All posts by Judy Chen

HOW DOES REAL PROPERTY GAINS TAX AFFECT YOUR PROPERTY INVESTMENT

REAL PROPERTY GAIN TAX (RPGT)

In Malaysia, any capital gains on selling of real estate whether land, buildings ( industrial, commercial or residential) by an individual or company, a tax will be imposed. This type of tax is the Real Property Gain Tax (RPGT) imposed by the Inland Revenue of Malaysia (LHDN).

Real Property Gain Tax was introduced as a means for the government to curb property speculation in an effort to avoid/prevent property bubbles from forming. Ultimately, the RPGT is a source of revenue for the government and assist to develop the country. Therefore its fluctuations is dependent on the economical needs of the country.

As a result, the tax can be increased or decreased when necessary. As a example, the government reduced the RPGT during April 2007 – December 2009 to encourage investment.

The property tax is levied upon anyone selling their properties; however for individuals selling or disposing their property after the 5th year, no RPGT will be levied.

Companies however, will pay a flat rate of 5% starting on the 6th year and thereafter.

RPGT is supplemented by allowable loss. This means a loss is made after the disposal of a property. Tax relief shall be provided if the disposal price is less than the acquisition price or if the disposal price is equal to the acquisition price.

REAL PROPERTY GAINS TAX FOR 2014

PROPERTY AGE PERSONAL (MALAYSIA CITIZEN & PR) COMPANY NON-CITIZEN
Disposed within 3 years 30% 30% 30%
Disposed in 4th year 20% 20% 30%
Disposed in 5th year 15% 15% 30%
Disposed after 5 years 0% 5% 5%

The RPGT rates increase is applicable to disposal of property taking place on or after 1 January 2014.

Chargeable Gain = Disposal Price – Purchased Price
Net Chargeable Gain

Tax payable = RPGT rate (based on disposal year) X Net Chargeable Gain

RPGT Exemptions

There are exemptions allowed for RPGT. Among the exemptions are:

    • RPGT exemption on net gains from the disposal of one unit residential property once in a lifetime by an individual who is a citizen or a permanent resident of Malaysia;
    • RPGT exemption on gains from disposal of property between parents and children, husband and wife, grandparents and grandchildren;
    • RPGT is charged only on net gains after deducting all related costs such as purchase price, renovation costs and incidental cost e.g legal fees;
    • Exemption up to RM10,000 or 10% of the net gains, whichever is higher, is given to an individual.

How does the new RPGT affect you?

The new RPGT is more steep than the previous i.e. year 2007 – 2009. This new imposition will discourage and reduce speculation on properties for the time being and will promote long-term investment. This is the government’s aim of cooling down escalating property prices. On the other side, sellers of property will increase their asking price like adding the cost of paying for any RPGT thus increasing the price of property instead.

In a way, individuals and investment companies will plan their investments and maximise their returns. Only time will prove whether this current increase in imposing of RPGT will be effective.

Got a question? Leave a comment or drop me a note athello@realestatemalaysia.info

IMPORTANT THINGS FIRST TIME PROPERTY BUYER IN MALAYSIA MUST KNOW

Location, location, location

There are 3 things that matter most in real estate – location, location and location. As first time property buyer you will need to know where you want to be in the future. You will have to think about your lifestyle now and how will it be in 5 or 10 years time. Do you want to commute by your own vehicle or depend on public commuters? Do you or will you have school going children? Would you prefer to have a small home or a large home? These are all important factors that must be taken into consideration. You wouldn’t want to regret after having purchased a property that was not quite right for you. Take the time to evaluate before purchasing.

Dream home

Once you’ve narrowed down what you want to purchase, you then need to figure out what it is that you prefer. Do you want a new house with all the amenities like swimming pool, playground for children or an old one that you can work on and renovate to your lifestyle. You will need to make a list of all your priorities. Discuss all the priorities with your Realtor.

What are the important things a first time home buyer need to know

Most first time home buyers are not aware of the upfront costs involved in purchasing their first home. These are the initial fees and charges incurred. There are differences when purchasing a newly launched property by developers or buying a sub-sale property from the secondary market.

When buying from developers, often times the Sales and Purchase Agreement fees, stamping fees on SPA and legal disbursement fees are absorbed by the Developers.

In comparison to buying from developers, buying a sub-sale property from the secondary market, will typically incur more fees and charges because the cost that is absorbed by developers are not borne by the buyer.

Fees and charges in addition to downpayment

Here are the fees and charges on top of the 10% downpayment that home buyers need to mindful when you make a purchase.

Executing the Sales & Purchases Agreement (SPA)

• Sales & Purchase Agreement (SPA) legal fees

1% for the first RM150,000
0.7% on the next RM850,000
0.6% on the next RM2 million

• Stamping of SPA. Lawyers will submit SPA for a nominal stamping of RM10 on each set of the original SPA documents

• SPA legal disbursement Fees

• Stamp duty for Memorandum of Transfer (MOT) or transfer of ownership title

1st RM100,000 on purchase price – 1%
Next RM400,000 on purchase price – 2%
Excess of RM500,000 on purchase price – 3%

If you are unsure on what needs to go into SPA, here is a good place to start your research.

Loan Facilities & Agreement

• Loan facility agreement legal fees

1% for the first RM150,000 (minimum fees of RM300)
0.7% on the next RM850,000
0.6% on the next RM2 million

• Stamp duty for loan – 0.5% on the total loan facility amount

• Legal disbursement fee for Loan Agreement

• Bank processing fee for loan

• Mortgage Reducing Term Insurance (MRTA)

• Valuation Fees which is based on the valuation by a registered valuer

¼% (0.0025) on the 1st RM100,000
1/5% ( 0.002) on the residue up to RM2 million
1/6% (0.00167) on the residue up to RM7 million
(Subject to a minimum fee of RM400 per property)

Government Tax on all Agreements

• 6% on all lawyers fees

These fees are on top of the 10% down payment, so it is advisable allocate additional cash for all the extras that need to be paid. It is best to seek professional advice from lawyers and bankers.

(Disclaimer – All facts and figures are correct at the time of publishing)

Understanding the responsibilities of a Home Buyer

There are many facts that need to be considered. First time house buyers need to research to understand the process of the purchase of a new home. It is highly recommended that you speak with a lawyer and even Realtor. Complicated issues may often arise when you buy your home and the smartest buyers are those who have a thorough understanding of your rights as a buyer.
Speak with a banker for a pre-approval on pre-qualification of loan and this will simply tells a Realtor that you are serious and financially ready to purchase a new home. The seller will be confident that you are financially fit to make such a purchase. This process will also inform you as to what financing options are available to you in today’s market.

Got a question? Leave a comment or emailhello@realestatemalaysia.info

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Star Residence facility

Ground Level

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For more information, drop us a line at hello@realestatemalaysia.info