UPENJ: Tax revision on Johor properties won't hurt

THE Johor Economic Planning Unit (UPENJ) says the state government's proposal to increase the tax on foreign-owned properties in Johor will not dampen market demand.

"Such revisions will not be a burden on property owners, whether local or foreign, and will not dampen the property market," UPENJ deputy director Dr Badrul Hisham Kassim tells The Edge.

The economic planning unit has been tasked by the state government to study the proposal.

"It is still under discussion and evaluation by the state authorities, taking into account the implementation mechanism and market feedback," says Badrul.

The Edge has learnt that UPENJ met state executive committee members during the week of June 3-9, to discuss the matter.

"The assessment rates in Johor have not been reviewed in over 30 years — that is a long time. It is fair that a review is done now, but the publicity over the matter will only damage sentiment unnecessarily," says an industry source.

Developers with major projects in the state such as Mah Sing Group Bhd, UEM Land Holdings Bhd, Sunway Bhd and S P Setia Bhd, have seen their counters falling by 6.25%, 7.43%, 9.37% and 4.61% respectively over that week to June 8, partly because of concerns that the tax revision would deter foreign purchases.

But some believe that the proposal could benefit the Johor property market in the long term and only have a minimal impact on foreign buying interest.

"The increase in the volume of properties requires more services to be provided to improve the quality of living in Iskandar Malaysia," says Samuel Tan, executive director of KGV International Property Consultants.

For this reason, the local councils need to ensure that they increase their revenue to deliver better services, he tells The Edge.

"There is also a need to differentiate the property tax to be paid by foreigners vis-à-vis the locals. This is a reasonable measure provided the different rate is not seen as too discriminating," says Samuel.

According to Rozalina Abdul Rahim, iProperty.com's head of developer sales for Malaysia, the proposed tax increase is only fair and in the long term, would be better for the market provided the amenities being provided are up to international standards promised.

"Such upgrading of facilities and amenities will mean greater appreciation in the prices of Iskandar properties in the future," says Rozalina, who was formerly with UEM Land.

"It all boils down to implementation, and I think it will be good because so far, the authorities have delivered what they promised on time."

She adds that foreign purchases will likely not be affected by any rise in taxes because properties in Iskandar will remain cheaper than those in Singapore, Hong Kong, Japan and mainland China, for example.

Even after the announcement on the tax rise, Iskandar properties remain "very hot", she says. Any impact will only be seen on the high-end million dollar properties that draw foreign buyers, and not so much the medium-range properties which largely cater for locals, she adds.

High-end offerings in Nusajaya, Puteri Harbour, Medini and East Ledang have no foreign quota and foreign buyers make up 50% to 70% of sales in these projects.

However, the wait-and-see attitude among foreign buyers may prevail for a while as they digest the developments that remain unclear at the moment, says Tan Ka Leong, director at CH Williams Talhar & Wong.

Be that as it may, foreign buyers only comprises an average of 20% in the state, with purchasers largely from Singapore.

"In the last two years, we have seen growing interest from Japan especially, but also Hong Kong and Korea," Ka Leong tells The Edge.

"But even with the growing interest, I don't think they will ever catch up to the Singaporeans, who have a lot of confidence in capital appreciation in these properties."

Analysts say the property revaluation exercise to be carried out will likely involve a rise in the "improved value" of properties on which assessment tax or "cukai pintu" is levied.

"The different municipalities in Johor have the right to review this value every five years, but the last time any of them did so was around 1995/96," Ka Leong laments. So it really is the right time to revisit these valuations and subsequently, the state may decide to impose different assessment tax rates on locals and foreigners, he adds.

The current assessment rates for areas under Majlis Perbandaran Johor Bahru are 0.13% for residential, 0.26% for commercial and 0.28% for industrial properties.

Even if assessment rates are increased, there will be little impact on homeowners because on average, assessment tax accounts for only 1% to 2% per annum of total overall property owner expenses.

However, KGV's Samuel points out that there is a risk of double taxing if tax rates for foreigners and assessment rates are hiked simultaneously.

"The mechanism is already in place where different rates are levied on different types of properties. Technically, this is already taken care of in our present assessment system and we should avoid double taxing."

Furthermore, assessment is about the services provided and should not discriminate between locals and foreigners, he notes. "Unless a particular location is enjoying a better range of services, whether they are locals or foreigners should not make a difference.”


This story first appeared in The Edge weekly edition of June 10-16, 2013.