Budget implications on Malaysian residential

To safeguard the Malaysian economy against the adverse impacts of COVID-19, Budget 2021 has set a record to be the biggest Federal Government allocation in Malaysia, with a sum of RM 322.5 billion or around 20.6% of GDP.

Figure 1: Breakdown of Malaysia Budget 2021

Source: Malaysia Budget 2021

In the recent Budget, the government continues to pledge support for low to mid-income groups (B40, M40) as well as first-time homebuyers.

The government has allocated a big fund in building more affordable homes for the mentioned target groups. Among the initiatives announced were 14,000 low-cost home units (RM 500 million) that will be developed under the People’s Housing Programme of the Ministry of Housing and Local Government. Besides, it includes 3,000 units (RM 315 million) of Rumah Mesra Rakyat, which will be developed by Syarikat Perumahan Negara Berhad (SPNB). The other commitments are an allocation of RM 125 million, mainly to maintain low-cost and medium-low stratified housing, and to repair existing dilapidated houses with another RM 310 million for the Malaysia Civil Servants Housing Programme (PPAM).

Many property players have lauded this measure that will strike a balance between private and public sectors in fulfilling the needs for affordable housing which is likely to address the affordability issue that concerned the low to mid-income groups and first-time homebuyers. However, this measure would not help to address the prevailing issue of high volume of residential overhang, which is largely attributed to the high-rise dwelling units priced between RM500,000 and RM700,000 per unit.

A rent-to-own (RTO) programme, which introduced in the last year’s budget, has been continued in Budget 2021. The programme, which is designed to assist first-time homebuyers, is relatively new to Malaysians. In this programme, the government will collaborate with selected financial institutions in providing assistance to first-time homebuyers. Over RM 1 billion worth of fund is reserved for rent-to-own (RTO) scheme involving 5,000 PR1MA houses.

The RTO programme has been able to assist many first-time buyers in getting access to housing encouraging more Malaysians, especially young millennials, to own houses. The Department of Statistics, Malaysia, in a recent survey, has observed the trend where homeownership among Malaysians has shown an improvement of 0.6 percentage points, to 76.9% in 2019, as compared to 76.3% in 2016. Hence, this programme would increase the homeownership rate among Malaysians.

Figure 2: Percentage of Households by Type of Occupied Dwelling, Malaysia, 2016 and 2019

Source: Household Income & Basic Amenities Survey Report 2019, Department of Statistics, Malaysia.

Stamp duty for first-time homebuyers is exempt for up to RM 500,000. This is applicable for the Sales and Purchase Agreement (SPA) executed between 1 January 2021 and 31 December 2025, and has been extended to abandoned projects as well.

As we know, stamp duties are triggered and chargeable to buyers for any acquisition of property. The removal of stamp duty will help to boost property transactions in the market.

In the effort of attracting foreign investments into Malaysia, the Budget has extended the concessionary tax incentive for the establishment of Principal Hub and Global Trading Centre for another two years until 31st December 2022. This policy would make Greater Kuala Lumpur and other major cities in Malaysia more attractive for MNCs to locate their regional hubs. In addition, more attractive tax incentives are given for setting-up and relocating manufacturing operation to Malaysia, which may potentially boost demand for office and industrial properties in Malaysia.

Other measures, including those targeting small and medium-sized enterprises (SMEs) should help mitigate the impact of COVID-19 on commercial properties. Along with initiatives highlighted in this budget, various other measures such as the extension of loans moratorium will help support disposable income and have positive spill-overs to the property sector.