the coming year. Central to the budget speech was a core message of ‘Driving Growth and Equitable Outcomes Towards Shared Prosperity’.
A healthy property market is an essential foundation for any nation to prosper, so it comes as no surprise that it featured heavily in Budget 2020. What does that mean for you? Here are 5 key property announcements from Budget 2020.
The government’s announcement of a rent-to-own scheme stole the headlines when it came to property announcements.
To address those who are unable to afford the initial 10% deposit and access to financing in purchasing their homes, the Government will collaborate with financial institutions in introducing the Rent To Own (RTO) financing scheme. Through this scheme, financing of up to RM10 billion will be provided by the financial institutions with the support from the Government via a 30% or RM3 billion guarantee. This RTO scheme is for purchase of a first home of up to RM500,000 property price. Under this scheme, the applicant will rent the property for up to 5 years and after the first year, the tenant will have the option to purchase the house based on the price fixed at the time the tenancy agreement is signed. The Government will provide stamp duty exemptions on the instruments of transfer between the developer and financial institution, and between financial institutions and the buyer in this scheme.
As announced, the scheme provides a rent-to-own option for those looking to take their first steps on the property ladder, bypassing the often significant hurdle of saving for the required 10% deposit. Clear regulation will form an important component of a successful RTO scheme however, ensuring that market prices are fairly reflected in the scheme.
While some commentators have questioned the RM500,000 limit as perhaps being too high, the announcement has received broad praise for offering a new route to house ownership for those who otherwise may struggle to take that first step. While rent-to-own might not suit every new property buyer, it’s an exciting new opportunity for many.
2. Cutting the condo overhang
Malaysia’s property overhang has been a point of discussion for years, and now the government is making moves to address that challenge by tackling one of the key areas of oversupply – luxury condominiums.
To reduce supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2018, the Government will lower the threshold on high rise property prices in urban areas for foreign ownership from RM1 million to RM600,000 in 2020.
Reducing the threshold for foreign purchase of properties could provide an important new pool of buyers for these condominiums, helping tackle the overhang and stimulating investment and growth within the property market. It’s worth noting that as things stand, this policy does not limit foreign purchasers to primary property markets, meaning purchase from secondary owners is also an option.
With developers selling on potentially stagnant stocks of property, the money injection can be used to stimulate development in other areas of Malaysia’s property market. The question becomes whether a reasonable share of that investment can be steered into affordable homes like many commentators are calling for.
3. Youth housing scheme extension
The Youth Housing Scheme (YHS) is a housing scheme designed to support married youth aged between 21 to 45 with an income below RM10,000 per month. It has been a valuable instrument for supporting young people taking their first steps onto the property ladder.
To assist the youth in purchasing their first home, the Government will extend the Youth Housing Scheme administered by Bank Simpanan Nasional from 1 January 2020 until 31 December 2021. The scheme also offers a 10 percent loan guarantee through Cagamas to enable borrowers of full financing and RM200 monthly installment assistance for the first two years limited to 10,000 home units.
With the success of the Youth Housing Scheme to date, the announcement of a two-year extension has been widely welcomed throughout the housing industry. This home loan scheme also provides stamp duty exemption for properties priced below RM300,000, making it an important pathway to affordable home ownership.
4. Real Property Gains Tax (RPGT)
RPGT is a tax on the profits earned on the sale of property, with a number of tax bands dependent on the period of ownership and status of the owner. This tax was first introduced in 1976 in an attempt to tackle problems of property speculation, and it has received a small but welcomed revision in the latest budget.
In response to the public view regarding the Real Property Gain Tax (RPGT) imposed on disposal of properties after 5 years onwards, the Government will enhance RPGT treatment by revising the base year for asset acquisition at 1 January 2013 for asset acquired before 1 January 2013 as compared to the previous year of 1 January 2000.
The adjustment of RPGT to a new baseline of 1 January 2013 could be a notable benefit to long-term investors and owners. Since RPGT is taxed based on profit earned, the new assessment year means that anyone who purchased a property before 2013 will now have their tax based on the estimated property value at that date, rather than from 1 January 2000. Since that difference in value between 1 January 2013 and current prices is almost certainly less than the difference between 1 January 2000 and current prices, that means less tax to pay!
5. Home Ownership Campaign
The Home Ownership Campaign (HOC) was introduced in 2019 in an effort to stimulate sales in the property market through a range of financial incentives. It seems the government is incentivised to see it continue.
In partnership with the private sector, the Government has launched the Home Ownership Campaign, where developers providing at least a 10% discount for qualified properties will be matched with stamp duty exemptions. As many as 21,000 property units valued at RM13.44 billion under the Home Ownership Campaign have been successfully sold, exceeding the RM3 billion initial sales target. The campaign deadline has been extended by 6 months from 30 June to 31 December 2019.
While announcements around an extension to the HOC predated the budget itself, the fact it received mention speaks of the confidence the government has in this scheme. With RM13.44 billion value of homes sold under the scheme to date, we can be assured under this announcement that it continues to receive government support. Perhaps with the right circumstances this indicates the scheme may later be extended into the coming year?