Selling Property and Real Property Gains Tax (RPGT) Planning

Written by: Sr. KC Law

When we sell any of our property from the year 2019 and beyond, we will need to pay “Real Property Gain Tax (RPGT)”. When we buy property, we pay “Stamp Duty” at the market value of the property. In this article, we highlight the prudent actions needed for effective RPGT planning.

It is crucial to know the facts and make informed decisions; being ignorant of the laws and regulations is extremely costly and time-consuming to rectify.

Example 1

Mr Lim inherited a 3-storey shophouse in Kuala Lumpur from his late father via a valid Will. (Read more: Getting a Property Valuation On Your Inheritance, When and Why?)

He may plan to sell it immediately or 5 years after getting the “Grant of Probate” from the High Court.

Basic equations:

  1. Acquisition Date = Date of demise
  2. Holding period in year(s):

Disposal Date – Acquisition Date

  1. Chargeable Gain:

Disposal Price – Acquisition Price – Allowable Expenses

Read more: Real Property Gains Tax (RPGT) in Malaysia

From the above, the inherited 3-storey shophouse Acquisition Price or Market Value on the date of demise is unknown since there is no property valuation done.

Mr Lim is street smart and prudent, so he plans to determine the unknown Market Value at Date of demise by himself (Do It Yourself = DIY) to save cost.

Here are probably some DIY methods he might have considered:-

Method 1. Get an indicative price for similar property 3-storey shophouses in similar location advertised in the local newspaper(s) for the property by property agents. Cut out the advertisement and use it as Acquisition Price.

Method 2. Get the advertised prices for a similar property advertised in online property advertising portals. Print it out and use it as Acquisition Price.

Method 3. Call up several active real estate agents/negotiators in the area of the inherited property. Record down their verbal average indicative prices as Acquisition Price.

The above DIY methods seem to be very simple and cost-effective to determine the Acquisition price (Market Value) at Date of demise (inherited date).

The question is – Is this Acquisition Price (Market Value) at Date of demise derived from above methods valid or can it be used as Market Value of the property for submission to Inland Revenue Board (IRB) for RPGT tax purposes when Mr Lim sells his 3-storey shophouse immediately or in the future?

The answer is, unfortunately NO.

Why can’t these pieces of evidence be adopted?

The market value from the above methods is just hearsay indicative asking prices and cannot be used for RPGT tax calculation nor submission.

It is an offence punishable by imprisonment and/or fine should anyone who is not a Registered Valuer with the Board of Valuers, Appraisals, Estate Agents and Property Managers of Malaysia were to sign a valuation report stating the market value of any property for any specific date in Malaysia.

Now, let’s look at the correct and legal ways available to property owners/beneficiaries like Mr Lim who wish to get their property market value on the inherited date or date of demise or transfer date.

Situation 1- Owners/Beneficiaries who plan to sell/dispose of the property immediately after getting the “Grant of Probate”.

  1. Engage a Registered Valuer to conduct a property valuation and draw up a valuation report of market value at the date of demise.
  2. The date of demise is taken as the date of acquisition or date of valuation.
  3. The Holding Period is Date of Disposal – Date of Acquisition.

Situation 2 – Owners/Beneficiaries who plan to keep the inherited property after getting the “Grant of Probate” or sell after 5 years.

  1. After getting Grant of Probate, transfer/ register the beneficiaries name(s) into the title by Memorandum of Transfer (MOT) or Deed of Assignment for a non-title property.
  2. Engage a Registered Valuer to conduct a property valuation and draw up a valuation report on the date of registration of the title or assignment date on the Deed of Assignment for a non-title property.
  3. The inherited property will now have a market value at acquisition date which is the date of registration on the title or date of Deed of Assignment.

In the above example, our objective is to get market value for the property/inherited property at acquisition date under 2 situations that is valid and can be used in the future for RPGT tax planning purposes.

The above RPGT planning is a prudent and recommended way for all property owners who plan to sell their property for 2019 and after.

Real Property Gain Tax Malaysia

Example 2

What happens if owners of property who sold their property but felt that the RPGT calculated by the authority does not reflect the market value?

They can make an appeal with a detailed property valuation report from a Registered Valuer on the affected property within the specified appeal date.

However, this is a reactive approach which may in some cases not work in the favour of the owners.

