Govt not Actively Checking the Spiralling House Prices

 I refer to recent reports on the National House Buyers Association (NHBA) expressing concern over the runaway prices of houses. Whilst  there is already a great deal of concern on the part of the average Malaysian on the significant increase in the food prices in recent months, there is even greater concern over the concern over the continuous rise in property prices in major cities and towns in the country.

The NHBA’s concern that the astronomical increase in house prices (both old and new) has virtually locked an entire generation of young adults out of the house buying market hits the bull’s eye. The reasons for the rapid increase are obvious: easy availability of bank loans with very low interest rates; easy payment schemes conceived by creative developers such as the 90:10 or 95:05 schemes where buyers need only pay up to 5pc or 10pc of the purchase price while banks take care of the rest with the developer until completion; and a low real property gains tax (RPGT) of only 5pc. In some cases, developers’ staff book properties in advance, and the property then changes hands to buyers for “fee”.

Many developers also raise the sale price of each phase of the properties they sell, with the excuse that the cost of labour and materials are rising rapidly. In a way, developers have contributed to the inflationary rise in the prices of properties and to their own bottom line. Whilst one cannot deny that labor and material costs will rise, the extent of the rise when translated into the value of the property cannot be justified. Developers may argue that they have holding and labor costs and other risks associated with the business, but look at the annual profit they reap from the sale of properties. More often than not, launches in cities are sold out within hours.

There is a definite need for relevant authorities to look into house prices vis a vis the cost of labor and materials. Soon with the anticipated introduction of the Goods and Service Tax, property prices will go even higher as developers have no choice but to transfer their cost to buyers.

Then there is the issue of speculation on property prices. Not too long ago, developers were clamouring for the government to reduce or exempt house buyers from the RPGT which used to range from 0-30pc depending on years of ownership as well as reduction in stamp duties. The developers’ argument is that due to the overhang of properties, they were unable to sell many of their properties and suffered losses.

The government of course listened and reduced the RPGT to 5pc for gains on properties sold within 5 years of purchase and 0pc for properties sold thereafter and in the process, gave away revenue which it ought to have collected. Well, today look at the effects of meeting the request of developers.

Whilst we don’t deny that there are pockets of unsold properties, many developers have made super profits from the sale of properties, as have buyers (or rather speculators). It is the genuine house buyers who are locked out in the process, firstly by developers charging a high sale price during the launch, and secondly, by speculators who book the property with little seed money and then sell it at a much higher price.

Banks have definitely contributed to the house price syndrome and there is no doubt a need for Bank Negara to quickly deal with this before it’s too late, although may developers and industry players would tell us there is no bubble in sight. Of course, when it happens, the blame game will start and it is the genuine house buyers who suffer.

I agree with the NKBA that the government should review the RPGT act and even the stamp act (like in Singapore and Hong Kong) to deal with speculators, and be well aware that it is losing a rich source of revenue annually. There are no doubt, many speculators in the market (what with easy financing available) who find it easy to make a profit especially those with connections with developers. Many of them have been buying and selling properties within a short period of time and the government should consider instituting legislation to curb this menace.

The previous 30pc RPGT rate should be brought back as soon as possible to tax all profits arising from the sale or transfer of ownership of property within a three-year time frame for purchased completion properties and new properties so as to discourage speculators, many of whom may not have the financial capacity to put in even a decent 20pc-30pc down payment for the purchase price; and Bank Negara should tighten the availability of credit especially to those buying a second or third house. Perhaps stamp duty should also be imposed on sellers who sell their properties within say two years of purchase.

The prices of properties must be monitored and checked by way of financial measures like level of loan versus buyer’s profile and number of properties purchased/sold, and fiscal measures to curb speculation and a quick profit.

So much for the government’s aim to increase the income of the general population and facilitate home ownership for first time buyers. Our children will find it hard to own a house in the future without forever being a debtor to banks.

Concerned Citizen.

Daily Express Sunday Forum