OCTOBER 14 — During the budget announcement, Finance Minister Lim Guan Eng announced that foreign buyer can now buy condominium with a lower price threshold of RM600,000, reduced from RM1 million previously.
The announcement received a lot of flak from the general public, as it would potentially cause an increase in price for current unit to meet the threshold. For example, condominium priced at RM500,000 could see price increase to RM600,000 due to sudden huge demand at that pricing point.
However, last Sunday Lim Guan Eng clarified that reduced threshold of foreign buyers for condominium is only for current unsold houses and will not be applicable to newly launches.
Although not ideal, this move might be the best option that Government could take to avoid structural issues due to this huge volume of unsold properties. Unsold properties mean developers face a liquidity constraint, which consequentially cause them unable to develop and offer new houses in the market.
Unsold properties also mean the developers might be unable to service their loan with financial institutions. Potential loan default from the property industries in general would have dire consequences towards financial institutions, and country in general.
However, to improve the programme, at least three things can be considered by the government.
First, since the foreigners will not be entitled for the benefit under Home Ownership Campaign, the government should tax the 10 per cent proceeds from the sale, that was supposed to be given as a discount for local purchaser. In addition to that, 5 per cent penalty should be imposed to the developers to serve as warning for them from constructing houses that do not meet market demand. The fund can be used by the Government to fund affordable housing development and subsidize house for low income group.
Second, the Government should seriously consider implementing vacant unit tax. This would reduce developers holding power and force them to sell at discount if they unable to sell their product, which primarily happened due to developers’ wrong forecast and product pricing. Developers would also have an option to lease the property while getting buyers, and this move would increase the supply of rental units available, that would push rental rate down.
And third, the Government should fulfil one of their manifesto agenda, which is to discourage land hoarding via setting a time limit for developers to develop their land. As we can see during down time period such as now, developers have been delaying new product launching, while at the same time active in land banking activities. When the downturn subsides, there will be sudden spike in demand for houses, yet due to low amount of houses in construction and planning, price will increase substantially. The biggest beneficiary would be the landowners and developers who are active in betting in land banking exercises.
Implementing these measures would potentially stabilize the market and deter the developers from constructing products that do not meet and fulfil market demand. The move by the Government to help resolving this issue should be applauded as it may cause huge structural issues if no action is taken.
*Mohd Ariff Mohd Daud, PhD is Senior Research Analyst at Institute for Research & Development of Policy (IRDP).
*This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
