Stamp duty waiver won’t lift market out of slump, experts say

PUTRAJAYA’s stamp duty exemption for first homes worth up to RM1 million may have brought some joy to a sluggish property market. However, the incentive falls far short of solving the sector’s deeper problems, such as the surplus of unsold units, according to industry experts.

On July 15, Prime Minister Datuk Seri Ismail Sabri Yaakob announced a full exemption from stamp duty for those buying homes costing up to RM500,000 and a half exemption for homes from RM500,001 to RM1 million. RM from June 1 this year until the end of 2023, under a new initiative called Keluarga Malaysia Home Ownership Initiative (i-MILIKI).

The waiver involves the tax imposed on documents when first selling or transferring a property through the home pricing tier, and a supporting document – ​​the Memorandum of Transfer (MOT), also known as transfer instrument.

“The stamp duty exemption until 2023 will certainly help to motivate first-time buyers, especially in the low-income group, as the cost of MOT is not always part of the home loan,” says senior executive real estate who asked not to be named. .

“Yet converting sales very much depends on buyers being able to secure a loan for their desired property, whereas currently most buyers of homes under RM500,000 rely on 90% financing or more” , he told The Edge.

Some analysts say the impact on the overall real estate market will be minimal as current market headwinds such as rising inflationary pressures and a weaker ringgit continue to dampen market sentiment.

In a July 18 note, RHB Research senior analyst Loong Kok Wen said that while demand, especially for properties priced below RM500,000, can be given a slight boost, potential buyers are likely to put off buying big-ticket items for the next six months given the expectation of higher interest rates to come.

Loong, who maintains a ‘neutral’ appeal to the sector, notes that some property developers are still offering stamp duty exemptions, rebates and freebies for slow-moving property units as a continuation of the government’s drive for home ownership. ownership (HOC), which was launched on January 1, 2019, and relaunched several times until its end at the end of last year.

Meanwhile, the property consultants point out that the waiver is limited to first-time buyers in the primary market only, which will result in an even lower impact compared to the previous stamp duty waiver granted during the HOC, which granted successful applicants a full exemption for home purchases up to RM1 million, and a partial stamp duty reduction of 3% for properties worth between RM1 million and 2.5 million.

They also note that the incentive is being introduced at a time when wage increases are unlikely in the current economy, and even if individuals benefit from a higher wage, this is not enough to stimulate demand in the sector. .

In a July 18 note, Maybank Research analyst Wong Wei Sum said a moderate impact from the latest move is expected given that the 50 basis point (bp) hike in overnight policy rates could affect the accessibility of buyers.

“A 3% increase in monthly payments is expected for every 25 basis point rise in interest rates,” says Wong, who maintains a “neutral” call on the sector and has “buy” calls on Eco World Development Group Bhd and Sime Darby Property Bhd.

RHB’s Loong believes that potential beneficiaries of the incentive include Mah Sing Group Bhd, LBS Bina Group Bhd, Matrix Concepts Holdings Bhd and Tambun Indah Land Bhd due to their relatively high exposure (above 60%) to real estate products whose price is less than RM500,000.

“Nearly 100% of Matrix developments, for example, are mature townships where initial infrastructure and landscaping costs will be minimal compared to starting a new township. IOI Properties Group Bhd, on the other hand, is a strong asset owner, which will see the retail segment of the business boosted with the reopening of international borders,” she says.

However, Loong thinks the potential benefits for big players may be intangible given that “mid-range products make up only a smaller percentage of their overall portfolio.”

However, the introduction of i-MILIKI has caused some confusion among analysts and industry players about when the stamp duty exemption will end. In Budget 2021, the stamp duty exemption for the purchase of first homes worth up to RM500,000 applies to Sale and Purchase Agreements (SPAs) signed between 1 January 2021 and December 31, 2025.

“For homes under RM500,000, we are sticking to the waiver expiry date of December 2025, and with i-MILIKI, homes priced from RM500,001 to RM1 million benefit from half exemption until the end of next year,” the senior said. real estate manager said.

Long-term solution needed to deal with overhang key to affordability

Data from the National Property Information Center shows that the first quarter of 2022 (1Q2022) saw a residential property surplus of 35,592 units across the country, with a collective value of RM22.45 billion.

Of this total, 10,158 units were priced below RM300,000, 10,501 in the price range of RM300,000 to RM500,000, 10,227 between RM500,000 and RM1 million and 4,706 above RM1 million. States with high overhang volumes were Johor, Penang, Kuala Lumpur and Selangor, with more than half of unsold units being high-rise buildings, followed by an almost equal number of townhouses and other residential properties.

It should be noted that during the same period, 2,936 residential units (2,657 landed; 279 towers) were launched, but only 164 units or 5.4% were sold. The states which recorded large volumes of launches are Johor, followed by Melaka, Pahang, Kuala Lumpur and Selangor.

Managing Director of Datametrics Research and Information Center Sdn Bhd, Pankaj C Kumar, warns that while incentives such as continued stamp duty exemptions are seen as a boon to genuine homebuyers as well as developers pushing their unsold units, this decision can perpetuate the vicious cycle of supply exceeding demand.

“We don’t want a situation where government push through such waivers encourages developers to keep launching their products and buyers keep buying them, ultimately exacerbating the vicious cycle of a real estate overhang. It’s an existing problem that needs to be solved in the long term,” he told The Edge.

He adds that the current oversupply of properties is a structural problem, requiring the ecosystem of developers, local councils, bankers, appraisers and consultants to be resolved. “It takes a long time to settle and certainly cannot be solved by short-term measures. [such as buyer incentives].”

It’s time for developers to “bite the bullet”

CBRE | WTW Malaysia Group Managing Director Foo Gee Jen believes that developers need to reconsider how best to price their products affordably in a struggling market.

“Players with new offerings will really have to go back to basics and only think about putting roofs over their heads. It’s not going to be about lavish finishes and fittings, it’s about selling at affordable prices,” he said.

Asked if house prices have already bottomed out, he believes that real estate in the best locations will maintain its prices. However, unsold properties in poor locations may face further depreciation.

“Having said that, I don’t foresee a hard landing in the market given the ongoing ultra-low interest rate regime, which has stabilized prices. Any market correction should be minimal. I believe there will be organic growth [in the property market] over the next two years, i.e. if the economy does not experience a strong [growth] surge. After all, there is pent-up demand and urbanization as people move to first- and second-tier cities,” says Foo.

Cost pressures continue to weigh on developers as building material prices remain high amid unresolved labor shortages, creating potential downside risk for developers in the coming months. coming quarters, RHB’s Loong said.

“As developers have invested heavily in land and machinery, developments will continue despite high input costs. consumers. But to maintain sales, selling prices will have to be adjusted,” says CBRE’s Foo.

“This is a time when developers will have to bite the bullet and accept reduced profit margins. Some developers have said they expect their profit margins to drop from the region of 20% to 25% at the 8 % to 10%,” he says, adding that he expects market conditions to “normalize” over the next two years.

“With the improvements to the light rail system and the construction of the Johor Baru-Singapore Rapid Transit System and the Penang Transport Master Plan to facilitate connectivity, I hope the country will move towards owning a property rather than a car. Families do not need to have so many vehicles. This I believe would be the silver lining [in the property market]and how the nation can move forward,” he says.

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