Friday 25 October 2013

Property gets a beating, and operating expenditure is under-budgeted

As I mentioned in last week’s article, I expected the property sector to be hammered. Complaints of rising prices and affordability triggered by more foreign buying and the need to address social inclusion has resulted in very severe measures just announced in the budget.

The removal of DIBS (interest paid by the developer during the construction phrase) has removed a major “warrant” price for new launches. By just paying a small deposit, say 10%, buyers were free from any subsequent payments until completion, some 2 to 4 years away.

While raising the RPGT for everyone has the effect of reducing speculation, the perpetual and higher RPGT on foreign buyers will take a heavy toll on demand too. This is especially so when it is also combined with raising the minimum price for foreign buyers to RM1 million from RM500,000 previously.

There are many properties priced to sell at just above the RM500,000 threshold. These are small units, like the SOHO and small apartments, ranging in size of between 500 and 1,000 sf and priced at around RM700 to RM1,000 psf. This was the fast moving market segment.

We know the prices of new launches are at about a 10% to 20% premium to a comparable property in the secondary market. And new launches sell quickly in comparison too.

The new measures will change the game. The “warrant” premium is substantially gone. As such, we expect in the short-term, transaction volume will fall substantially. Prices will fall too, perhaps by as much as 10% to 20%.

On the overall budget, the Government is expecting its deficit to fall to 3.5% of GDP. I believe the operating expenditure is under-budgeted. Emoluments are expected to rise by just over 3%. We have not seen such a small increment in recent years. Also, subsidies are forecasted to fall by some 20% or over RM7 billion. What subsidies will be cut, besides sugar?

It is most likely that we will see supplementary budgets in the months ahead.

The budget is contractionary overall. This is positive for the long-term. The announced 6% GST from 2015 is also in the right direction, especially since it is accompanied by reduction in personal and corporate tax rates.
The splattering of small handouts, I suppose, is populist to gain the support of the poorer communities and a way to offset rising cost of living.

I expect the stockmarket to be adversely affected but the Ringgit will take the news positively… with some skepticism.


  1. The budget basically used by current regime to cover the debt which they have created the last 15 years. The GST 6% & removal of sugar subsidy will burden the lower income group and create inflation. (I believe all the kopitiam taukeh will raise the price at least double, not mention the petrol hike recently). If the federal government really want to reduce the debt, I think the best advice is they seek for Selangor & Penang Gov help & perhaps lock themselves in the jail. At the same day, the ex-Transport Minister has been acquitted over three charges of cheating the Government. Again, who are bearing billions dollars loses of tax payer money???.Funny, in Malaysia those politicians who cheated billions and millions will walk away like King?? Ringgit strength will only be temporarily, if the jokers still spend like no tomorrow and not address how to fix the core problem; (which I think they will continue their spending party with their cronies); Malaysia will be heading to a broke nation by 2020.

  2. Hope u can read BM, this is a man on the street voice (82% according your statistic who income below RM4K per month, it of course not sound significant for us at least. I am using NGV vehicle if no specific reason.

    Apa gunalah BR1M naik kalau kos hidup pun naik ...

    650 ÷ 365 hari = RM 1.78 sen sehari

    Minyak naik 20 sen gula naik 34 sen....

    Kat situ jer dah 54 sen


    Minyak dah naik awal..teh tarik pun ikut naik juga belum masuk barangan lain ni gula pulak naik harga makanan pun comform ikut naik juga..

    Kira sendiri jelah...gaji je x naik2..

    PRs - BR1M pun tak semua dapat...apa sgtlah RM1.78...kalau nak dibandingkan dgn peningkatan kos hidup yg naik mendadak selepas je BN naik...

    1. A taxi driver who use Petrol saying his expenses shoot up RM300 per month, so I guess is RM10 per day. Many others small business and the rest 82% will be impacted. This will create more inequality in this nation.

    2. Again, 6% GST is NOT a RIGHT DIRECTION to many, for us who worry RM will be weaken, it may help a bit in short term. So I have to say 'not agree' with your statement.

    3. The reduction of personal income taxes only affect 10% population but others measurements affect all population. The lower income group will get the hit the most, it will create more social problems which already in the raising trend.

  3. Rm16 billions has been allocated to Prime Minister Department. That is more than Rm 1 billion per month. I think it should cut down to cover the deficits. How PMD spending this money???? Where else whole nation is paying for it? Any comment on the breakdown of the PMD spending? Mr Tong?

  4. To be precisely is RM16.5 billion of PMD allocation. Wow...this is scarely.

  5. Hi Mike,

    How about starting your own blog?

    1. I am not good in writing. I just give my opinions.

  6. Hi Mike,

    Your reason is valid and what you write makes a lot of sense. Thank you for sharing.

    1. U r most welcomed. As for those think I am pissed off guy, I am not. Generally my opinions is toward whole Malaysian & not Mr. Tong.

  7. I don't think removal of dibs is the end of it. Developer always can come up with other creative ways tO finance .
    As for share market , naturally property stocks will go down.. But many other shares to buy . The benefit of this budget I see is still the UNMO elites .. Khairy jamaluddin just been given an increase in allocation of 700 million to spend under his ministry .. I wonder why need to throw this money like that away . Shld spend it on something more useful like education or healthcare or senior citizens . This Mis- allocation of funds may reflect negatively on the half past 6 gov.

  8. Haha.....Mike Sim is one pissed off fella huh! Unfortunately, Mr Tong can never feel your pain. 20 sen sugar, 15 sen petrol, that's nothing to him lah. But if you tell him gov is going to impose a 30% capital gain tax on stock profits, he'd be running scared!...:D

  9. @OS

    I think sports is as important as education & healthcare. It promotes hard work, discipline, fair play, team work etc. The only question is the efficiency of the RM700mil.

    But i agree with you that the removal of DIBS isn't "the end of it". Announcement was a good start, but execution and implementation are very important.

    All the hidden “freebies” thrown in to the purchase price, and subsequently financed by banks, which is almost as bad as (if not worse than) DIBS.

    As our PM put it “Increase transparency in property sales price, where property developers will have to DISPLAY DETAILED SALES PRICE including all benefits and incentives offered to buyers such as exemption of legal fees, stamp duty, sales agreements, cash rebates and free gifts”.

    DISPLAY DETAILED SALES PRICE, four simple words.

    (1) DISPLAY – where to display? when to display? only during roadshow? only at the sales office hidden in one corner? on the net published for everyone to see?

    (2) DETAILED SALES PRICE – how detailed? down to every single piece of free gifts? what about fully furnished units? different units sold at different stage could come with different level of free gifts? detail for every single unit transacted must be published?

    Last but not least, does this only apply to developers selling direct to buyers? What about selling through agents? What is the penalty for anyone found flouting this law? A gentle slap on the wrist? or a jail term for the agent? or a suspension for the project approval? Is there an online complain form for whistle blowers?

    Very easy to say, let’s see how good their enforcement is this time…..:D

  10. Sports is important but it's not like we are hosting Olympics so why need to much money . I wish that the budget be apolitical and the post of PM and finance minister be 2 different person so that there's greater transparency . Rakyat has really tighten their belts , it's time for the ministers and politicians to also tighten theirs

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  12. The interest we need to pay during the 3 years construction period in total will be equivalent to 7 to 12% of the purchase price. If banning the DIBS just simply lower the property price by 10% to 20% it's just equal to nothing.

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