Hot New Game In Town
THE Government's decision to abolish real property gains tax (RPGT), after its application for 30 years, is a landmark event for the property sector.
RPGT appears to have worked well in reducing speculative activities in the housing market. The rest of the region, however, had decided that on balance, RPGT worked against the benefits of a vibrant property sector on the overall economy.
It is understood that at one time, there was RPGT in Singapore and Hong Kong too, but this was removed in both these places.
The removal of RPGT would lead to an increase in the number of investors who buy properties with a view to a sale within two or three years.
In the past, experienced investors could make good gains in selling their houses or condominiums as soon as construction was completed. In their sales, they would pay the RPGT, keep the rest of their profit and move on to other purchases.
This would become more profitable without the cost of RPGT. It can be very lucrative due to high financial leverage. Typically, buyers need put up only 10% of the price of a house, with the rest financed by a loan. There are not many assets in which investors can readily obtain financing nine times the cash that they pay in.
The experience of those who obtained appreciation of 100% on their houses by the time construction was completed, after having paid just a 10% down payment, is the stuff of urban legends.
Although the overall property market does not go up by 100% or even 50% in any given year, a high double-digit rise in value can be found in properties in the right location. This is sometimes found in the early launches of township developments where developers seek to entice buyers to ensure the projects take off.
High leverage is obviously a double-edged sword, although property prices tend to rise every year except in a recession, and certainly far less volatile than the stock market.
As in any investment, the right asset has to be picked. In the case of properties, besides price, the obvious criterion is location.
Source :The Star 26/03/2007 Close Window