Real estate, being an important part of the economy, was as expected, included in the government’s policy in “Driving Growth and Equitable Outcomes Towards Shared Prosperity” (the theme for budget 2020). From the list of initiatives and changes announced by the government, it can be observed that the impact of the policy on real estate is mainly on two things: ownership and tax.
Below are some of the key changes affecting real estate to take note of:
Property acquisition by foreigners
Foreigners will now be able to acquire properties in urban areas in Malaysia if the property is valued at RM 600,000.00 and above; previously the right to acquire was limited to properties with a minimum purchase price of RM 1 million. This means that it is now easier for foreigners to own properties in Malaysia as the price threshold for property acquisition has been significantly reduced. However, it remains unclear whether the reduction in the price threshold applies to all states or only selected states in Malaysia.
Foreigners in this context is now further clarified to mean a non-citizen or a company / corporation that is either incorporated outside of Malaysia or a company incorporated with 50% or more of voting shares held by non-citizen / foreign company or by both.
Note that the minimum purchase price is just one of the conditions that must be fulfilled before foreigners could acquire properties in Malaysia; other factors affecting the right to purchase include whether approval from the Economic Planning Unit is required, whether the property is a Malay Reserve Land, etc.
Real Property Gains Tax (“RPGT”)
RPGT on properties disposed after 5 years of acquisition is maintained, but the base year for determining the acquisition price has been amended from previously 1 January 2000 to 1 January 2013 which is meant to reduce the amount payable as tax (since the amount of gains made is reduced when a later base year is adopted). However, only properties acquired prior to 1 January 2013 will benefit from this, while the effect of the imposition of RPGT will remain the same for other properties. There may still be some uncertainty or discontent by owners as to how the ‘market value as at 1 January 2013’ is determined (i.e. by the valuation and property services department JPPH) and whether it can be challenged.
The RTO scheme is available to Malaysians who are purchasing their first home which is valued up to RM 500,000.00, and is designed to assist those who are unable to afford the initial 10 per cent deposit and access to financing. Under this scheme, property will be rented for up to five years and after the first year, the tenant will have the option to purchase the property based on the price fixed at the time the tenancy agreement is signed.
While such option to purchase clauses are not unusual in a tenancy agreement, whereby parties can agree from the outset the purchase price and the time in which this option can be exercised, it is a matter for negotiation between parties with no involvement from the government. The RTO scheme, on the other hand, is supported by the government pursuant to which: the government will guarantee 30% of the RM 10 billion loan provided by financial institution; the government will provide stamp duty exemptions on the instruments of transfer between the developer and financial institution, and between financial institutions and the buyer in this scheme.
However, it remains unclear how the actual mechanism of this scheme would look like. For example, will part of the rental be utilised towards payment of the purchase price of the property? Will there be option to renew the tenancy?
This article was written by Shawn Ho (Partner) and Adryenne Lim (Legal Executive). Shawn leads the corporate practice group of Donovan & Ho, which has been recognised as a recommended firm for Corporate, Mergers & Acquisitions by the Legal 500 Asia Pacific 2018. IFLR1000 has also ranked us a Notable Firm 2019.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysian start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.