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KUALA LUMPUR: The Johor property market will not likely be affected by the proposed tax rate hike on properties owned by foreigners, say analysts.
Last week, Johor Menteri Besar Datuk Mohamed Khaled Nordin said the state government would impose higher taxes on properties owned by foreigners. The new tax rates are still being discussed and would be imposed by the year-end.
Following the announcement, the property index plunged 4.7% to as low as 1433.67 points. Prior to the announcement, the index was at 1,503.57 but had fallen to 1,458.69 as at last Friday.
RHB Research views that the potential tax to be imposed is unlikely to be drastic, given that the government is commited to drive the success of Iskandar Malaysia.
“Foreign buyers in Iskandar are largely made up of Singaporeans, who have strong purchasing power and affordability. Hence, demand for properties may not be significantly affected,” said RHB Research in its report last week.
HwangDBS Vickers Research also sees a promising outlook for the property sector, and does not see the increased tax as an obstacle to foreign investors coming into the state.
“While the higher tax rates may suggest [a] higher purchase cost for foreigners, we believe it will not dampen the current strong buying interest in Johor, led largely by the robust development in Iskandar Malaysia,” said HwangDBS Vickers Research in its report last week.
The research house has an “overweight” rating on the Malaysian property sector. It has S P Setia Bhd as its top pick among big cap developers, while YTL Land & Development Bhd and Eastern & Oriental Bhd (E&O) are its top picks for small to mid-cap stocks.
An analyst from HwangDBS Vickers Research said it is too early to comment on the property market trend just a week after the announcement. “Post-general election (GE), investors start to hunt for properties. We believe the sector will go in tandem with Malaysia’s overall economic development,” he told The Edge Financial Daily.
Post-GE, the property index rose as much as 26.32% to its all-time high of 1,519.25 points from 1,202.67 in early May.
“We are positive on prospects at Nusajaya, but believe UEM Land Bhd’s current share price has priced in the positives after surging 33% post-election,” he added.
UEM Land owns the largest land bank in Iskandar. It is the master developer of Nusajaya which covers 23,875 acres (964.6ha), one of the flagship zones in Iskandar.
Although details of the new tax rate are still sketchy, developers who own property projects in Johor were quick to explain that a special levy may not be imposed on top of the purchase price of properties bought by foreigners. Instead, there would be an increase in the assessment rate.
Bernard Ching of Alliance Research said quit rents and assessments tend to be lower in Malaysia, hence it would not affect investment decisions of foreign investors.
He has a “buy” call on the property sector as he sees huge potential in the sector this year, not only in Iskandar but also in Penang.
This article first appeared in The Edge Financial Daily, on June 10, 2013.
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