20181114 5% RPGT beyond 5 years, Part 2

20181114 (Wed)

What would happen to your house now that government is going to tax 5% beyond 5 years? Part 2.

You might have a thinking that when this 5% is built onto the selling price of the properties, it will spiral the property price increase in a short term. Right?

Not really. I am not saying this because I politically supporting the Budget 2019.

The 2 main purposes of the RPGT are:

1. Prevention of speculative purchase and sale of properties.

2. Revenue for the government.

The first priority for RPGT in the first 3 years of property purchase is to discourage speculative buying and selling. The rate of RPGT for the first 3 years is at 30% (high). What this means is when you purchase a property say at RM1mio and sell it at RM1.5mio within 3 years, the gain – RM500,000 is levied a tax of 30%, which is RM150,000 (a lot!).

This can deter speculators to “wipe” out new launches, and re-sell them later. While waiting for construction (paying progressive payment) or in the days of banned DIBS (Developer Interest Bearing Scheme) – ie no need to pay any interest during construction, and during vacant possession, sell to take profit.

Holding a property for more than 5 years would not have this cost saving as interest payment to the completed project might have eaten into the profit. Furthermore, it is too slow in gains which need to drag on for so long! Over and above, incoming competitions may ruin the profits. This is because other developments around the area might be competing for the same buyers.

Other reasons that this 5% have little impact on house price is RPGT 1976, Schedule 4 where exemptions are allowed.

A “once-in-a-lifetime” RPGT exemption is available for individuals citizen of Malaysia on any gains arising from the disposal of his residential property. Furthermore, there is the exemption for transfer of property as gift in between family members. This exemption is only applicable for transfer in between husband and wife, parent and child, grandparent and grandchild. (Take notes that transfer between sibling, brothers or sisters are not applicable).

All these reasons will allow those holding more than 5 years to avoid paying for this RPGT. Hence, the impact on property price might be negligible.

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