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NPL growth may overtake loan growth

PETALING JAYA: Non-performing loan (NPL) growth for banks in Malaysia could be higher than their loan growth this year as the industry deals with the economic fallout from the coronavirus (Covid-19) outbreak.

S&P Global Ratings projects the NPL ratio could peak to between 1.7% and 1.8% of outstanding loans this year compared with 1.5% as of Dec 31,2019.

The ratings house also revised down its credit growth forecast for Malaysian banks, from the previous 3%-5% to 1%-3% in 2020.

S&P Global Ratings credit analyst Nancy Duan said: “The global outbreak of Covid-19 and renewed domestic political uncertainty add obstacles for Malaysian banks, which are already grappling with the effects of a slowing economy and dampened investor and consumer sentiments over the past year.”

In particular, the global health emergency and domestic political upheaval are affecting oil prices, consumer confidence and the broader economy in Malaysia.

S&P Global Ratings’ forecasts are based on the assumption that the Covid-19 outbreak will subside and the domestic political stability can be restored over the coming months.

Should these risks prolong beyond the second quarter of 2020, the forecast figures would need to be revisited.

A banking analyst disagrees with the assumptions of the foreign credit agency and expects loan growth in 2020 to be about 4%, in line with gross domestic product (GDP) growth.

“Looking at the 1.6% NPL ratio recorded in January 2020, there could be a slight uptick going forward.

“This will depend on the depth of external factors apart from Covid-19, such as the US-China trade tensions, which is still ongoing, ” he said.

When asked if the overnight policy rate (OPR) cuts can help boost loan demand, the analyst opined that this would be dependent on market sentiments, as further rate cuts may not translate to improved consumer purchasing power.

Kenanga Research, in a sector report, said accommodative interest rates will continue to support a resilient household loan segment, alleviating the moderation in business loans.

Given the banks’ modest target for 2020 after the recent results season, the research house forecasts loan growth at 4% to 4.5% for the year, driven by resilient household and business loans, with a fiscal push expected in the second half of the year.

“The soft interest rate regime is expected to support loan growth coupled with ease of application.

“While the uptick in impaired loans is a concern, it is still below its five-year peak of 1.67% in February 2015, ” said Kenanga Research.

Meanwhile, S&P Global Ratings also expects more potential easing from Bank Negara to support the economy, leading to a further five to 10 basis point compression of banks’ net interest margin in 2020.

“Our base case assumes stable capital adequacy ratios.

“However, risks are now tilted to the downside, given added drains on profitability and the rising dividend payouts announced by some banks last week, ” it said.

On the government’s RM20bil stimulus package, S&P Global Ratings expects it to have a neutral impact on local banks.

“Supportive policies in the package could strengthen lifelines to banks’ affected clients.

“However, we feel the special credit facility of RM2bil is more symbolic than material, and that credit demand will weaken visibly, especially over the first half of 2020.

“Transitory asset-quality problems could become permanent if the severity and duration of the disruptions were prolonged.

“This in turn would eventually push up banks’ credit costs – meaning the allocation of provisions for impaired and potentially impaired loans, ” the credit risk research house noted, projecting sector-wide credit costs to be 20 to 25 basis points of total loans in 2020.

It is interesting to note that Malaysian banks’ direct exposure to the most disrupted sectors by Covid-19, such as hotels, restaurants and airlines, is small, at only a single-digit percentage of loan books on average.

Duan added that Malaysian banks are fundamentally strong, backed by low NPL ratios, light credit costs, and large capital buffers.

“The banks’ credit profiles have remained solid despite muted profitability in recent years. Conditions in 2020 will put the banks to a much bigger test to their resilience, ” she said.

Source: TheStar

 

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KPKT ready to cooperate with state govt on rent-to-own scheme

The Housing and Local Government Ministry (KPKT) is prepared to assist state governments in the sale of affordable houses developed by state governments through rent-to-own financing scheme.

Its Minister Zuraida Kamaruddin said efforts to ensure more people own houses are being carried out by both the federal and state governments.

However, some self-employed buyers have problems applying for bank loan as they do not have income statement.

“Those who work on their own were able to buy houses and join the rent-to-own scheme we introduced in September and we hope to help more people especially those in the B40 would be able to own houses.

“Under the rent-to-own scheme, tenants who pay rent on time for five years would be offered to buy the house under the schemes,” she said.

