The National House Buyers Association (HBA) refers to the article by Khazanah Research Institute (KRI) urging the government to study the proposal to impose vacancy tax on unoccupied and unsold properties (residential and commercial) units. The article also states that the imposition of a ‘vacancy tax’ is practised in several other major cities worldwide, such as Vancouver, Canada and Melbourne, Australia.
Firstly, we must admit that Malaysia faces a serious problem in the form of unsold completed properties or ‘overhang properties’. As of 2022, the value of overhang properties in the residential sector based on the National Property Information Centre (“NAPIC”) is almost RM18.41 billion, comprising 27,746 overhang units.
HBA believes that imposing a vacancy tax on unoccupied and unsold property units beyond a specified period targeting property developers is inappropriate as the circumstances and reasons for such vacant properties in Malaysia differ significantly from those in Australia or Canada.
Vacancy Tax is Typically Imposed on Owners
Although the article correctly pointed out that countries such as Australia and Canada impose a vacancy tax, the reasons and target segment for such vacancy tax are pretty different from what is being suggested in Malaysia.
Based on our findings from the web, the vacancy tax in Vancouver and Melbourne is imposed on end-owners of such properties, who left completed homes vacant for more than six months. The revenue from such vacancy tax will then be used for new affordable housing schemes.
The reason to impose a vacancy tax in Vancouver or other similar places is to return empty or under-utilised properties for productive economic output, such as long-term rental homes for people who live and work in the said city. This is because land/property is a scarce resource, and leaving such a resource unused will deprive another person of using it.
Hence, imposing a vacancy tax is intended to discourage the wastage of scarce resources. It was also attributed to the fact that blocks of properties were previously purchased by foreigners, especially an influx of Chinese nationals and left idle and unkempt. The imposition of the vacant tax was to ensure that residential properties are occupied so that there is life within.
However, the intention of a vacancy tax in Malaysia is not targeted towards owners of such vacant properties but at property developers who have been trying to sell such properties without success. What is the justification for imposing such a vacancy tax? If it is to penalise developers for having unsold completed units, then why would the government offer attractive tax incentives for such unsold completed properties under the Home Ownership Campaign (HOC)? Do note that developers' unsold units in stratified properties, too, must pay monthly maintenance charges and sinking funds.
Imposing a vacancy tax on developers for unsold completed properties would not help reduce the problems associated with such unsold properties. In addition, any tax or cost imposed on property developers will just be added to the prices of their future launches, making the dream of buying an affordable home for first-time home buyers more unrealistic. Moreover, property developers are profit-oriented and whatever taxes that are imposed on them are factored into the selling price. Hence, the rapidly escalating house prices.
Vacancy Tax Should Only be Imposed on Developers for Hoarding Unsold Completed Units
There was an earlier news report that Hong Kong was considering imposing a vacancy tax on unsold completed property units on property developers. It was suggested that a tax would be levied at 200% of the annual rental value (based on the market rates and assessed by government officials). Singapore has a vacancy tax imposed on developers on unsold completed property units.
However, the reasons for Singapore imposing and for Hong Kong to consider imposing a vacancy tax on developers for unsold completed units are very different compared to Malaysia. Based on the news article, the reason for imposing a vacancy tax on developers for unsold units is that these developers are only selling a small percentage of their completed properties and deliberately hoarding the large bulk of such completed units - only to sell such units in the future when the price appreciates further. This hoarding tendency has been seen amongst parties who are - firstly, financially capable and can be amongst property investors who are speculators intending to purely flip the property with no intention of occupation, as well as developers, as reportedly seen in some other countries.
In such cases, these property developers and investors are driven solely by greed. deliberately not selling the completed units and hoping to create artificial demand - only to sell in the future when the prices increase further. In such cases, HBA will agree that the government does impose a hefty vacancy tax on such developers and investors to compel them to sell the completed units. Then again, it is a grey area to accuse someone of being a hoarder.
However, in Malaysia's context, the situation is again different as these developers have been actively trying to sell these completed units but have yet to be successful. They are aware of the physical deterioration of their inventories with the passing of time and having to maintain their inventories.
HBA is generally unsympathetic towards developers regarding the problem of overhang properties as the developers themselves created such problems. However, imposing a vacancy tax on developers on these unoccupied and unsold completed properties would not in any way help to resolve the problem. It would only result in new houses being more expensive as developers would pass on the cost of any additional taxes to future launches. If developers hold too much inventory, they will surely have to assess this relative to their balance sheet, holding costs, opportunity costs and future expectations. The market will always find its equilibrium.
Bankers and investment research analysts are forecasting that the potential implementation of a vacancy tax could hurt the local property market. The country needs more foreign investment so a vacancy tax will be counter-productive. In fact, a vacancy tax is expected to exacerbate the problem of housing affordability and availability in the country.
In the context of homeowners being levied with the proposed vacancy tax is something misguided. Homeowners are already mandatorily required to pay quit rent to the land offices, assessment rates to the Local Councils and Income taxes on their earnings to Lembaga Hasil Dalam Negeri (LHDN) on top of the mortgage. For stratified properties, they continued to be burdened with having to pay monthly maintenance charges and sinking funds. Homeowners have their own set of arguments for occasionally leaving their property vacant.
Feasibility and Viability Studies
Overhang is a problem that is mainly due to the unmet housing demand in association with the varying economic performance, housing preferences, market sentiment, housing affordability, credit accessibility, as well as demographics and lifestyle changes. It can only be addressed by a collaborative measure that involves all industry stakeholders. If the government aims to holistically resolve the overhang problem, a detailed study of the situation is necessary.
It has been said that there is a need for independent market and feasibility studies to be done before any project is embarked on or implemented. This is a more implementable measure to minimise the risk of unsold units compounding into a gross oversupply in the market. It should serve as a ‘check & balance’ mechanism. The financial institution should obtain a complete market survey and feasibility study with the property developers' proposed pricing before they approve any loan facilities.
Ideally, the study should be conducted at the planning stage. Still, as the actual implementation date of the project may be at a much later date when the market may have changed, the study can be done as part of the submission for Development Order application at the Local Council or when applying for bridging loan or project financing.
Also of paramount importance is that the study must be commissioned independently by qualified professionals within the relevant sectors to ensure the objectivity of study outcomes.
There is a need for an integrated housing database that consolidates data from multiple agencies at federal, state, and local levels – to not only help industry players to gauge the latest market trends but also provide a better understanding of how new launches perform in matching the local affordability level; thereby ensuring the availability of an adequate supply and diversity of housing opportunities in the country.
This article is written by Datuk Chang Kim Loong, the Honorary Secretary-General of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation (NGO) manned by volunteers. He was also a Councillor with the then Subang Jaya Municipality Council (now conferred Subang Jaya City Council status) from year 2008 – 2018.
Disclaimer: Any opinions expressed are entirely the author’s own and do not necessarily reflect the views of PropertyGuru and its entities.