Ule 2

Title: Government Intervention in the Property Market
Government intervention is actually the actions taken by government in order to

control or regulates with various activities or decision made by individuals, groups or
organizations within their control. The effect of government intervention could be
positive or negative depend on the effectiveness of their implementation. The
government intervention in regards to real estate in Malaysia includes subsidies,
taxation, regulation and legislation, minimum price policies, maximum price policies,
quotas, and government ownership. The first objective of this essay is to identify the
fundamental issues of urban land economics and the second objective is to
investigate the effect of government intervention towards real estate market.
Property taxation is one of the tools include in the government intervention such as
Real Property Gains Tax (RPGT). RPGT is a tax on chargeable gains derived from
disposal of property. According to (Shang, 2014), in Budget 2014 the government has
doubled the RPGT on properties disposed within three years of acquisiton to 30%.
The Government reason on increasing this tax rate is to curb speculation activities in
housing price and property market. Some of the reasons which cause the property
price keep hike is due to speculation activities in the property market. According to
("The Malaysian government has successfully slowed the housing market," 2014),
the transaction of the property has slow down in some urban areas where many
apartment buildings are empty in Kuala Lumpur due to new RPGT. He has also
added that, although more condos is put on sale after the new RPGT rate, but there
were 4% less purchaser. This indicates that, speculators are less interested buying
the property because they need to hold the property for long term which may be cost
to them. Besides that, property prices have slightly dropped in some areas because
there are not enough buyer instead the genuine buyer who looking to acquire
property for the long term after the increase of RPGT. According to ("Understanding
Malaysia Property Cycles," 2015), the high end high rise and landed property are
drop in prices due to oversupply of the units and new RPGT. Some developers
deciding to sell their property at the best price they can get instead of loss. So the
new completed development may sell below the market prices, thus property market
becoming cheaper and beneficial for the genuine buyer to buying a property.
In addition, the financial institution which is Bank Negara Malaysia (BNM) has
imposed a strict lending regulations. These strict regulations officially implemented on
July 2013, involving property loans and personal loans. BNM has comes out with this
regulations to reduce the Malaysian household debts which at 87.9% of GDP (Zahiid,
2015). These strict lending rules had hurt the property market. According to (Hoo,
2016), approximately about RM9.42 billion in loan applications for residential property
purchases had been rejected by banks until January 2016. Due to this, most
developers faced with dropping in property sales and more properties tend to be
unsold. A large number of properties, especially high end condominiums not be
bought and oversupply in the market (Hoo, 2016). On the other hands, stricter
lending policies implemented make the property market become more competitive
(Dhesi, 2015). According ("Property market to remain weak throughout 2016, says
AllianceDBS Research," 2016), most developers are now following market demand
by providing smaller built-up units at affordable prices. Affordable priced properties
that located in strategic location together with good public transport accessibility and
lifestyle amenities still get demand from buyer (Dhesi, 2015). The affordable property
prices offered is more easier to secure for property loan financing rather than high
price property. According to (Aruna, 2016), the application for property loan below
RM500 000 showing a lower rate of rejection at 19% compared to property loan
which more than RM500 000.
Beside that, the Government has imposed the special quota for Bumiputera knowns
as Bumi Quota. This quota is specialized for Bumiputera to balance the shares in the
real estate market. According to (Anuar, 2011), developers must allocate several
percentages of the development unit to be sold to bumiputera buyers and buyers
also enjoy several discount for each unit. This quota seems as the catalyst for