Zuraida told a media conference after launching Syarikat Perumahan Negara Bhd (SPNB) affordable houses here today which was attended by its chairman Mohammad Mantek who is also KPKT secretary-general.

KPKT, according to Zuraida, is open about forging cooperation with state governments and landowners in the construction of affordable house if the site was suitable.

Commenting on the project, Zuraida said it would be developed via a design and build concept with private financing initiative on a 59-hectare site involving the construction of 1,422 units of houses in three phases over seven years.

He said the first phase would be starting in January and is expected to be completed in three years involving 186 units of double-storey link houses (349 units) and single storey shops (12 units).

The location of the houses was seen as strategic as it is near to the Sultan Ahmad Shah Airport, Gambang water park, army camp and public universities apart being not far from Kuantan.

“We also made it a policy so that affordable houses are built to meet the specification of at least 900 sq ft to ensure the comfort of buyers,” she said.

Zuraida said the project was part of the commitment of the government to fulfill the pledge to build one million affordable houses in 10 years as found in Pakatan Harapan’s general election manifesto.

Source: The Edge

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What causes the penny pinch?

Despite Malaysia’s low inflation rate, many still struggle to get by. Why is this so? The World Bank’s latest Malaysia Economic Monitor report highlights areas that may contribute to our high cost of living.

MALAYSIANS say they are struggling to get by financially with the prevailing perception being that that cost of living is cripplingly high.

This is despite the fact that Malaysia experiences consistently low rates of inflation. Headline inflation averaged less than 2% per year since January 2015 and moderating to less than 1 per cent since January 2018 – well below the growth rates of the economy and average nominal incomes.

Why then, are Malaysians feeling the pinch?

In its latest Malaysia Economic Monitor (MEM) report released on Monday, the World Bank Group Malaysia identified four factors that impact the cost of living and may account for Malaysians’ difficulty in making ends meet.

They are (i) inadequate income, (ii) insufficient affordable housing, (iii) high household debt, and (iv) consumer price inflation differentials.

Inadequate income

According to the Gallup World Poll, as of 2018, nearly 30% of Malaysians felt that they do not have enough money for food and 23% reported having inadequate money for shelter.

In fact, the World Bank found that approximately 27% of households in Kuala Lumpur earn less than Bank Negara’s 2016 estimated monthly living wage – RM2,700 a month for a single person, RM4,500 for a couple without a child and RM6,500 for a couple with two children in the city.

Although median incomes continue to outpace inflation, the MEM report found that wage growth for the youth and workers without tertiary education has been slow-moving.

How do we bring down costs?

According to Khazanah Research Institute’s (KRI) director of research Dr Suraya Ismail, government-led social programmes have a positive impact on consumption expenditure by lowering living costs.

“The expenditure for households will be lower in countries where the provision of government services is extensive and cover households’ basic needs. Examples would include universal healthcare, free formal education, subsidised childcare and subsidised mass transportation systems, ” she says in an email interview with Sunday Star.

One way to finance these initiatives is through progressive tax.

“As reported in MEM, the total tax revenue is only 14% of GDP. This is not enough even when compared to international benchmarks. More could be done to increase this percentage, by increasing taxes on personal wealth as well as the top income earners, ” says Suraya.

Apart from progressive tax, the MEM suggests increasing stamp duty on purchases of higher-value properties and widening the scope of the real property gains tax.

Sunway University Business School economist Professor Yeah Kim Leng believes that the issue of low wages can be overcome by raising the quality of the education system, improving industry competitiveness and productivity, and accelerating the shift to higher value, knowledge-based and technology-driven activities.

“This will require sound, prudent macroeconomic management that not only ensure a stable price environment but a well-functioning economy that engenders investor confidence, ” says Yeah, who is also Malaysian Economic Association Deputy President.

“Investor confidence will lead to sustained domestic and foreign investment that in turn generates the demand for skilled and high-paying jobs, thereby creating a virtuous cycle of investment, employment and wage growth that banishes the low wage-high living cost conundrum, ” he explains.

Furthermore, Yeah suggests that given the country’s low labour income share, companies that achieve a certain minimum profitability could be encouraged to adopt the shared prosperity goal.

In this model, B40 employees would be given greater emphasis in salary and wage allocation of company budgets and performance incentives.

“A 10-10 “double happiness” formula of at least 10% annual salary increase and a bonus of at least 10% of the employee’s annual salary would not only address increase employees’ morale but also contribute to a more equitable society, ” he says.

