the impact of real property gains tax in real estate secondary market : a malaysian case study
DESCRIPTION
The Impact of Real Property Gains Tax in Real Estate Secondary Market : A Malaysian Case Study. KHUZAIMAH ABDULLAH National Institute of Valuation (INSPEN) Valuation and Property Services Department (JPPH) Ministry of Finance Malaysia [email protected]. - PowerPoint PPT PresentationTRANSCRIPT
European Real Estate Society (ERES) Conference 2010 23 – 26 June 2010, Milan, Italy
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INTRODUCTION
This is a preliminary study, looking into the impact of tax exemption on capital gains (RPGT) in real estate transaction.
•In March 2007, Prime Minister announced the exemption of RPGT with effect from April 1, 2007
• The exemption was intended to “inject more excitement and dynamism into both the property and the financial sectors” in boosting the economic activities
•The RPGT exemption however was re-imposed in January 1, 2010, following the PM’s announcement on 23 October 2009
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
•The first legislation to tax gains from the disposal of real estate was introduced by the enactment of Land Speculation Tax Act 1974 (LST), which came into force on December 6, 1973
•LST was introduced to curb speculative activities in property as such activities were rampant then and has triggered artificial market demand in the real estate market
•It was meant more for government policy tool to deter speculation in land and land-based activities than a revenue raising measures. LST provided for a single tax rate of 50% on chargeable gains in properties disposed within two years from the date of acquisition and if the disposal consideration was more than RM 200,000.
• LST was then repealed in 1975 and replaced by RPGT Act 1976, effective from 7th November, 1975
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
BACKGROUND
•Choong (2007) observed that the high tax rate under LST has deterred not only speculative activities but also genuine disposal of property. Thus, the RPGT Act was seen as an instrument to correct limitations to LST
•RPGT has since then, gone through several amendments since its inception. The amendments to RPGT rates were made to keep abreast of the changes in the economic conditions of the country
•In the light to boost the property market following recession period (1986), RPGT rates were dropped by 50%. Whilst during boom time (1994 to 1996), when property prices rose dramatically, RPGT was implemented to stabilize prices and to curtail undue speculation in property dealings
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
BACKGROUND
•The tax rate was then increased by 5% to 10% in 1995 to 1997
•The latest amendment of RPGT rate came into effect from 1 January 2010 with imposition of a flat rate of 5% within 5 years of ownership. The re-imposition was announced during 2010 Budget speech by the Prime Minister on 23 October 2009
•The lifting of exemption was a measure in the efforts to increase government revenue.
•Table 1 and Diagram 1 below tracked the changes in the rates of tax.
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
BACKGROUND
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
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Holding Period(after acquisition)
1975-1977(% tax)
1977-1984(% Tax) *1
1984-1986(% Tax)
1986-1995(% Tax)*2
1995-1997(% Tax)*3
1997- 20032004-2007
(% Tax)Malaysian Individuals and Companies
Within 2 yrs 50 40 40 20 30 303rd 40 30 30 15 20 204th 30 20 20 10 15 155th 20 10 10 5 5 56th 10 5 5 5
(Company only)5 (Company only)
5 (Company only)
7th &
onwardsNIL NIL 5
(Company only)5
(Company only)5 (Company only)
5 (Company only)
RPGT rates for foreigner:1)A flat rate of 40% tax effective from Oct. 1980, irrespective of holding period. 2)From Oct. 1986, flat rate of 40% was abolished. Equal rate imposed on all categories based on holding period. 3)Effective from Oct. 1995 to Oct. 1997, a flat rate of 30% tax imposed, irrespective of holding period.4)From 1997 on wards, tax rates for foreigners reduced to 5% on the 6th year onward.RPGT Exemption :1)1.6.2003 -31.5.20042)1.4.2007-31.12.2009
Table 1: RPGT Rates From 1975-2007
Source: Choong (2007) & Author
RPGT RATES
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
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Source: Choong (2007) & Author
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Diagram 1: RPGT Rates Timeline
RPGT RATES TIMELINE
•The research employed a frequency analysis of transactions recorded during the exemption period for the entire country.