Bumiputera to own a house because developers has to sold at lower price than
normal price due to discount provided. However, according to (AR, 2014), unreleased
units were as high as 56 per cent of unsold bumi quota units, which costing above
RM500 000 in prime areas of Selangor, Kuala Lumpur, Johor and Penang. The
unsold units are a burden to the developers because developers need to pay
construction workers and suppliers of construction materials on scheduled. Besides
that, the unsold units also give impact towards the cash flow of developers and
developers need to spend more money on promoting those units to Bumiputera
buyers as they are the only buyers who can buy that particular units. Other than that,
there are some people who have higher income take the opportunity to buy those
units due to the discount provided for the bumi quota unit (AR, 2014). Of course, this
quota introduced to increase Bumiputera shares in real estate, but the irresponsible
persons have manipulated this quota for their own benefits. In addition, according to
(Pau, 2014), many Bumiputera preferred to buy the non bumi quota lot, which
resulted excess supply for bumi quota house. Bumiputera likely to buy a non bumi lot
due to several reasons which the lot is easy to sell in the future and potential of
appreciation is better for non bumi lot. For the bumi lot, it is more difficult to sell
because it only can be sold for specific buyer which is Bumiputera buyers.
In conclusion, government intervention plays a big role in controlling the property
market either in the long run or short run. However, the effect of the government
intervention to real estate market seems to have a positive and negative impact. This
indicate that, some policies implemented by the Government has a loopholes and not
totally fit with the property market. Therefore, in future the government should learn
from what they had done in regard to property market and improve the way they
implemented it for a better property market so that all parties get benefits.
References
Anuar, K. (2011, 19 December). Introduction to 'bumiputra property', The Sun Daily.
Retrieved from http://www.thesundaily.my/news/243283
AR, Z. (2014). Wheres the sense in high Bumi lot quotas in non-Bumi areas,
developers complain, The Malay Mail Online. Retrieved from
http://www.themalaymailonline.com/malaysia/article/wheres-the-sense-in-highbumi-lot-quotas-in-non-bumi-areas-developers-compl#sthash.vfhkeLQG.dpuf
Aruna, P. (2016, 7 April ). Maybank's Farid says loan rejection rate for affordable
housing only 20%. Retrieved from
http://www.thestar.com.my/business/business-news/2016/04/07/maybank-farid-says-loan-rejection-rate-for-affordable-housing-only-20pct/
Dhesi, D. (2015). Bank Negara urged to ease lending rules for 1st time house
buyers, The Star Online. Retrieved from
http://www.thestar.com.my/business/business-news/2015/09/28/ease-lendingpolicy-calls/
Hoo, E. (2016). Bleak outlook with lower loan approvals. Retrieved from
http://www.theheatmalaysia.com/Main/Bleak-outlook-with-lower-loanapprovals
The Malaysian government has successfully slowed the housing market. (2014).
Global Property Guide. Retrieved from
http://www.globalpropertyguide.com/news-The-Malaysian-government-hassuccessfully-slowed-the-housing-market-2035
Pau, N. S. (2014). Malays prefer to buy non-bumi quota properties, Malaysian
Chinese News. Retrieved from
http://www.malaysianchinesenews.com/2014/11/malays-prefer-to-buy-nonbumi-quota-properties/
Property market to remain weak throughout 2016, says AllianceDBS Research.
(2016, 12 April). Retrieved from http://www.thestar.com.my/business/businessnews/2016/04/12/alliancedbs-downbeat-on-property-sector/
Shang. (2014). Real Property Gains Tax (RPGT) In Malaysia. Retrieved from
https://loanstreet.com.my/learning-centre/rpgt-in-malaysia
Understanding Malaysia Property Cycles. (2015). Malaysia Property News. Retrieved
from http://www.propertymalaysiainvestment.com/understanding-malaysiaproperty/
Zahiid, S. J. (2015). Over 50pc of affordable housing loan bids rejected, Rehda says,
Malay Mail Online. Retrieved from
http://www.themalaymailonline.com/malaysia/article/over-50pc-of-affordablehousing-loan-bids-rejected-rehda-says

Ule 2

Uploaded by

Copyright:

Available Formats

Ule 2

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ule 2

Uploaded by

Copyright:

Available Formats

Title: Government Intervention in the Property Market

Government intervention is actually the actions taken by government in order to

You might also like