Variation in consumer price inflation

In Malaysia, living costs vary significantly depending on geography. The MEM report found that although household incomes tend to be higher in high-cost areas like Kuala Lumpur, oftentimes the extra income is not enough to fully offset higher prices.

This is why many in urban areas say that they feel especially burdened by high costs.

Suraya explains that costs of living will always be more pronounced in urban settings, hence why the calculation of living wage for families are normally calculated for a specific metropolitan area.

“This is to give an indication to both families and employers the comparatively high costs of living in cities. For families, this the compensation needed to attain a decent life in this area and for firms, this is the price to retain good talent, ” she says, explaining that food, shelter and transportation are the three main contributors to the high costs of living.

She says that the price of housing and food items need continuous monitoring by the government to ensure they remain competitive.

The MEM report also recommends the development of a spatial price index in addition to a cost of living index can also help consumers manage their finances.

Shortage of affordable housing

According to the MEM report, various studies have found that housing affordability has deteriorated over the years to the point that overall housing is considered “seriously unaffordable” in Malaysia using the price-income ratio (PIR) as a measure.

The report found that the lack of affordable housing is particularly severe among households earning less than RM5,000. Furthermore, only 18% of newly-launched home units in 2016 were priced below 200,000.

Apart from prioritising low to middle income households in current housing policies, the MEM points out that Malaysia can strengthen the rental market by enacting the Rental Tenancy Act, establishing a Tenancy Tribunal and developing a rental database and rental affordability indicators.

“The MEM mentioned that since 2004, real growth in employment income for 20-29 year-olds with post-secondary education has been marginal. The ensuing age cohorts; 30-39,40-49,50-59, fared better during the same time. If the trend suggests that wage stagnation occurs during this period for the youth (20-29), it is prudent not to purchase any big-ticket items on debt or loans (cars and houses included), ” says Suraya.

Instead, she illustrates how more can be done to assist this group with the provision of affordable rental facilities and efficacious public transport systems.

The Institute for Democracy and Economic Affairs (Ideas) Senior Fellow Dr Carmelo Ferlito takes a step back and questions whether Malaysia should even implement policies to improve home-ownership.

“How much the problem is a real one and how much a perceived one? Let’s not take PIR in isolation. Let’s look at PIR in combination with the fact that home-ownership rate is 76% and household debt is 82% of GDP, ” he says in an email interview with Sunday Star.

“Should we address the former figure or the latter? Probably household debt is more an issue than homeownership. Have we reflected on the fact that there is a rising number of unsold affordable housing? We should reflect more broadly on the factors of such weakness of demand: how much is really due to prices (as affordable units go unsold) and how much to a change in the system of preferences, which means with new generations preferring mobility to stability, traveling today rather than building a house for tomorrow?, ” he questions.

“I think that if we allow the market to correct itself, rather than trying to interfere with its readjustment process, the market will provide the necessary solutions, ” he says.

However, Ferlito believes that the government should eventually focus on addressing the shelter issue for those most in need, the B10, not by forcing them to get a home loan but by implementing supported rental schemes.

Source: The Star

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Strong interest from mainland Chinese buyers expected next year

CHINESE international property portal Juwai.com, forecast there will be stronger interest from Chinese buyers next year with the lowering of the minimum price threshold for foreign buyers on high-rise property.

In its 2020 budget, the government proposed helping the industry sell some of its unsold new homes by temporarily lowering the minimum price threshold for foreign buyers on high-rise property in urban areas from RM1 million to RM600,000.

The lower threshold will only apply between January 1 and December 31, 2020, after which date the threshold reverts to RM1 million.

Juwai IQI executive boardmember, Kashif Ansari said, the real estate industry views positively the government’s move to temporarily reduce the minimum price threshold for foreign buyers.

That is the conclusion of the Juwai IQI survey of 386 Malaysian real estate agents, conducted between 6 and 21 November 2019, he said.

“With the lower threshold in 2020, we forecast stronger interest from our buyers. Is it good, or is it bad? Nationwide, 71 per cent of surveyed agents approved, calling the lower threshold either “a little good” or “very good.” More than one-third, or 35.1 per cent, of surveyed agents believe the lower threshold is “very good.”

“The fact that everyone agrees upon is that the markets are suffering from an excess of unsold property. By lowering the price threshold for a short time, the government hopes some of these unsold properties will find buyers. Developers will then have the funds to invest in and begin construction on projects more suited to the local buyer in today’s market,” said Kashif.