•Data obtained from Property Market Report produced annually by National Property Information centre (NAPIC). Property data were categorized into five subsectors, namely residential, commercial, industrial, agriculture and development land
•The study focuses upon two key research questions:(i)Did the RPGT exemption boost up the property market?(ii)How has the exemption impact upon the property prices?
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
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METHODOLOGY
•Research question (i) focus upon test of change in demand in the specific time , i.e. ‘before , during and after’ exemption period.
•Announcement date on the exemption as well as re-imposition of RPGT is also imperative to observe due to time lag in property transaction.
•Research question (ii) called for tracking of price change.
•In tracking the price change resulted from the exemption, ‘matched pair analysis’ were conducted.•The technique employed identifying properties that were transacted before and after the exemption•Repeat sales occurred within five years of ownership form the criteria of samples chosen in the analysis.•The difference in price between the matched pairs were then evaluated to indicate the price change.
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
RESEARCH QUESTIONS
•SOURCE OF DATA •PROPERTY MARKET REPORT •NATIONAL PROPERTY INFORMATION CENTRE (NAPIC)
•DATA ANALYSIS•Impact on Volume of Transaction
•Repeat sales data for pre, during and post exemption dates tabulated in Table 2 and the line graph indicating the trend in Diagram 2.
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
DATA ANALYSIS
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
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Table 2: Volume of Transactions (without First Transfers) by Sub-sector and Time Period
Year Period Residential Commercial Industrial Agricultural Development Land Total2006 Q1 31,164 4,464 1,346 13,687 2,720 53,381
Q2 34,782 5,464 1,551 14,955 2,968 59,721
Q3 36,177 5,477 1,485 15,763 3,084 61,986
Q4 31,536 4,912 1,845 12,219 2,609 53,121
Total 133,659 20,317 6,227 56,624 11,381 228,2082007 Q1 29,856 4,871 1,562 14,381 3,274 53,944
Q2 33,663 5,321 1,644 15,688 3,439 59,755
Q3 43,516 6,631 1,998 16,028 3,735 71,909
Q4 33,494 5,794 1,740 14,058 3,362 58,447
Total 140,529 22,617 6,944 60,155 13,810 244,0552008 Q1 39,693 5,915 1,770 16,970 3,675 68,023
Q2 44,682 7,452 1,915 19,689 3,865 77,604
Q3 46,329 7,352 1,979 18,585 3,689 77,934
Q4 41,187 6,599 1,811 13,710 3,268 66,574
Total 171,891 27,318 7,475 68,954 14,497 290,1352009 Q1 42,552 6,143 1,487 15,788 3,346 69,316
Q2 39,964 6,157 1,659 16,462 3,300 67,542
Q3 46,103 7,192 1,663 16,870 3,242 75,070
Q4 51,943 8,474 2,212 19,246 4,720 86,595
Total 180,562 27,966 7,021 68,366 14,608 298,5232010 Q1 48,183 8,548 1,990 20,438 5,111 84,270
Source: NAPIC & Property Market ReportDATA ANALYSIS
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
DATA ANALYSIS
Pre-exemption During exemption Post
•During the exemption period, which was from Q2 of 2007 to Q4 of 2009, the total number of transactions showed a significant increase
•The increased occurred despite of the global financial crisis that began to surface in the Q3 2007. All subsectors were showing the positive impact towards the exemption
•The highest number of transaction recorded in Q4 2009 the government announcement on re-imposition of RPGT that was made in October.
•Upon re-imposition of RPGT, transaction of properties declined by almost 3%.
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
DATA ANALYSIS
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
Impact on Value of Transactions
The total value of transaction was in tandem with the total volume. Sharp increase in the total value detected during the exemption period.
