The 2002 Budget was indeed a surprise for civil servants - they were given a 10% pay rise and half-month bonus (subject to a minimum of RM1,000). Taxpayers too were given extra money in their pockets in the form of reduction in personal income tax of between 1%-2% while the maximum tax bracket is revised to 28% from 29% previously.

The real estate sector however did not have such goodies. However, the broader construction industry, with allocations of RM943mil for the construction of low cost houses, RM1.08bil for the construction of quarters for the armed forces, police and civil servants, RM6.3bil for the construction of hospitals, health and rural clinic projects, RM1.6bil for the construction of schools, colleges and teachers’ quarters, would be kept busy.

With sales slowing and an oversupply in nearly all the sub-sectors, the real estate sector had hoped for, among others, a revision in real property gains tax, and further relaxation in the Foreign Investment Committee (FIC) regulations as some of the ways to alleviate the situation and boost its performance and contribution to gross domestic product.

With no goodies in Budget 2002, how can the real estate sector cope with the current overhang situation? The current situation can be said to be the result of a mismatch in the supply and demand i.e. developers building what the market does not want, either by property type or by location. Reports of unsold low-cost houses, empty terraced factories or office buildings, shopping centers etc are all too common.

All these were due to the euphoria of the heydays of the early to mid-1990s when all can be sold or taken up and with developers building without carrying out proper market or feasibility studies. Industry players should thus bear in mind that they should build what the market wants to prevent this from occurring again.

In this respect, the government, through planning and land authorities, can play a moderating role in requiring that a formal market/feasibility study accompany an application for development, conversion of land use or subdivision.

The government should also consider granting tax exemption on interest paid for housing loans of owner occupied properties. This would also assist in achieving the country’s vision of a home owning democracy and at the same time allow those who can afford it to move to better accommodation.

To further encourage foreign investors, the FIC regulations need to be further relaxed with automatic approval within a certain time frame if the conditions set out are met. Similarly, the rates of real property gains tax (RPGT) should be reviewed both for Malaysians and foreigners.

As the chances of an early recovery in the real estate sector is now slim, especially in the wake of the recent events in the US and Afghanistan, any help that the sector could get would go a long way towards alleviating the current situation.

By GOH TIAN SUI
Director of C H Williams Talhar & Wong