Kuala Lumpur, Penang, Selangor, and Johor combined have an overhang of 9,315 high-rise units valued at RM6.775 billion.

Data from the Valuation and Property Services Department of Malaysia (JPPH Malaysia) shows that Kuala Lumpur has the highest overhang of unsold completed condominiums and apartments. As at the first quarter of 2019, the high-rise overhang in Kuala Lumpur stood at 2,544 units, worth about RM2.338 billion, followed by Penang with 2,684 units valued at RM2.13 billion, Selangor (2,113 units; worth RM1.144 billion) and Johor (1,974 units; RM1.163 billion).

According to Kashif, the property market was most positive about the lower thresholds in Kuantan, Penang, Melaka, and Sarawak.

Kuantan had the highest rate of approval, with 75 per cent of agents from that state calling the initiative “very good,” he said.

In every state with sufficient survey responses for analysis, at least 62.5 per cent of respondents consider the lower threshold to be “a little good” or “very good.”

The states with the highest number of negative responses, in which agents call the lower price thresholds either “a little bad” or “very bad,” are Melaka (15.8 per cent), Kuala Lumpur/Selangor (7 per cent), and Sabah (8.1 per cent). Nationwide, 8.6 per cent called the change “a little bad” or “very bad,” said Kashif.

Malaysia a good market for mainland Chinese

Kashif said, recent reports by Juwai found that mainland Chinese buyers accounted for RM8.4 billion (US$2 billion) of total Malaysia residential property sales per year, and less than one per cent of all transactions.

He also said, Chinese buyers made 16.5 per cent more enquiries on Malaysian property in the third quarter of this year than in the same quarter of 2018.

In the first half of 2019, Malaysia was the fifth most popular country for Chinese property buying inquiries in the world, he added.

“Malaysia is especially appealing to buyers motivated by lifestyle, retirement, or education. It has affordable standards of living, high quality of life, medical facilities, and accessible educational institutions. Malaysia consistently ranks among the best places to live,” he said.

Kashif said the trade war encourages global corporations to relocate their operations to Malaysia due to the country’s productive labour force and strategic location.

These new investments in factories and distribution centres also lead to a certain amount of housing investment as foreign business people move to Malaysia.

“Malaysia is an essential player in the Belt and Road Initiative, as 80 per cent of China’s trade moves through the Straits of Malacca. The difficulties in Hong Kong have contributed to a strong increase in demand from Hong Kong. Total numbers of Hong Kong buyers will not be as large as some imagine because Hong Kong itself has a relatively small population,” he said.

Source: News Straits Times

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Change name in TNB account so tenants will be liable for bills

LANDLORDS have been reminded to do a name change for the Tenaga Nasional Bhd (TNB) account of their rental properties, making the tenant fully responsible for any charges owing.

At a press conference, two complainants shared how they ended up with thousands of ringgit in unpaid bills after their tenants defaulted on payments.

One of them, who only wanted to be known as Yau, was informed by TNB that he owed a staggering RM1,298,213.85 on one of his properties.

According to Yau, he rented out the premises to a woman about a year ago but she failed to pay the rental. The tenant was unreachable for five months before finally contacting Yau and informing him of her decision to terminate the tenancy agreement.

Yau only found out that he owed a huge sum of money to TNB, amounting to five years’ electrical consumption, after she had handed over the keys.

With help from Kepong MP Lim Lip Eng and Beautiful Gate Foundation for the Disabled (Kepong Centre) chairman Chua Choong Yin, Yau filed a police report.

Luckily for Yau, the tenant decided to take responsibility for the matter, and agreed to pay around RM330,000 after TNB recalculated the charges, taking into consideration the fact that the property was only occupied for two years.

“TNB gave the tenant two years to settle the payment. As for now, she has already settled the first payment and the second is due next month, ” said Yau.

The other complainant faced a similar predicament after letting out her premises.

However, the tenant went missing, leaving behind a RM191,979.55 electricity bill, forcing the complainant to take the matter to court.

During the press conference, Lim’s political secretary Yew Jia Haur emphasised the importance of changing the name in the TNB account when letting out properties.

“Cases like this have happened before but the owners managed to resolve it by taking immediate action. It is vital to apply for the change to avoid legal problems, ” he said.

Owners were also advised to register with myTNB to monitor their tenant’s monthly usage and payment pattern.