DATA ANALYSIS
PostDuringPre
Contents INTRODUCTION LITERATURE REVIEW METHODOLOGY FINDINGS & DISCUSSION CONCLUSION & RECOMMENDATION
•Tracking of Price Change
•In tracking the effect of exemption on property price, this study relied on transaction price of properties in Federal Territory of Kuala Lumpur (FTKL)
•It was chosen as the case study due to its active market activities and the availability of data. FTKL consisted of five districts and in this case study, transactions in the district of Batu were chosen as sample for the study
•Transactions recorded from year 2002 to October 2009 were sorted to get repeat sales
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
Contents INTRODUCTION LITERATURE REVIEW METHODOLOGY FINDINGS & DISCUSSION CONCLUSION & RECOMMENDATION
•There were a total of 10,835 transaction data from 2002 to 2009
•Samples taken from 20% of the total transaction were analysed and it was observed that less than 5% indicated repeat sales occurred within 5 years of holding period
•Results from ‘matched pair analysis’ are shown in Appendix A and B
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
Contents INTRODUCTION LITERATURE REVIEW METHODOLOGY FINDINGS & DISCUSSION CONCLUSION & RECOMMENDATION
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
Impact on Value of Transactions
Source: Valuation & Property Services Department, FTKL
TRANSACTION OF DEVELOPMENT LAND IN FTKL
PROPERTY DETAILSTRANSACTION BEFORE -
1/4/2007TRANSACTION AFTER
1/4/2007PRICE CHANGENo Address / Lot No. Date of Price (RM) Date of Price (RM)
Transaction Transaction % %Yearly1 183 2/4/2004 4,500,000.00 12/18/2008 15,000,000 233% 52%
Sec. 43 4.5 yrs 2 203 8/8/2005 5,300,000.00 6/24/2008 15,000,000 183% 61%
Sec. 89A 3 yrs 3 241 5/2/1999 3,400,000.00 6/3/2008 16,861,950 396% 57%
Sec. 89A 7 yrs 4 248 2/4/2007 13,300,000.00 7/30/2007 29,500,000 122% 487%
Sec. 89A 3 months 5 86 3/5/2002 7,699,000.00 7/31/2007 23,000,000 199% 40%
Sec. 89A 5 yrs
6
956
2/28/2008 33,600,354.48
43% 129%
Cheras Road
6/8/2008 48,000,506.40
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
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APPENDIX B
Source: Valuation & Property Services Department, FTKL
NO. LOT NO, LAND AREA BLDG. AREA DATE OF TRANSACTION PRICE PRICE CHANGE (%) LOCATIONRESIDENTIAL
1 28298 297.28 - 1-Apr-05 190000 47.37KAMPONG BARU HULU FRI KEPONG
28298 297.28 - 19-Jun-09 280000 KAMPONG BARU HULU FRI KEPONG
2 32457 893 - 17-Feb-09 1900000 47.51 SIERRAMAS RESORT HOMES
32457 893 - 28-OCT-05 1288008 SIERRAMAS WEST
3 32190 260 204.01 8-Jun-04 970000 21.13 SIERRAMAS RESORT HOMES
32190 260 204.01 4-Jan-08 1175000 SIERRAMAS RESORT HOMES
4 11995 1335.902 232.5 1-Apr-04 1500000 10.00 TAMAN SRI GOMBAK
11995 1335.902 232.5 24-Sep-07 1650000 TAMAN SRI GOMBAK
5 23161 282.23 121.33 2-Sep-02 210000 47.62 TAMAN GOMBAK
23161 282.23 121.33 12-Jun-08 310000 TAMAN GOMBAK
