Budget 2014: Property stocks may be hit by real property gains tax

Updated: Friday October 25, 2013 MYT 7:44:22 AM

BY CHOONG EN HAN

PETALING JAYA: Property stocks may take a hit in a knee-jerk reaction following the much-speculated hike in the real property gains tax (RPGT) expected to be announced in Budget 2014 today.

Analysts believed that while developers might see sentiment softening in the near-term, the impact on them would not be as strong compared with property investors who will bear the brunt of it.

Alliance Research head of research Bernard Ching said the impact on property developers would be neutral, as the RPGT would only affect speculators and not genuine buyers.

“Since the RPGT is not an upfront tax, it would not be a deterrent to owner-occupiers and long-term investors.

“If there were any selldown on selected property stocks, I would treat it as an opportunity to accumulate. The earnings of developers are still supported by strong unbilled sales, and right now, I don’t think that demand would soften that much,” he said.

Having said that, he also believed the Government would impose specific measures to curb speculation and not broad-based steps that would impact the entire property sector.

“Certain property developers might have projects with higher elements of speculation and these might be the ones that would see sales being affected, going forward,” he added.

Another analyst remained positive on the property sector in light of the possible RPGT hike, but warned that his view would take a negative turn if there were more tightening of bank lending guidlines.

The latest measures by the authorities in June was to impose a maximum tenure of 10 years for the repayment of personal loans and a maximum of 35 years for property loans, compared with a maximum of 45 years previously.

The index tracking property stocks on Bursa Malaysia has been trading sideways as well since coming off its peak in May and is still 10% off its high of 1,519 points.

A Public Investment Research analyst was positive on a possible RPGT hike, with the move curbing excessive speculation in the longer term.

“Market players and investors are already expecting a hike and it would have been priced in. The harsher move would be to impose a higher stamp duty on property buyers,” he opined.

Speculation is rife that higher stamp duties will be imposed on multiple properties, with rates of 5% for a third property, 7.5% for the fourth and 10% for the fifth and beyond.

Ching also said that imposing this would be a challenge for the Government, as the land office might find this difficult to implement.

“Developers may suffer some immediate knee-jerk reaction from the move, but the impact would mainly be felt in the secondary market.

“The market for high-end properties is softening, but developers are already planning for more launches catering to the affordable market segment, where demand is still strong,” said an analyst.

Hong Leong Investment Bank Research analyst Sean Lim, meanwhile, believed the sector was set to re-rate in the event of a friendly or not-too-punitive budget.

He said in a report that the research house’s positive view was underpinned by healthy fundamentals, which included the young population demographics; with those between 25 years old and 50 years old making up close to 40% of Malaysia’s total population, shrinking average household sizes, rising income levels and improving asset quality.

“Our suggestion is to focus on landed township developers, which cater to owner-occupiers and are not reliant on the developer interest-bearing scheme, which would offer more resilience in terms of sales even if punitive measures are tabled in Budget 2014,” he noted.

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