Vacancy tax has been in the news for a while due to the oversupply of properties, which are highly priced and left unsold due to unsuitability. Builders who wanted higher profit margins built these properties, and now the Malaysian government is to impose vacancy tax on such builders for unsold properties. A vacancy tax is imposed in the form of the penalty based on the percentage of gross selling on the properties that are left vacant and are unsold for a specific amount of time.
Dr. Carmelo Ferlito, CEO at Centre for Market Education, and a senior at Institute for Democracy and Economic Affairs, believes that the upcoming initiatives may get discouraged on the imposition of a vacancy tax on developers. He stated that the imposition of vacancy tax would be a violation of property rights. The developers and individual owners should be given the liberty to dispose of their properties.
Ferlito further noted that a vacancy tax would set a perilous model of administrative inference. It pictures the government’s right to meddle with the disposal of a property when the process of disposal is not going in a direction that’s “socially” desirable. He added that the oversupply of unsold properties is a dynamic of the market process that proceeds through business fluctuations.
He further added, such a move will discourage future initiatives as one would fear wrong investments and deter entrepreneurial initiatives that could be otherwise successful.
Deputy Federal Territories Minister Datuk Seri Edmund Santhara Kumar stated, the government will study the proposition of imposing vacancy tax on developers to address the issue of unsold luxury condominium units in the Klang Valley.
There were 2,260 unsold condominium units within the Klang Valley according to The National Property Information Centre, out of these unsold condominiums 498 luxury units were worth at least RM1m as of the second quarter of 2018.
CBRE Group Inc and CH Williams Talhar & Wong Sdn Bhd MD Foo Gee Jen stated a vacancy tax which is usually accompanied by a speculation tax is to curb the high prices and is limited to residential property. He further added a vacancy tax is usually targeted in “absence ownership.” This absence ownership mostly applies to foreign buyers in a specific local market.
He said, in Malaysia, under the Local Government Act, the vacant property enjoys a rebate for assessment; instead, paying taxes. However, Foo noted that a vacancy tax would hamper future initiatives in Malaysia. It is a counterproductive move in the time when the country needs more foreign investment.
Knight Frank Malaysia Sdn Bhd MD Sarkunan Subramaniam said that the purpose of imposing vacancy tax would be to ensure that owners don’t keep their properties vacant for high-profit margins. Instead, they rent it out on lower rents.
He said the proposition of a vacancy tax would be lethal to the property markets as the owners will have to reduce the rent in a market where properties are already oversupplied. He further added, it is hard to monitor vacant properties for the imposition at the moment.