The understanding of the above will help property owners/beneficiaries overcome the challenges in managing RPGT proactively when selling their property.

Should you need further advice or clarification. Please contact us at 03-7785 1888 or email us at action.v1039@gmail.com

KC LAWSr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.

Ways to Improve Rental Yield

Written by: Sr. KC Law, Principal & Valuer at Action Real Estate & Valuers

Using the example from our previous post, a man had purchased a second property by refinancing his first loan. Now, he has two properties which he can rent out for cash flow gains. However, he realized that if he rented out the two properties as it is, his rental yield is still not up to his expectation of at least 5% or higher rental yield.  Is there a way to increase the rental yield of his properties? Assuming that his 1st property tenant will be moving out soon, the current market rental remains unchanged and he has some excess cash in hand from his loan refinancing.

If you were in his shoes, what would you do to increase your rental yield?

There are few options an investor can do to his/her properties. He/she may choose to do nothing about it. This may be the worst choice because the property may be dirty due to ageing paintwork. By choosing this option, it may result in longer vacancy periods and worse still, it might even reduce the rental yield. The last thing any investor wants to see are numbers that don’t look good!

So don’t be overly anxious if you cannot immediately find a tenant for your vacant property, instead, you may consider doing some minor enhancements to improve the value and rental yield while looking for a new tenant. Yes, it will involve a certain amount of cost, but a proactive approach and a bit of initiative go a long way!

ways to improve your property yield

Here are 4 minor property improvements you may consider to significantly improve your rent rate; for properties such as flats, apartments and condominiums in the low to middle class.

 1. Walls The very least the owner can do, is to touch up the dirty walls by repainting the whole house. Besides that, you should also check to ensure that all the electrical points are working fine.

2.ToiletsThe owner may consider tiling up the walls, changing damaged and rusty taps. Installing a water heater if there was none before.

3. Floor- If your apartment/condominium has a yard floor with cement render only,  you may consider tiling up the floor of the yard and filling up any steps from the home area to the yard’s floor in order to have a flat ground between the yard floor and the flooring inside the condominium ; this will create a perception that the built-up area of the unit is larger than other similar units. 

4. Kitchen Replacing the zinc counter in the kitchen with a custom made concrete countertop lay with polish tiles and stainless steel sink.

 You may also consider providing extra add ons such as the below:

·         Curtains for all windows and sliding doors.

·         Installing stainless steel clothes hanger at the balcony area.

·         Providing an extra stove in the yard area for heavy cooking.

Furnishing may not always be necessary. Whether or not to furnish the property should depend on the location of your property, if your property is within the city centre or near to education institutions, then furnishing the property would be beneficial. However, it is also wise to leave furnishing the property as the last consideration so that you can tailor to the tenants’ needs/requests. Some family tenants may actually prefer to furnish their own space.

All these property improvements, as minor as they may seem, can set your property apart from the other units within the same block, which will attract more prospective tenants to your property, and more importantly, will help to increase the rental demand of your unit.

Let’s now look at the potential return on investment (ROI). For example, if the above property improvement cost you RM10k and your new tenant now pays a rental of RM300 more, compared to the previous tenant. And if your new tenant commits to staying for 3 years, you would have received a return on investment of RM10, 800. On the other hand, If this RM10k was stored in the bank as a fixed deposit, the compound interest at the end of 3 years is ONLY RM1,248.

This all sounds great. However, there is also one point of caution to note; do not over-renovate every single property you have with the intention of increasing the rental yield. It greatly depends on the type of property you have. For example, a flat will still remain a flat no matter how much money you invest to make it great. The rental value will eventually hit a ceiling. It will not fetch the rental of a condo because it is a flat.

The reason why some enhancement of rental properties is necessary is that there may be several other similar vacant units available in the market at that point in time when your unit becomes vacant. Instead of positioning your property as a me-too property in the market, you can position your property as one of the best. Not only can you get your unit rented out faster, but your unit may also be able to fetch a higher premium compared to other units.

In addition to the above, since you have tastefully done up your unit compared to the rest, you would also likely have a higher chance of getting more than 1 offer for your property. This gives you the benefit of being able to select a better tenant, perhaps one that is able to sign a longer tenancy term.

What are some other techniques you have used to successfully increase your rental yield?

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About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyor Malaysia and Member of Malaysia Institute of Estate Agents.