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03 June 2013

Johor to raise property taxes for 130,000 foreign owners

Source: Straits Times
By Lester Kong Malaysia Correspondent

KUALA LUMPUR - Johor state will implement higher tax rates for some 130,000 foreigners owning properties this year, said Menteri Besar Mohamed Khaled Nordin.

"I believe that most locals will be in agreement over this new policy and it is done to increase our state's returns," he told local media in Permas yesterday, adding that the new rates will be implemented by the end of the year.

He said that the rates will be re-evaluated to reflect current property values as the last formal evaluation was done in the 1980s.

"Taxpayers need not worry about the evaluations as (existing) property taxes will be retained for lower-priced properties," he said.

He did not rule out the possibility that taxes for locals owning million-ringgit properties would be raised too. However, the increase has not been specified.

The proposed increase is seen as a way for the Johor government to rein in skyrocketing property prices spurred by keen interest among foreign buyers, 90 per cent of whom are Singaporeans.

In Johor, the annual assessment rate for residential properties is 0.14 per cent of the property value and 0.2 per cent for business holdings. For a RM500,000 (S$204,000) house, owners need to pay RM700 a year.

Foreigners are already limited to buying properties worth a minimum of RM500,000, raised from RM250,000 two years ago. The state charges them RM10,000 as government consent.

In Penang, foreigners can buy properties that are priced at a minimum of RM1 million.

In East Ledang, one of Johor's pricier patches, a bungalow costs about RM4.7 million. The equivalent in Singapore could fetch three to four times that price, according to property websites.

Foreign and local property owners in Malaysia are charged two types of property taxes - assessment tax, based on the rental value of the property, and quit rent, determined by the land size of the property. The amounts vary from one municipality to another.

Johor property agents told The Straits Times that they were unsure of the impact that new rates will bring to the market.

"Foreigners might be taken aback, but they will see that property prices in Johor are still affordable," said property dealer Bernard Lim in Nusajaya. "Any tax increase will be negligible when compared to Singapore's much higher price and rental values."

Property owners who dispose of their holdings are charged real property gains tax (RPGT), which is set by the federal government.

An RPGT of 15 per cent is charged on the net profit from the transaction if the property is held for less than two years. There is a 10 per cent RPGT for properties held between two and five years and none after five years.

Singaporean real estate agent Germaine Ng, 40, who owns a condo unit in Iskandar and is looking to buy another property there, said she would not be deterred by rising taxes, as the overall prices in Johor would still be much lower than that in Singapore.

Additional reporting by Yasmine Yahya