Source: The Star

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Flat rate for all in mixed-use property

PETALING JAYA: Residents at high-rise buildings without strata titles, where there are also offices and retail lots, will now pay service or maintenance charges according to a fixed formula following a landmark court decision.

The Court of Appeal held that the Joint Management Body (JMB) committees of high-rise buildings are not allowed to charge different rates on owners in any mixed development projects.

It overturned a High Court decision that JMB had power under the Strata Management Act to determine or fix different rates of service or maintenance charges for

different parcels in a mixed development.

Commenting on the Oct 4 ruling by the Court of Appeal, Strata Property Owners Association Selangor (SPOAS) legal advisor Datuk Joy Appukuttan explained that the ruling would affect properties without strata titles and managed through the JMB.

“Mixed development projects usually comprised residential and office units, retail lots and carparks.

“There had been a grave disparity in the maintenance or service charges imposed by the JMB on property owners.

“With this decision, each property owner will pay a single maintenance or service charge rate in proportion with their share of the unit in the property.

“The JMB can only determine and fix one consistent rate of service or maintenance charges for all properties within the strata development, ” he told The Star.

This court judgment, he said, was a welcome decision for those owning properties in mixed development projects, where they are subjected to different rates of maintenance or service charges.

“Dwellers are often at the mercy of those with a larger share of the units. Unreasonable maintenance or service charge rates are imposed on the minority share unit holders, ” he said.

By virtue of their greater share of the units held by retail and carpark owners, Joy said these owners could control the election and decisions of the JMB at the expense of the minority.

He noted that all JMB should now observe charging a flat rate effective immediately provided for under the Strata Management Act and the ruling or risk breaching the law.

JMB that do not comply can be referred to the Commissioner of Buildings (CoB) under the local councils, he added.

Joy said the judgment stemmed from a case between an individual parcel owner and the Menara Rajawali JMB as well as Denflow Sdn Bhd, the carpark owner of Menara Rajawali in Subang Jaya.

“The owner was dissatisfied with the JMB and the company’s decision in allowing lower maintenance charges imposed on owners with a substantial share of the units.

“On Jan 26 last year, we initiated a case against the JMB and the company, ” said Joy, who was one of the counsels representing the owner.

The case was brought to the Court of Appeal in October last year after the High Court dismissed the case in September.

The Court of Appeal unanimously held that the Act does not confer any power to the JMB or joint management committee to fix different rates of service or maintenance charges for different parcels in a mixed development.

It also held that Section 21 of the Act only accords the JMB the power to determine, impose and collect the charges from parcel owners in proportion to the allocated share units of their respective parcels.

When asked if high-rise property owners will pay less maintenance or service fees following the ruling, Joy said it would depend on the cost of maintenance of the common property of the high rise building.

“Property owner will now contribute in proportion to their share of units.

“In other words, the formula should be – the total cost of maintenance of the common property of the high rise property divided by the total amount of share units, multiply the number of share units for each property, ” he said.

Citing the Menara Rajawali case, where condo and retail owners before this paid RM2.80 per share unit while the carpark owner paid only half, Joy said all the property owners would now pay the same rate of RM2.80.

When contacted, SPOAS chairman Law Hock Hua said a majority of high-rise properties in Malaysia were without strata titles.

“Even after the owners of a property have obtained strata titles, less than 25% of them have the titles. So the property is still bound by the Court of Appeal’s ruling.

“This landmark ruling will likely benefit individual residential owners in a mixed development who are paying higher maintenance charges than owners of offices and retail outlets, ” he said.

Source: The Star

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Property wish list for Budget 2020

PETALING JAYA: Relaxed lending guidelines, continued incentives under the Home Ownership Campaign (HOC), reduced compliance cost and the termination of the real property gains tax (RPGT) are on the budget wish list of property developers and consultants, who hope that such measures will help stimulate the industry and reduce the property overhang.

MAH SING GROUP BHD founder and group managing director Tan Sri Leong Hoy Kum said housing loan eligibility has been one of the main challenges in the property market over the past few years.

“Difficulties in securing maximum loan margins continue to plague potential home buyers, causing a high rate of withdrawals, ” he said in a statement yesterday.

Leong is proposing a higher debt service ratio from 70% to 80%, compared to only 60% currently for the lower-income group.

“A higher margin of financing of up to 110% for the first property, 90% for the second and 70% for the third, ” he said, adding that financial institutions should also take into account an individual’s part-time income during the loan application process.

