Will RPGT hike in Budget 2014 lower Malaysian house prices?

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The Impact of the 2014 RPGT Hike on Malaysian House Prices Remains Debated

The increase in the Real Property Gains Tax (RPGT) implemented in Malaysia's Budget 2014 is not expected to cause an immediate or significant decrease in house prices. While Putrajaya's intention was to curb rising property values, property consultants anticipate a slow and gradual adjustment rather than a sharp decline. The effectiveness of the RPGT hike in lowering prices is a point of contention among various stakeholders, with differing views on its potential impact on market transactions and property values.
RPGT Increase and its Expected Market Effect

Budget 2014 saw a substantial hike in the RPGT, doubling the tax rate to 30 per cent for properties sold within three years of acquisition, 20 per cent for sales in the fourth year, and 15 per cent in the fifth year. Concurrently, the Developers Interest Bearing Scheme (DIBS) was abolished, and the minimum price for property purchases by foreigners was raised from RM500,000 to RM1 million. Global property consultancy Knight Frank predicts that these measures will lead to fewer property transactions rather than a direct reduction in property values.
Expert Opinions on Price Reduction Strategies

According to Sarkunan Subramaniam, managing director of Knight Frank Malaysia, the most effective way to bring down house prices is to increase the supply of new properties to the market. He suggested that instead of relying solely on government initiatives, more incentives should be provided to private developers to encourage the construction of low- and medium-cost housing. This perspective highlights a supply-side approach as crucial for addressing affordability challenges.
Industry and Consumer Group Reactions

The Real Estate and Housing Developers’ Association Malaysia (REHDA) criticised the RPGT hike as "insignificant" and potentially detrimental to the property sector. REHDA also expressed concern that the increased foreign buyer threshold might lead developers to focus less on smaller properties. In contrast, the National House Buyers Association (HBA) welcomed the measures, believing they would contribute to preventing a generation from being priced out of homeownership.
Context of Rising House Prices

The RPGT increase was introduced in a market environment marked by significant house price appreciation. The House Price Index indicated the highest increase in house prices over the five years leading up to 2011 and 2012, with notable surges in states like Selangor, Kuala Lumpur, Penang, Pahang, Sabah, Perak, and Terengganu. This trend reflects sustained demand and rising property values, prompting government intervention to address affordability concerns.

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Will RPGT hike in Budget 2014 lower Malaysian house prices?

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