Post-budget jitters: What's happening on the secondary market?

THE EDGE WEEKLY ISSUE#989

THE WEEK OF NOVEMBER 18 – NOVEMBER 24, 2013-12-07

City & Country Section

By Lam Jian Wyn

Real estate agents offer differing views of the secondary market since Budget 2014 was tabled with some claiming more and quick sales and others noting slower activity.  Are the cooling measures announced in the budget working?

How much is a rundown, 1-storey link house on a narrow road and facing noisy motor shops in section 17 worth?  A cool RM635,000, apparently.

Shaz, who plans to move from Serdang to Petaling Jaya where her family lives, recalls taking her parents to view the tenanted property about a fortnight ago.  Her mother, who had grudgingly followed her to look at the house, refused to set foot on the property because she found it “eerie”. 

 “I had found the house in the newspaper classifieds.  It was listed only a few days ago.  The owners were going to migrate so they had to sell their house.  When I called the agent a week after the viewing, he told me the house was already sold,” she tells City & Country.

This pretty much sums up her house-hunting adventure, which began in mid-October.  Scouring the classifieds and Internet property portals, Shaz found only a handful of houses that suited her needs – 2 storey terraced houses in Petaling Jaya around RM630,000 and up to RM650,000 if the property was in livable condition.

“I tried looking at the few houses but all of them were sold within a day.  There are not many houses in that range anyway,” she says.

Besides the type and price, Shaz is also particular about location, security and the general environment.  “If my parents are not okay with the house, I will not follow up, of course.

“I am not revising my requirements, but I know it is hard to find 2-storey houses in PJ that fit my budget.  Most of them are out of my range.  It has been quite a challenge,” she says.

However, as this article goes to print, Shaz is racing to put down an earnest deposit for a house in the satellite town.  Will she succeed this time?

Some market observers say the cooling measures introduced by the government in Budget 2014 will dampen activity.  Besides revising the Real Property Gain Tax, the government has also instructed banks to stop funding projects with developers interest-bearing scheme (DIBS).

Real Estate and Housing Developers Association (REHDA) president Datuk Seri Michael Yam was quoted recently as saying the highest RPGT, while likely to discourage speculation, may have a limited effect because new launches accounted for only RM18 billion of the RM68 billion worth of homes transacted last year.

Speculators target new launches because the slew of benefits given by developers, such as higher loan margins (as high as 95% in 2009) and the now-defunct DIBS, allowed them to buy and sell properties easily before having to service the loans.  

Meanwhile, some real estate agents say they have closed more deals in the aftermath of Budget 2014, and quickly too, some in just a week or two.  More buyers are putting their newly completed properties on the market ahead of the revised RPGT, which has doubled to 30% on gains from sales in the first three years of holding a property, 20% in the forth year, 15% in the fifth year and no tax thereafter.  The revised RPGT takes effect Jan 1 2014.

Other agents, however, claim that the secondary market is moving in a slower buy steady pace.  They do not see Budget 2014 announcements affecting their sales.  Instead, they blame the slow pace on the more stringent bank loan approval processes, which translates into less real demand and potential buyers naturally turning cautious.

Time to shop for deals?

A senior real estate agent who covers the Taman Mayang, D’sara Utama, Bandar Utama, SS2 and other mature markets in North PJ/KL says she has closed deals quite speedily because sellers are more receptive to offers from buyers.

However, most of her listings in these established neighbourhoods are from owners who have dwelt there for years.  It usually take about two months for these properties to be sold because of the higher prices – a quick check of her online listings shows that renovated 2-storey link houses in Taman Mayang have asking prices of RM1.1 million while in SS2, 2-storey link houses are going for RM1.3 million to RM1.5 million.

“A lot of people want to sell their newer properties before next year to avoid the higher tax.  So, now it’s a good time to buy because you have more choices in good locations.  You are more than welcome to negotiate because all my listing show the asking price,” she says when contacted by this writer posing as a potential buyer.

“My advice to interested buyers is to look at established locations now that the chances of owning homes in these have improved.  You can renovate your house, but you cannot fix your location.”

