PETALING JAYA: Unsold units have blighted the nation’s property sector for many years, with blame for the glut of unwanted properties in the market attributed – rightly or wrongly – to developers who, swayed by the latest trends, build with a frenzy.

One novel way to tackle this problem is to introduce a vacancy tax to “correct current imbalances in the property and rental markets”, said a researcher.

Khazanah Research Institute (KRI) research director Suraya Ismail said such a tax would discourage speculative activities by individuals who hold on to units with the primary intention of “making quick profits”.

Additionally, the tax can prevent an oversupply of certain types of properties by encouraging developers to plan and develop housing projects that meet local demand.

A vacancy tax is essentially a penalty imposed on any property that remains unoccupied or unsold beyond a specified period of time. The tax payable is calculated based on a percentage of the gross selling price.

Already in place in Vancouver and British Columbia, in Canada, and Melbourne, Australia, the tax seeks to curb speculation and help create an affordable housing market.

Suraya said it will help prevent an oversupply of products which contribute to a property glut, such as high-priced high-rise units.

“To avoid paying taxes, both the developers and individuals will start selling or renting their overhang and vacant units, respectively.

“This will provide home buyers with access to affordable houses as developers lower their price through ‘fire sales’ to clear the glut,” she added.

The proposal is not exactly new to Malaysia. In August 2020, then housing minister Zuraida Kamaruddin said the government was considering imposing it on developers of high-end properties priced above RM500,000. Nothing further has been said on the issue.

According to the National Property Information Centre (Napic), there were 27,746 overhang units in 2022, valued at RM18.41 billion.

Johor, with 5,285 units worth RM4.33 billion, has the largest number of overhang residential properties, followed by Selangor (3,698 units worth RM3.36 billion), Penang (3,593 units worth RM2.74 billion) and Kuala Lumpur (3,429 units worth RM3.15 billion).

Notably, 33.6% of the total residential overhang units in 2022 were priced between RM500,000 and RM1 million, while 29.3% were in the RM300,000 to RM500,000 segment.

Properties priced above RM1 million only constituted 13.6% of the total overhang, but, at RM7.5 billion, made up 40.7% of its value.

Correcting market imbalance

The concept, however, is not without its detractors. Critics say the tax will cause house price depreciation and affect the secondary housing market, which accounted for about 80% of total residential transactions in 2022.

Suraya, however, said the adjustment may be necessary for the property market to correct itself into one which is “sustainable and affordable”.

“It is important to note that house prices in Malaysia have escalated rapidly since 2010, with a compound annual growth rate (CAGR) of 6% between 2010–2021.

“A healthy CAGR level for house prices should be between 3.1% and 4%. Thus, a vacancy tax could actually help the housing market achieve the predicted healthy CAGR,” she said.

There is also concern that rental yields will suffer with the introduction of a vacancy tax as more units are released into the market, but Suraya said the correction would make rental rates more affordable.

No need for intervention

Center for Market Education CEO Carmelo Ferlito, however, does not see the property overhang as a major concern and says government intervention is unnecessary.

“In the long run, if properties remain unsold, it would drive prices down and force developers to revise their investment decisions,” he argued.

Ferlito disagreed with the vacancy tax proposal, saying taxes should be imposed on income streams, not unrealised profit.

“Basically, you have a restaurant, you fail to sell all your nasi lemak and the government taxes you, not on profit, but on the nasi lemak that you did not sell?” he asked.

Xiamen University Malaysia senior economics lecturer Consilz Tan said more data is needed to form an accurate assessment of the property market before rushing to introduce a vacancy tax.

“If we can have more data and access to these data, we will be able to understand the market better.

“We should look at how to improve the supply of housing to be more efficient and effective, give full support to developers and involve them in the town planning and housing development from the start,” she added.

However, KRI’s Suraya said that vacant and overhang units do not generate value or utility, making them wasteful resources.

Furthermore, vacant units also contribute to the underutilisation of public facilities, disinvestment in townships, and urban decay, she added.

Citing the “broken window theory”, she said neglected properties will attract unintended activities and result in further deterioration of an area and its surroundings.

“If a window in a building is broken and is left unrepaired, all the rest of the windows will soon be broken,” she added.