Mah Sing is also proposing a longer loan tenure of up to 45 years, lower interest rates for first-time buyers and the allowance of the developer interest bearing scheme, so that buyers do not need to service loan interests and rentals at the same time during the construction period.

Budget 2020 will be tabled on Oct 11.

With the rising interest from foreigners to purchase property in Malaysia, S P Setia Bhd president and chief executive officer Datuk Khor Chap Jen is hopeful that the threshold price for purchase by foreigners would be reduced, believing that the investments can help to reduce the current overhang and stimulate the soft property market currently.

“We would also like to see a further reduction in the cost of doing business, especially the compliance cost, where the removal or reduction of such a cost could be translated into cost savings for the property buyers.

“Last but not least, we hope the government can consider assuming the role of providing affordable housing for the B40 group, perhaps under a rental scheme, with some contribution from property developers so that private developers can concentrate on free-market housing.”

Separately, Leong is hopeful that the incentives under the HOC can be continued, as it can help lessen the financial burden of first-time home buyers.

“This (the HOC) was a successful stimulator of property transactions in the past and would be an effective short-term catalyst to stimulate the property industry, ” he said.

The six-month HOC, which was kicked off in January, has been extended a further six months to December 2019.

In line with the government’s continuous effort to lower housing prices to benefit the market, Mah Sing is urging the government to review and reduce the compliance cost.

“Apart from land conversion premiums and development charges, the capital outlay for private utility companies is very high and covers the surrender of the land, construction of the infrastructure, and contributions to the utility companies such as Tenaga Nasional Bhd, Syabas, TELEKOM MALAYSIA BHD and Indah Water, ” said Leong.

He also said the imposition of the RPGT on properties sold after five years was affecting the higher-priced residential property segment.

“We hope the government can consider terminating the RPGT as an impetus to boost the secondary market, as perpetual RPGT is currently affecting those who are considering to upgrade their homes.”

PPC International managing director Datuk Siders Sittampalam echoed Leong’s sentiment on the RPGT.

“The RPGT was imposed to curb speculation, not provide additional revenue to the government, especially now when the property market is already dampened.”

On the current property market overhang, Siders said this was due to buildings being constructed in wrong places, or developments being green-lit without a preliminary study being conducted.

“A market and feasibility study needs to be conducted first before a development can proceed, ” he said.

Total overhang of residential property remains high, rising 30.7% to a new record of 32,936 units valued at RM20bil as at the first quarter of 2019 (1Q19) as opposed to 25,193 units or RM15.7bil in 1Q18.

Knight Frank Malaysia managing director Sarkunan Subramaniam said more funding and incentives should be provided to encourage both domestic and foreign investments.

“The government should relook into the regional economic corridors policy, namely, the Northern Corridor Economic Region, the East Coast Economic Region, Iskandar Malaysia, the Sabah Development Corridor and the Sarawak Corridor of Renewable Energy.”

Sarkunan is also urging the government to consider removing the sales and service tax (SST) on building maintenance service charges.

“Selected items that make up the building maintenance service charges are SST-exempt, while others are not.

“For example, while utilities are SST-exempt, security services are not. Thus, there may be double taxation although SST is supposed to be a single-tier tax.

“We would also like to see the government being more lenient on the release mechanism pertaining to bumiputra units, or also a reduction in the allocation for bumiputra units (lower quota policy), depending on the location and type of property, ” he said.

Source: The Star

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When do I get the keys to my property?

This is one of the questions I get asked at my public talks.

Getting keys to your property is also known as delivery of vacant possession.

Buying sub-sale properties

If you are buying properties from the sub-sale market, delivery of vacant possession takes place once the bank has disbursed the money to the seller and is usually between 3 months to 6 months.

Why 3 to 6 months? Once the SPA is signed and the balance 10% is paid, legal procedures will be initiated by our lawyers to start the title transfer process. This depends on whether –

1. it’s a leasehold property or a freehold property
2. the property is with strata title or without title

Buying from developer

A developer is required to deliver vacant possession (VP) within 24 or 36 months. If VP is delivered after the prescribe period, developer needs to compensate purchaser DAILY, unless extension of time is granted under the HDR 1989 (Read: When does time for delivery of vacant possession of property start?)

And the jury is still our when does the 24-month or 36-month period start. Is it from the date of booking fee paid? Or from the date of the S&P? (Read: When does time for delivery of vacant possession of property start?)

