KUALA LUMPUR: IJM Land Bhd led real estate stocks lower and builders fell after Prime Minister Datuk Seri Najib Tun Razak imposed a capital gains tax on property and the government cut development spending.

IJM Land, Malaysia’s fifth-biggest developer, slid 2% to RM2.44 at 10.28am on Oct 26, outpacing the FTSE Bursa Malaysia KLCI Index’s 0.4% decline. IGB Corp lost 3.3% to RM2.07.

The property tax is a “negative surprise” and will “dampen the velocity of transactions,” HwangDBS Vickers Research Sdn said in on Oct 26.

The government aims to bolster revenue and cut spending to help trim a budget deficit to 5.6% of GDP next year from a 22-year high of 7.4% in 2009. The government plans a 5% capital gains tax on property from January to help broaden the base of revenue collection, Najib said on Oct 23. Development expenditure will be reduced by 4.4% to RM51.2 billion next year.

Gamuda Bhd, the country’s second-biggest construction company, lost 1.2% to RM3.30, set for the biggest decline since Oct 9. IJM Corp dropped 1.2% to RM4.87.

Although we believe the property market has bottomed, we view this measure came too soon,” Citigroup Inc said in a report on Oct 26, referring to the property tax. It’s a “negative for the sector as it would curb buying interest”.

Sunway City Bhd and Sunrise Bhd had their stock ratings cut to “hold” from “buy” on Oct 26 by HwangDBS, which also lowered the target prices of SP Setia Bhd, DNP Holdings Bhd. and Eastern & Oriental Bhd.

Shares of Sunway were unchanged, while Sunrise fell 2.9% to RM2.32. SP Setia lost 1.3% to RM3.83, headed for the lowest level since July 13. DNP sank 2.7% to RM1.47 and Eastern & Oriental declined 4.1% to RM1.18.

“The government needs to ensure that the Malaysian tax system is equitable and able to generate revenue for development purposes,” Najib said in his budget speech. Property tax exemptions for families will remain, he said.

Malaysia scrapped a three-decade old capital gains tax on property in April 2007 in a bid to help clear a backlog of unsold homes and attract overseas funds.

Previously, the capital gains tax on property was 30% within the first two years, falling to 5% by the fifth year. For foreigners, the old tax started at 30% for the first five years, dropping to 5% in the sixth and subsequent years.

Neighbouring Singapore said in August it wouldn’t proceed with an earlier plan to impose a tax on some property transactions after receiving negative public feedback.

It had planned to tax individuals who sold more than one property within a four-year period to deter speculation. – Bloomberg LP