6 11854 71.533 79.893 13-Jun-07 178000 5.95 TAMAN SRI GOMBAK
11854 71.533 78.78 28-OCT-05 168000 TAMAN SRI GOMBAK
7 10544 72.183 70.61 19-MAY-03 140000 0.00 TAMAN SRI GOMBAK
10544 72.183 70.61 22-MAY-07 140000 TAMAN SRI GOMBAK
8 11877 71.533 74.69 12-Sep-03 143000 25.87 TAMAN SRI GOMBAK
DATA ANALYSIS
Contents INTRODUCTION LITERATURE REVIEW METHODOLOGY FINDINGS & DISCUSSION CONCLUSION & RECOMMENDATION
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
APPENDIX B
Source: Valuation & Property Services Department, FTKL
11877 71.533 74.69 28-AUG-08 180000 TAMAN SRI GOMBAK
9 11988 148.64 80.36 13-Feb-03 95000 85.26 TAMAN GREENWOOD
11988 148.64 80.36 5-Apr-07 176000 TAMAN GREENWOOD
10 1214 132.847 91.97 4-Sep-07 185000 23.33 TAMAN DESA JAYA
1214 132.847 91.97 05-AUG-04 150000 TAMAN DESA JAYA
11 12358 111.48 126.35 13-Apr-07 262000 74.67 TAMAN DAYA
12358 111.48 126.35 06-AUG-03 150000 TAMAN DAYA
12 13608 153.285 138.98 4-Jan-07 290000 7.41 TAMAN SELAYANG INDAH
13608 153.285 138.98 19-AUG-05 270000 TAMAN SELAYANG INDAH
13 15762 100.332 89.84 24-Apr-09 175000 9.38 TAMAN BIDARA
15762 100.332 89.84 03-MAY-07 160000 TAMAN BIDARA
14 169 148.64 92.9 8-Apr-09 265000 140.91 TAMAN GREENWOOD
169 148.64 92.9 20-MAR-07 110000 TAMAN GREENWOOD
15 17351 128.016 137 11-Apr-03 245000 2.04 BANDAR BARU SELAYANG
17351 128.016 137 25-Jan-07 250000 BANDAR BARU SELAYANG
16 17732 153.285 116.69 29-Jun-04 257000 8.95 TAMAN BIDARA
17732 153.285 116.69 19-DEC-07 280000 TAMAN BIDARA
17 20792 132.847 102.19 4-Jan-05 125000 29.60 TAMAN DESA JAYA
20792 132.847 102.19 03-AUG-07 162000 TAMAN DESA JAYA
18 23156 153.285 115.93 16-Nov-06 300000 6.67 B. BARU SELAYANG
Contents INTRODUCTION LITERATURE REVIEW METHODOLOGY FINDINGS & DISCUSSION CONCLUSION & RECOMMENDATION
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
APPENDIX B
Source: Valuation & Property Services Department, FTKL
23156 153.285 115.93 20-MAY-08 320000 B.BARU SELAYANG
19 25749 153.28 98.11 10-Jun-05 238000 5.04 TAMAN SRI MELATI
25749 153.28 98.11 10-MAY-07 250000 TAMAN SRI MELATI
20 16157 163.318 137.4 2-Jul-04 240000 3.75 TAMAN BIDARA
16157 163.318 137.4 01-OCT-07 249000 TAMAN BIDARA
21 14254 76.643 91.6 23-Nov-07 160000 6.67 TAMAN SELAYANG UTAMA
14254 76.643 91.6 17-AUG-06 150000 TAMAN SELAYANG UTAMA
22 18894 97.545 55.94 21-Apr-08 180000 71.43 TAMAN EHSAN
18894 97.545 55.94 20-AUG-02 105000 TAMAN EHSAN
23 27550 174 78.04 18-Apr-05 235000 12.77 TAMAN SAMUDRA
27550 174 78.04 22-DEC-08 265000 TAMAN SAMUDRA
24 10169 71.533 70.61 6-Feb-09 165000 135.71 TAMAN SRI GOMBAK
10169 71.533 70.61 25-AUG-03 70000 TAMAN SRI GOMBAK
25 13404 69.675 78.08 23-Nov-06 170000 10.00 TAMAN BUKIT DESA JAYA
13404 69.675 78.08 07-MAR-07 187000 TAMAN BUKIT DESA JAYA
26 13473 69.675 78.08 13-Feb-08 190000 1.06 TAMAN BUKIT DESA JAYA
13473 69.675 78.08 11-MAY-05 188000 TAMAN BUKIT DESA JAYA
