Foreign investors hit by anti-speculation measures in Malaysia's 2014 budget

Malaysia's booming property market is expected to slow, once new taxes in the 2014 budget take effect next year.

Beginning January 1, real property gains tax (RPGT) will double from the current 15% rate. For disposals within the first three years, the new RPGT will be 30%. 

For citizens, RPGT will be 20% for disposal in the 4th year, 15% for disposal in the 5th year.  No tax is levied on disposals after the 5th year. For non-citizens and business firms, RPGT will be 30% within a 5-year holding period, and 5% in any subsequent year. 

The minimum price of property that can be purchased by foreigners will increase from RM 500,000 (US$157,282) to RM 1,000,000 (US$314,564).

Property developers and financial institutions will be banned from using the Developer Interest Bearing Scheme (DIBS), whereby the developer absorbs the home loan interest of the buyer during the period of construction of the property. Projects with DIBS features are favoured by investors who flip properties as soon as construction is completed.

These changes should not discourage long-haul investors, or end-users. Prices in Malaysia remain much cheaper than in Singapore or Hong Kong.. And unlike those two countries, Malaysia will not impose any additional stamp duty.

The sale, purchase and rental of residential properties will be exempted from the 6% goods and sales tax (GST) that takes effect on April 1, 2015. However, there is no similar exemption for the sale and purchase of goods and services used in residential construction.

Meanwhile, the government is upping spending on housing projects for low- and middle-income earners.

RM 578 million (US$181.82 million) is allocated for 16,473 new residential units to be built by the National Housing Department (NHD) under the People's Housing Programme (PHP). Another RM 146 million (US$45.93 million) is earmarked for construction of 600 new units for rent by NHD. Houses under the PHP are priced at between RM 30,000 (UD$9,436) and RM 35,000 (US$11,009) per unit in the peninsula, and RM 40,500 (US$12,739) per unit in Sabah and Sarawak.  And RM 1 billion (US$314.56 million) will be earmarked for 80,000 more housing units under the 1 Malaysia's People Housing Programme (PR1MA), priced 20% below market price.

The government is also introducing a new Private Affordable Ownership Housing Scheme, "MyHome," with RM 300 million (US$94.37 million) given to developers building low- and medium-cost houses, with a RM 30,000 (US$9,436) subsidy per unit. 

The budget also provides for the creation of a National Housing Council, a one-stop agency that will be responsible for overall planning, policy and strategy formulation, coordination and monitoring of issues and developments affecting the country's housing sector. Its members will be drawn from federal agencies, state governments, the NHD, PR1MA, SPNB and the private sector.