Of late I’ve been hearing delay in VP from my friends. There is one particular project that I am personally familiar with, was launched in January 2011, but has yet to deliver VP even today (October 2019)! And I’m still unsure when VP can be delivered as I write …

But for some of my friends who have, at last, get their keys ended up very happy. This is because, not only do they receive keys to their property, but also a big checked (in the region of 5 figures) from the developer.

As a property investor, I’ve always preferred buying from the subsale market as compared to from developer.

Not only do I get my property faster, I also get to receive my rental faster and this enable me to continue buying my properties and create more passive income.

If you have any questions or comment, feel free to drop me a personal reply or in the comment box below.

Talk soon!

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When does time for delivery of vacant possession of property start?

WHEN one buys housing accommodation from a developer in Malaysia, the terms of the sale and purchase agreement with the developer are prescribed by law (S&P), specifically the Housing Development (Control and Licensing) Regulations 1989 (HDR 1989).

Depending on the type of development, a developer is required to deliver vacant possession of the property (commonly referred to as VP) within 24 months or 36 months from the date of the S&P. If the VP is delivered after the prescribed period, the developer needs to compensate the purchaser for every day of the delay, unless extension of time is granted under the HDR 1989.

So, when does the 24-month or 36-month period start? From the date the booking fee is paid? Or from the date of the S&P?

This seemingly straightforward question has caused dispute between developers and home buyers. Past cases have held that for purposes of ascertaining the date of delivery of VP, time starts to run when the purchaser paid the booking fee.

These are the cases of Hoo See Sen & Anor v PUBLIC BANK BHD & Anor, 1988 (Hoo See Sen) and Faber Union Sdn Bhd v Chew Nyat Shong & Anor, 1995 (Chew Nyat Shong). The question then seemed settled.This position is beneficial to purchasers since the booking fee is usually paid before signing of the S&P. However, to be clear, the S&P prescribed under the current HDR 1989 in fact states that time starts from the date of the S&P.

So, when does time for delivery of VP actually start to run? The Court of Appeal has, in two recent cases, added some confusion to the seemingly settled question.

GJH Avenue case

In the recent judgement of GJH Avenue Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Ors (GJH Avenue case), the Court of Appeal clarified the words “from the date of this agreement” should be interpreted as the date of the S&P. In other words, the period for delivery VP commences from the date of the S&P. Therefore, the sooner one signs the S&P, the earlier one can expect to get VP.

Case background

In the GJH Avenue case, the purchasers bought a bungalow from the developer and paid the booking fee to the developer on Nov 24,2011. The statutorily prescribed S&P for the bungalow was signed on Feb 13,2012. The S&P requires VP to be delivered within 24 months “from the date of the agreement” and VP was delivered on Feb 14,2014. As the S&P was dated Feb 13,2012, the developer compensated the purchaser for the two-day delay.

The purchasers subsequently initiated a claim with the Tribunal for Homebuyer Claims (Tribunal) for a higher sum and the Tribunal granted the award. Dissatisfied with Tribunal’s decision, the developer filed a claim (by way of judicial review) to the High Court to set aside the Tribunal’s award.

High Court findings

The High Court did not find any illegality in the Tribunal’s decision and had instead decided that the Tribunal had applied the law to the facts correctly. This was on the basis that the Tribunal had taken into account two previous decisions of the High Court, which in turn relied on the decision of the Supreme Court (as it then was) in Hoo See Sen and Chew Nyat Shong. The High Court believed that the Tribunal is bound by the Supreme Court in those cases. Following this outcome, the developer filed an appeal to the Court of Appeal.

Decision of the Court of Appeal

On appeal, the Court of Appeal decided that the Tribunal had acted beyond the scope of the Tribunal’s powers under the HDR 1989 in making the award. This resulted in the award being tainted with illegality. The Court was of the opinion that the Tribunal had made an error of law when making the decision as the relevant clause in the S&P was very clear and unambiguous. The Tribunal should have just applied the law by giving plain meaning to the words in deciding the purchasers’ claim, without sieving through various authorities to justify the findings.

This also follows the Court’s earlier decision in Kompobina Holding Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Ors & Anor (Kompobina case), where the Court upheld the decision of the Tribunal that the timeline for delivery of VP is 24 months from the date of the S&P although the deposit was paid more than one year after the S&P was signed.

PJD Regency case

In the second decision of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Ors (PJD Regency case), delivered just two days after the GJH Avenue case, a separate panel of the Court of Appeal decided that the time for delivery of VP actually starts to run from the date the purchaser paid the booking fee and, not the date of the S&P.