27 17582 132.847 81.57 16-Sep-05 170000 26.47 TAMAN DESA JAYA
17582 132.847 81.57 18-Feb-08 215000 TAMAN DESA JAYA
Contents INTRODUCTION LITERATURE REVIEW METHODOLOGY FINDINGS & DISCUSSION CONCLUSION & RECOMMENDATION
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
APPENDIX B
Source: Valuation & Property Services Department, FTKL
28 18433/F-4-25 85.747 85.74 17-Jan-06 100000 30.00 TAMAN SAMUDRA
18433/F-4-25 85.747 85.74 24-MAY-09 130000 TAMAN SAMUDRA
29 23501/3-46 96.152 96.15 29-Jun-06 117520 12.32 WANGSA PERMAI
23501/3-46 96.152 96.15 16-Sep-08 132000 WANGSA PERMAI
30 23501/5-43 96.152 96.15 5-Sep-06 119120 4.94 WANGSA PERMAI
23501/5-43 96.152 96.15 16-Jul-08 125000 WANGSA PERMAI
31 23501/6-35 96.152 96.15 16-Jun-08 135000 12.58 WANGSA PERMAI
23501/6-35 96.152 96.15 29-MAY-06 119920 WANGSA PERMAI
COMMERCIAL PROPERTY
1 1424 132.847 237.5 29-Apr-04 182172 70.22 BANDAR BARU KUNDANG
1424 132.847 237.5 3-Jun-08 310085 BANDAR BARU KUNDANG
2 1507 132.847 251.39 14-Sep-07 430000 30.30 TAMAN DESA JAYA
1507 132.847 251.39 01-OCT-03 330000 TAMAN DESA JAYA
3 28854 139.35 364.18 11-Jun-07 700000 45.83 B. BARU SELAYANG
28854 139.35 364.18 26-AUG-03 480000 B. BARU SELAYANG
4 13824 191 652 02-MAR-09 2150000 14.36 TAMAN DESA JAYA
13824 191 652 08-MAY-06 1880000 TAMAN DESA JAYA
INDUSTRIAL PROPERTY
1 14437 574.865 765.5 18-Apr-07 985000 9.44 BATU CAVES
14437 574.865 765.5 04-OCT-04 900000 BATU CAVES
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
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APPENDIX B
Source: Valuation & Property Services Department, FTKL
2 14471 209.025 509.57 11-Jul-05 450000 53.33
KAW PERUSAHAAN RINGAN BATU CAVES
14471 209.025 509.57 25-OCT-07 690000
KAW PERUSAHAAN RINGAN BATU CAVES
3 28773 278.7 409.7 25-Jul-03 720000 13.89TAMAN SRI BATU CAVES
28773 278.7 409.7 08-MAY-07 820000 TAMAN SRI BATU CAVES
4 28772 391.666 437.06 01-AUG-08 1450000 20.83TAMAN SRI BATU CAVES
28772 391.666 437.06 05-MAY-05 1200000 TAMAN SRI BATU CAVES
DATA ANALYSIS
•The real estate market responded positively to the exemption of RPGT. Transaction data has shown that volume of transactions and value of all sub-sectors has increased.
•The announcement made on 23 October 2009 on re-imposition of RPGT with effect from 1 January, 2010 showed a decline in the value and volume of transaction of properties.
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
DISCUSSION
•Study on implications of RPGT exemption on other financial/revenue resources e.g. income tax, stamp duty.
•For price change, to widen the sample size to include nationwide data.
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
FUTURE RESEARCH
European Real Estate Society (ERES) Conference 2010
23 – 26 June 2010, Milan, Italy
National Institute of Valuation (INSPEN)Valuation and Property Services Department (JPPH)
Ministry of Finance Malaysia
J P P H
QUESTION AND ANSWER