The stimulants to unlock the billions of ringgit presently stuck in unsold property is estimated to be worth almost RM500 million to the government and the country’s financial institutions, made up principally of forgone income. However, the bulk of the amount is likely to be in the form of the government refraining from collecting Real Property Gains Tax for a year, effective June 1.

Prime Minister Datuk Seri Dr Mahathir Mohamad, who also hold the finance portfolio, had said during the unveiling of the stimuli on Wednesday that the entire package to resuscitate the country’s economy due to impediments such as the invasion of Iraq, the outbreak of the Severe Acute Respiratory Syndrome (SARS) and global slowdown would cost a total of RM7.3 billion.

Part of the amount is made up of inducements in the form of tax relief, Real Property Gains Tax exemptions, bank subsidies on interest and stamp duty waiver for loan documentation, which had been introduced to boost the flagging property market by encouraging home ownership and improving the well-being of related down-line development industries.

While the exercise is essentially centred on jump-starting the market by encouraging sales, developers have not been left out as their related cost of construction would be lessened with the reduction of their obligatory contribution to the Construction Industry Development Board.

Furthermore, land alienation and land use applications will be processed under a fast-track system to expedite land transactions.

Analysts hope the intense concentration of stimuli on property will be able to effectively convert bricks and mortar into money. Based on government statistics, the country’s total property overhang comprising units remaining unsold for nine months or more after being launched presently stands at RM29.14 billion. Of this, residential stock makes up 27 per cent or RM7.88 billion, while commercial shophouses account for three per cent or RM810 million.

Eradication of these two elements from the overhang composition would reduce the unsold value by a third, pouring back RM8.69 billion into the economy.

It is seen that the balance of the overhang, made up of industrial units as well as rentable retail and office building premises, would be absorbed on the back of a revived economy prompting increased levels of trade and commerce.

On the measures being initiated by the government to stir the lumbering property industry, the following plans directed at buyers are seen to be of significance:

Project Hope
Incentives under the Home Ownership for the People project (Project Hope) appear to be two-pronged to encourage homeownership and reduce property overhang.

One of the incentives involves new buyers of houses costing below RM100,000 being provided a subsidy of three per cent on housing loan interest payments for the first year, or an interest free loan for the first 10 per cent deposit for the first year.

Loans for the purchase, however, must be obtained from Bank Simpanan Nasional (BSN).

Purchasers who obtain loans from other banks will be given a RM600 rebate, which will be credited to their loan account.

A property developer who spoke on condition of anonymity however said this measure “would not make a significant impact”.

“Some banks are already offering zero per cent or 2.8 per cent interest in the first year of a housing loan. Furthermore, full draw-down is rarely achieved in the first year unless the property is already completed. On this basis, the savings would be small.”

Federation of Malaysian Consumers’ Association secretary-general N. Marimuthu is of the view that the measure is not far-reaching enough.

“Firstly, it should apply to houses costing RM200,000 and below as this is the range most houses are pegged at nowadays. The subsidy of three per cent is good, but should be for a period of three years.”

Insofar as the RM600 cash rebate is concerned, National House Buyers Association (HBA) secretary-general Chang Kim Loong expressed hope that the money would be promptly credited into purchasers’ account.

Snapshot on savings:
a) With BSN three per cent loan subsidy for a RM99,000 unit - about RM500 for the first year based on a 90 per cent loan.
b) With BSN interest-free loan on 10 per cent deposit for a RM99,000 unit - about RM700 based on BSN’s personal loan rate of seven per cent per annum.
(c) With non-BSN loan - RM600 rebate

Another measure under Project Hope is in the form of tax relief for new buyers of houses costing between RM100,000 and RM180,000.

The relief, which is on a sliding scale, would see buyers being given an allowable deduction of RM5,000 for the year of assessment 2003, RM3,000 for 2004 and RM2,000 for 2005.

Sunway City Bhd general manager of sales and marketing Ng Heng Phai said the amount of savings a buyer would enjoy would depend on the tax bracket he or she is in.

“This incentive may have been formulated to help move completed/ overhang stock,” he added.

Snapshot on savings:
On the understanding that this incentive will be treated in the same manner as other types of tax reliefs such as for life insurance premiums and medical expense, the following deductions could be obtained:
a) Purchasers with a monthly household income of RM2,000 - About RM160 over three years;
b) Purchasers with a monthly household income of RM2,500 - About RM300 over three years;
c) Purchasers with a monthly household income of RM3,000 - About RM700 over three years.

Real Property Gains Tax (RPGT) exemption
With this feature, vendors who want to dispose their properties within the first four years of ownership need not have to pay RPGT on any capital appreciation they enjoy for a period of one year commencing June 1.

According to Sunway’s Ng, this could “motivate owners to upgrade to better houses, which would effectively stimulate sales for higher end housing”.

Snapshot on cost:
The exemption could be quite costly for the government. In 2002, some 230,000 properties were transacted. Assuming this performance was repeated this year, and a quarter of the transactions were sold within the second year of ownership when the RPGT rate is at 20 per cent, and assuming a profit rate of RM20,000, it would imply a loss in revenue of RM230 million.

Stamp duty waiver
Unlike previous stamp duty waivers, this time around, it will only be applicable to completed loan documents related to purchase of residential properties priced RM180,000 and below, on condition that the sale and purchase agreement is executed within one year from June 1.

Welcoming the government’s move, HBA’s Chang reasoned that the RM180,000 cap is because the bulk of unsold housing stock, totalling nearly 70 per cent is within the RM50,000 to RM180,000 price bracket.

Timbunan Alam Development Sdn Bhd Jeffrey Choong, however, is of the opinion that the RM180,000 cap is because the government felt that those who can afford properties above RM180,000 would have no problems paying the stamp duty.

Snapshot on savings:
This incentive works on the basis that the more you borrow, the more you save:
a) Purchasers taking a 90 per cent loan for a RM100,000 unit - RM450;
b) Purchasers taking a 90 per cent loan for a RM120,000 unit - RM540;
c) Purchasers taking a 90 per cent loan for a RM180,000 unit - RM810.