20181116 4% Stamp Duty above RM1mio

20181116 (Fri)

Would stamp duty of 4% make property more expensive?

All taxes will increase the transaction cost. No business will absorb this higher cost but the buyer. So, the taxes will be added to the cost price and buyer will bear the premium. Or else, it is just desperate sellers – which is rare unless someone is stuck with greed.

When you have a property costing RM1,100,000. You have exceeded the RM1,000,000 bracket. So, RM100,000 extra will be subjected to 4% stamp duty, which is RM4,000. Who is to pay for this stamp duty? In Stamp Act, 1949 – the purchaser or in the word of the law – the grantee or transferee is to pay this stamp duty. See 3rd Schedule as attached. However, in many local practices, the Sale and Purchase Agreement usually writes 50% each. This is not the law, but as agreed by both parties. Anyway, the RM4,000 would be a negotiating position for either the buyer or the seller. Total stamp duty now with this 4% will be:

1% for 1st 100,000 = RM1,000

2% for 100,001 – 500,000 = RM8,000

3% for 500,001 – 1,000,000 = RM15,000

4% for 1,000,001 – 1,100,000 = RM4,000

Total RM28,000 (now with 4%), instead of RM24,000 (without the 4%). Therefore, properties above a million RM will probably have the below scenario:

Cash settlement of RM100,000 so that it is reported below RM1mio.

This 4% premium is small amount compared to RM100,000. Hence, seller will agree to share the burden. Use this as advantage to negotiate 50% sharing of of stamp duty.

It will be harder to sell a property beyond RM1mio as buyer will use 4% as higher transaction cost to negotiate.

Notwithstanding, good properties at good location will always have good value. The impact of stamp duty 4% above RM1mio will not have much effect larger than the general real estate capital gain of average 6.8% annually over the last 20 years!

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