Property market is expect to self-correct in the next year

PETALING JAYA: The "bold measures" to cool the market under the Budget 2014 will help the property market self-correct within the next six month to one year, said the spokesperson for the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS)

The higher real property gains tax (RPGT), goods and services tax (GST) which will kick in April 2015, banks to stop funding projects with developer interest-bearing schemes (DIBS) and developers to be more upfront about their freebies will likely cause a surge in property transactions and launches as developers, institutions and individuals rush to "beat the system", followed by a dearth of launches as developers cope with added cost arising from the GST.

"The market is dynamic. If supply is less than demand, developers will come in to build more. So the mechanism of demand and supply will self-correct," said James Wong, publicity chairman for PEPS.

PEPS past president Elvin Fernandez also noted that the RPGT will help mitigate the higher property prices - including residential properties due to higher material and labour cost arising from the GST.

"We have 17 months before GST kicks in and in the meantime you have the RPGT so that will arrest the rush into property to beat the artificiality inherent in the implementation of the GST.

The effective abolishment of the DIBS and transparency about marketing packages will also lead to a more balanced and realistic market, said PEPS vice president Siders Sittampalam.

"With this moves against excessive speculation, we will have more realistic pricing, backed by fundamentals rather than excessive speculation," he said.

He added that the market was distorted by all the incentives by the developers, who had initially introduced these innovative schemes to boost flagging sales in the aftermath of the 2008 financial crisis.

"Prior to this we had speculators outstripping investors and with these measures to curb excessive speculation we will have a market that is a little more realistic, dominated by investors and owner-occupiers.

"With the abolishment of the DIBS... the secondary market will start leading the way in terms of pricing," he said.

Meanwhile,  PEPS president Lim Lian Hong noted that the revised RPGT is more effective in reducing excessive speculation because it covered the usual construction period of 36 months.

"Buyers should at least see the construction of their property to completon, because if there is a lot of selling and reseling, it would interrupt construction, cause a lot of upheavals, so the project will not go on smoothly. The exemption after five years is also good because it protects long-term investors," he said.

According to Lim, in the past two yeard hotspots such as Kuala Lumpur, Penang and Johor have seen prices rise by 20% to 30% per year.

The new RPGT rate imposes a 30% tax on the first three years of holding,  followed by 20% on the fourth year and 15% on the fifth year. Sales from the sixth year onwards are exempt.

Meanwhile, foreign investors and companies will be charged a 30% tax for the first five years and 5% on sales in subsequent years.