Malaysian government drives residential market
Effectiveness of the Home Ownership Campaign and exemption of Real Property Gain Tax in 2020
As economic growth slows down amidst the COVID-19 outbreak, the Government of Malaysia has introduced several initiatives to stimulate the economy. Although these efforts have managed to soften the negative impact, the market is likely to witness slightly lower demand.
As the world faced an unprecedented situation, almost all economic sectors — mainly trade, tourism and aviation — were hit hard by the outbreak. While the world’s GDP growth experienced a drop to -1%, the Malaysian economy shrunk to -1.7% in 1H20, causing its unemployment rate to reach a historic high of 4.9% as of 7 August 2020.
In addition to the overnight policy rate (OPR) cuts, the stimulus measures were introduced in three stages. The first two packages focused on improving household cash flow, assisting vulnerable groups, providing rent relief, improving medical infrastructure and life-essential services. On the other hand, the Short-Term Economic Recovery Package (PENJANA), announced in June 2020, had several initiatives that directly impacted the property market, such as, uplifting the finance limit for home-buying, the reintroduction of the Home Ownership Campaign (HOC) and the exemption of Real Property Gains Tax (RPGT). These initiatives were aimed at easing home ownership and, ultimately, contribute to economic growth.
Figure 1: Number of residential property transactions
In the past, similar initiatives were drafted to curb downturns.
Exemption of RPGT was implemented in 2008-09 to tackle the impact of the global financial crisis (GFC) on the property market. RPGT exemptions, along with slight adjustments in the OPR, were able to improve property demand in 2008 attributed to the limited impact of the GFC on other economic indicators (GDP growth and unemployment rate). In the following year, although the OPR was further cut to a historical low, the same policy was not able to sustain the demand, as GDP growth shrunk to a negative and the unemployed population crossed over the 1 million mark.
Similarly, HOC was introduced in 2019 to address property overhang. On the backdrop of moderate GDP growth and the low unemployment rate in 2019, the market recorded good buying sentiment. This indicates that federal policies can help market activity if the economic indicators are favourable.
As per the World Bank’s projection, Malaysia’s GDP growth and employment rate are expected to reach a historic low in 2020. Although the initiatives by the government may cushion the impact of the pandemic, the market is likely to witness some drop in demand.
Developers are coming up with innovative strategies to improve sales in this challenging situation. Some solutions include adapting technology, offering online services, providing higher discounts and rebates, partnering with banks for easy financing solutions, absorbing loan instalments during construction period, offering zero booking fee/down payment and providing easy exit plans. Additionally, a fresh outlook towards future developments may help to boost demand further. In this challenging time, projects with attractive price points, built-in technology and innovative solutions catering to evolved consumer preferences after COVID-19 are likely to receive a better response.