Developers, builders fall on property tax

IJM Land Bhd led Malaysian real estate stocks lower and builders fell after Prime Minister Datuk Seri Najib Razak imposed a capital gains tax on property and the government cut development spending.

IJM Land, Malaysia’s fifth-biggest developer, slid 2 per cent to RM2.44 at 10.28 am local time, outpacing the FTSE Bursa Malaysia KLCI Index’s 0.4 per cent decline. IGB Corp lost 3.3 per cent to RM2.07.

The property tax is a “negative surprise” and will “dampen the velocity of transactions,” HWANGDBS Vickers Research said in a report today.

The government aims to bolster revenue and cut spending to help trim a budget deficit to 5.6 per cent of gross domestic product next year from a 22-year high of 7.4 per cent in 2009.
Malaysia plans a 5 per cent capital gains tax on property from January to help broaden the base of revenue collection, Najib said on October 23. Development expenditure will be reduced by 4.4 per cent to RM51.2 billion next year.

Gamuda Bhd, Malaysia’s second-biggest construction company, lost 1.2 per cent to RM3.30, set for the biggest decline since October 9. IJM Corp dropped 1.2 per cent to RM4.87.

“Although we believe the property market has bottomed, we view this measure came too soon,” Citigroup Inc said in a report today, referring to the property tax. It’s a “negative for the sector as it would curb buying interest.”

Sunway City Bhd and Sunrise Bhd had their stock ratings cut to “hold” from “buy” today by HWANGDBS, which also lowered the target prices of SP Setia Bhd, DNP Holdings Bhd and Eastern & Oriental Bhd.

Shares of Sunway were unchanged, while Sunrise fell 2.9 per cent to RM2.32. SP Setia lost 1.3 per cent to RM3.83, headed for the lowest level since July 13. DNP sank 2.7 per cent to RM1.47 and Eastern & Oriental declined 4.1 per cent to RM1.18.

“The government needs to ensure that the Malaysian tax system is equitable and able to generate revenue for development purposes,” Najib said in his budget speech. Property tax exemptions for families will remain, he said.

Malaysia scrapped a three-decade old capital gains tax on property in April 2007 in a bid to help clear a backlog of unsold homes and attract overseas funds.

Previously, the capital gains tax on property was 30 per cent within the first two years, falling to 5 per cent by the fifth year. For foreigners, the old tax started at 30 per cent for the first five years, dropping to 5 per cent in the sixth and subsequent years.

Neighboring Singapore said in August it wouldn’t proceed with an earlier plan to impose a tax on some property transactions after receiving negative public feedback. It had planned to tax individuals who sold more than one property within a four-year period to deter speculation.

By Bloomberg