Here we are, just weeks from Budget Day (Nov 2) and there is talk of new taxes and “sacrifices” to be made for the larger national interest. And here is one of the billion-ringgit questions: Will a so-called vacancy tax come to haunt property owners and developers? (It is imposed on properties that are unoccupied or unsold for a specified period of time.)
It is a nice idea, on paper. We do have a big problem with housing affordability (more precisely, its relative unaffordability). Recall that the residential property overhang nationwide was at an all-time high last year, growing 67.2% in a year to 24,738 homes. Those empty homes are worth RM15.64 billion, up 82.8% year on year.
There are also the empty condominiums and houses around the Klang Valley just waiting for tenants who are willing to pay “market rates” once the property market recovers because the landlords are in it “for the long term”.
Obviously, most people cannot afford these homes. And prices cannot quite come down so easily because they are “market driven”.
Well, a vacancy tax may, in theory, help fix this. Basically, it helps “persuade” many owners to reduce rents or prices to avoid a financial penalty for letting a social resource go unused when so many need them.
The federal government could gain an additional income stream. Win-win. And other countries are either doing it or thinking about it. Global (best?) practices rule!
Perfect ... except there are a few inevitable hitches.
One of the biggest fundamental challenges in Malaysia’s affordable housing drive is that land-related matters are under the jurisdiction of state governments, not Putrajaya.
So, the first hurdle is that any vacancy tax will have to be driven by the state governments and enforced by municipal councils. Most states get over half of their income from monetising state land. Since a vacancy tax may push down land prices, good luck convincing the state governments and local councils on its merits.
Bottomline: we may need to quadruple the Malaysian Anti-Corruption Commission (MACC)’s resources just to make sure the vacancy tax paid does not get “misplaced”.
A second hurdle: implementation and administrative costs. If we can get the horde of local councils on the same page, will the tax income outweigh the costs?
Unless, of course, we are approaching it from the social interest perspective — to encourage more homes to be accessible to people. (But decency and public interest still do not pay the bills.)
And then, there is also the question of quantum. The tax rate must be sufficiently high relative to house price inflation to substantially encourage lower prices and rents. But a high rate may shock a slowly cooling market. Recent reports say home prices are slowly easing down. We do not want them to start crashing instead.
On the flipside, a mild, next-to-nothing vacancy tax will not do anything significant other than stoke voter angst and add to the criticism and scepticism swirling around the so-called Malaysia Baru. Imagine the complaints: I am already losing out on rent and now you want to tax me because I don’t have a tenant? How can?
Of course, all this is a narrow discourse on a vacancy tax targeted exclusively at home owners and builders.
We have not yet touched on the swathes of empty land hoarded as land bank for “future development” and how such a tax may release more land for affordable housing projects. (It is funny how land bought relatively cheaply 30 years ago needs to be revalued at current prices to reflect the land cost when the time comes to build something on it.)
Nor have we explored the empty office and mall spaces, plus incoming supply around the city centre, and how such a vacancy tax could help get more tenants for them.
All this is, of course, assuming Putrajaya is looking at the tax in the first place. Probably not. Is it? Oh wait, it is Hong Kong looking at vacancy tax.
Oh well, we’ll find out what new taxes Malaysians will be staring at in just weeks. Hold on tight, my fellow Malaysians! (By that I’m referring to your wallets, cheque books, crypto currencies and such.)