Case background

In this case, the purchaser paid a booking fee to the developer on Jan 16,2013. The time for signing of the S&P lapsed but the parties proceeded to sign the S&P on March 21,2013. The developer delivered vacant possession on Jan 23,2017, which was later than the 42 months contracted under the S&P. The Tribunal calculated the time for delivery of VP from the date of payment of the booking fee and awarded the purchaser damages for late delivery accordingly. The developer applied by way of judicial review to the High Court to set aside the Tribunal’s award.

High Court’s decision

The High Court applied the case of Chew Nyat Shong and, agreeing with the decision of the Tribunal, dismissed the developer’s application. The developer appealed to the Court of Appeal.

Decision of the Court of Appeal

The Court of Appeal agreed with the decision of the High Court and dismissed the appeal. The Court of Appeal affirmed that the case of Chew Nyat Shong was binding. This decision meant that the time for delivery of VP actually starts to run from the date the purchaser paid the booking fee and, not the date of the S&P.

Conclusion

The result of both the GJH Avenue and PJD Regency cases is that it is now uncertain as to when the period for delivering VP starts from. With these conflicting decisions, we will have to wait for the Federal Court to resolve the question.

In the writer’s opinion, the decision in the GJH Avenue case is preferred. It is a move in the right direction, and reflects the original intention of Parliament when enacting this piece of social legislation in the Housing Development (Control And Licensing) Act, 1966 which outlawed the collection of any monies by a housing developer from a purchaser other than at or upon the signing of the S&P, which was then prevalent to the detriment of house buyers.

May Chua, a lawyer practising at Messrs Wong & Partners, is a member of the Conveyancing Practice Committee, Bar Council, Malaysia. This column does not constitute legal advice and the views expressed are solely that of the writer.

Source: The Star

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PEPS: Remove 5% RPGT for property disposal from 6th year

PETALING JAYA (Oct 4): The Association of Valuers, Property Managers, Estate Agents and  Property Consultants in the Private Sector Malaysia (PEPS) is urging the government to review the current Real Estate Property Gains Tax (RPGT) so it can have a positive impact in stimulating  the country’s  housing market.

Stating its Budget 2020 wish list in a press release today, the association said property ownership from the 6th year onwards should no longer be deemed as speculative investment hence, the 5% RPGT on such property ownership among individual Malaysians or permanent residents should be withdrawn.

As for foreign individual owners and companies, the current RPGT of 10% for the property disposal from the sixth year onwards, should be reduced to 5%, the group said.

“The removal and reduction of the RPGT after the fifth year will indirectly stimulate the property market and encourage more buyers and investors to re-enter the property market and this will also assist to reduce the property overhang and help developers to reduce the supply of unsold units in the secondary market,” it said.

The association also hoped that Putrajaya will consider reducing the stamp duty rate for property transactions worth RM1 million and above to 3.5%, from the current rate of 4%.

To help more people own homes and to stimulate the market further, PEPS suggested that first time homebuyers of properties below RM500,000 be given 100% loan while the margin for the third  property onwards be increased to 80%. To ease lending eligibility, the government should allow more funds from the borrower’s EPF Account 2 to be withdrawn for the purchase of affordable homes.

The association also  proposed that the government set up a National Centralized Corporation on Affordable Housing to plan, coordinate and implement the government’s  blueprint and plans on affordable housing nationwide while working with state governments and developers on affordable housing matters.

The business model could be based on Singapore’s Housing Development Board.

“Existing agencies involved in affordable housing such as PR1MA could be absorbed under this new corporation,” it added.

To reduce the property overhang in the market, the association suggested a fast release mechanism of Bumiputera units to make the unsold units available in the open market.

PEPS also felt that there is a need to attract foreign buyers to ease the overhang. Hence it proposed that the government reduce the financial criteria required for foreigners to apply for the Malaysia My Second Home (MM2H) Visa Permit by lowering the liquid assets amount required.

State governments should also consider lowering the minimum threshold for foreigners to own properties in Malaysia, such as from RM1 million to RM800,000 in Kuala Lumpur and from RM2 million to RM1 million in Selangor.

PEPS also hoped to see the upcoming Budget 2020 offer more tax incentives and allowances to property developers or contractors who adopt the Industrialised Building System (IBS).

“At the moment only new IBS manufacturers or companies with pioneer status are given tax exemption and tax allowance,” it noted.

Source: The Edgeprop

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