As the secondary market is expected to be subdued in the first half of next year while getting used to Budget 2014 announcements, it is no surprise that real estate agents and negotiators are using these few months to land as many deals as possible.

Kim Realty Sdn. Bhd. CEO Vincent Ng says more sellers have approached his agents to help offload their properties since Budget 2014 was tabled.  “ I guess they are trying to beat the ‘deadline’ before the new RPGT rates take effect,” he tells City & Country.

But, are there also more buyers?  “I would say there are more buyers, but they are ‘pressuring’ the sellers.  I would not say they are rushing to buy, but they are end-users, so they are shopping around for the best bargains.  Some people have to unload their properties and these buyers know it.  For example, an office building near Tiara D’sara was sold at RM450 psf, less than the asking price of RM550 psf.  The owners still made money because the building had been bought at RM230 psf two years ago.  But because they would have held it for only two years, they would be subject to the full 30% if they sold it next year,” Ng explains.

He also notes that the revised RPGT has caused more companies to transfer their properties to individual names so they can avoid paying the 5% imposed even after five years of ownership.  “These companies plan to hold their properties for the long term as far as I know, but it still makes sense for them to do this because they don’t have to pay the tax.”

According to some realtors, there has been no surge in listings.  Vivien Choy of City Real Properties Sdn. Bhd who focuses on PJ, does not believe more properties have been put on the market since Budget 2014 was tabled.  In fact, she opines that the secondary market has slowed down from the first half of the year as banks tighten their loan approval rules.

“My bankers and I notice that the buyers have to make bigger commitment as valuations and asking prices do not match.  Moreover, the real determining factor is whether they can get loans.  Loans now are also approved based on net income as opposed to gross income.  So, while there are enquiries, they do not actually end up in sales,” she tells City & Country.

“I think owners of newly completed properties are most likely to want to sell quickly because they buy for short-term investment.  But even then, we don’t get a lot of enquiries for these properties.”

...the new RPGT will trap a lot of
those who had bought at new
launches with intention to flip.
-- Choy.

Rahim & Co Sdn. Bhd’s managing director Choy Yue Kwong says he has noticed more activities in some areas in the Klang Valley after Budget 2014.  “It’s only natural for investors to want to exit now because the new RPGT will trap a lot of those who had bought at new launches with the intention to flip.”

However, he does not see a lot of buyers on the secondary market.  “The determining factor is how easily or quickly they can get loan as banks have tightened requirements.  So, getting loans now is a problem.

PPC International Sdn. Bhd’s managing director Siders Sittampalam observes that there is a lot of interest shown by vendors and purchasers post Budget 2014.  “But I would say that there is substantial number of sellers nor will prices go down.  There are only isolated cases of quick sales,” he tells City & Country.

There are only isolated cases of
quick sales. -- Siders

“Those who had actually planned to sell next year are hoping to sell this year instead.  But you have just over a month go, so it’s a very short duration to sell – even the marketing of a property esilly takes two months.

“However, there are no signs of the market declining post-Budget 2014.  So, there is no evidence to say that there is market depreciation because to say that, you would need more sellers than buyrs.  Demand is still greater than supply.

Siders too expects the market to be subdued early next year, although this is unlikely to lead to a big drop in the value of most properties.  However, high-end properties owners may rush to sell earlier since a 30% tax would cut their gains very steeply.

More measures possible

It is worth noting that there was no revision of the stamp duty in Budget 2014.  Currently it stands at 1% for properties over RM100,000 and below, 2% for properties over RM100,000 to RM500,000, 3% for properties over RM500,000 to RM2 million and 4% for properties over RM2 million.  The maximum loan-to-value ratio for the third and subsequent homes was also not reduced from 70%.

The 50% stamp duty exemption for first-time home buyers still applies to sale and purchase agreements signed between Jan 1 this year to Dec 13 2014.  Thus, the government does not have to wait for Budget 2015 to tinker with these instruments if it wishes to cool the market further.