By Khairie Hisyam
Johor state government’s move to unveil a new tax rate for foreign property owners by end of 2013 is ostensibly to boost the revenue of local councils and improve services to residents. But is it also a cooling measure for the Iskandar property market?
“From what I read the intention is to raise more money, so this is not a cooling measure but the indirect impact will be,” commented Brian Koh, Executive Director of Consulting & Research of DTZ, which is part of UGL Services, a division of UGL Ltd.
According to news reports yesterday, the planned tax rate increase is targeted towards high-end properties worth in the millions of ringgit. “There will be no increase in tax for lower priced properties,” said Johor Menteri Besar Mohamed Khaled Nordin.
Iskandar overheating?
Arguably the hottest property scene in Malaysia at the moment, the Iskandar Malaysia property market has seen tremendous interest and participation from foreign investors. From RM111.37 billion total committed investment that has gone into the economic corridor from 2006 till March 31 this year, 36% is from foreign investors.
Foreign property purchasers have also flocked to the region, primarily driven by relatively lower prices and strong fundamentals promising potentially higher returns. The largest foreign investor in Iskandar is Singapore, with about RM4.92 billion in investments.
Prices are naturally sky-high and there are fears that Johoreans are being priced out of their own state. Earlier this year the Johor state government was reported as mulling over possibly increasing the minimum property purchase price for foreigners from RM500,000 to RM1 million.
“We are concerned about the spiralling house prices in the state, especially in Iskandar Malaysia,” said then chairman of Johor’s Local Government, Housing, Arts, Culture and Heritage Committee, Ahmad Zahri Jamil, in January this year when commenting on the matter.
But has the market really been overheating lately?
“In Danga Bay prices are already above RM1,100 per sq ft, so you tell me,” remarked an industry observer.
Sr Loo Kung Hoe of Rahim & Co (Johor) Sdn Bhd feels that the answer lies somewhere in between. He explains that this is only the case for high end properties in certain areas where there is a lack of the regular controls such as bumi quotas and minimum purchase price limit for foreigners. “So of course these areas are very hot.”
How will this impact the market?
Khaled Nordin
Details of the planned increase are still sketchy at this point, but Johor Menteri Besar Mohamed Khaled has confirmed in the press that while the rates are still being discussed, they would be imposed by end of the year.
The main question on everyone’s mind now is: how will it affect the market?
“Positively I think. This is a good cooling measure, provided (it is) temporary and not too excessive,” an industry observer told KiniBiz today.
However, many feel that there are not enough details available for a clearer picture of what the full ramifications might be. A company official of S P Setia Bhd Group noted that “it is too early to discuss the impact.”
“It may not be too significant,” added the official who declined to be named. “The foreigners can get a full picture once the new rate is out.”
Sharing the sentiment, Johor-based registered valuer Loo of Rahim & Co points out that compared to the actual purchase prices of the high-end properties, the increased tax rates would not be significant as the rates are not expected to be raised too drastically.
“In my opinion, the increase would not affect the market much. How high can (the rates) go?” commented Loo.
“Furthermore, in Johor the local authorities usually give chance to pay via two instalments,” added Loo.
Giving foreign investors pause?
Alongside the potential impact on the property market, it remains to be seen how this news will affect the inflow of foreign property buyers and investors into the Iskandar region.
Loo of Rahim & Co feels that the increase would not be too substantial. “In my opinion, it would not do much to discourage foreign investors. For those who buy properties for investing purposes, this may affect them a little bit but (not going to scare away investors.”
Koh of DTZ, on the other hand, feels that this announcement may give investors pause. “For the sceptic, this is another yo-yo policy prescription of the government, adding more uncertainty to the investment climate.”
Spotlight on Johor government
With so many questions still unanswered, the spotlight is on the Johor state government now to flesh out further details. The sentiment accordingly is one of anxious wait in the hopes that the government will get it right.
“We hope that any implementation will take into proper consideration the industry feedback and current market conditions,” said a Mah Sing spokesperson when contacted by KiniBiz.
To Koh of DTZ, the government needs to think carefully about the idea before making vague announcements on major policy statements, especially one that is deemed discriminatory or selective, if the government wants to create a conducive investment climate.
“Otherwise the bad publicity will be disastrous for future marketing efforts and undermine all the good works of the past,” said Koh.
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