Recently, it was reported in The Edge that property revaluations are currently being carried out by the Ipoh City Council (MBI). Although met with objections from residents, the move is a necessary one to keep up with the overall trend of rising prices due to the Goods and Services Tax (GST), according to mayor Datuk Seri Zamri Man, who added that the council needed to secure its own funding in order to keep providing services to the people and maintaining standards.
But what exactly is property revaluation, why do people object it, and how does it help the council to generate more funds?
What is property revaluation?
Revaluation is the process for periodically measuring and capturing changes in property values. The value is a property’s resale or fair market value, which changes over time. Revaluations are meant to capture changes in fair market value. The fair market value of real property (i.e. land and buildings) tends to fluctuate while the value of personal property (e.g. cars, cash registers, and copiers) tends to decrease. Consequently, fair market values change between revaluations.
When, or how often, should it be done?
In Malaysia, property developers usually revalue their properties every three or five years, unless special circumstances call for a revaluation exercise. However, some companies such as 1MDB have a policy to revalue its investment property portfolio annually (as reported in The Star in April 2014).
For regular investors or home-owners, there is usually little need to revalue their properties unless they are planning to sell the property, refinance their mortgage, or plan to obtain financing for another property purchase. It will also help to increase their assets, but in doing so, risk increasing the amount of payable tax as well. Some property owners revalue every few years, while others never revalue at all. So really, it’s up to the property owner to decide when a revaluation should be done.
Why should it be done?
Taxpayers worry that taxes will increase if property values increase, but that is the least of it. There are many good reasons why property owners should revalue their properties on a regular basis.
- To show the fair market value of assets which have considerably appreciated since their purchase such as land and buildings.
- To negotiate fair price for the assets of the company before merger with or acquisition by another company.
- To get fair market value of assets, in case of sale and leaseback transaction.
- When the company intends to take a loan from banks/financial institutions by mortgaging its fixed assets. Proper revaluation of assets would enable the company to get a higher amount of loan.
- Sale of an individual asset or group of assets.
- In financial firms revaluation reserves are required for regulatory reasons. They are included when calculating a firm’s funds to give a fairer view of resources.
One common usage is the tax revaluation of real estate property to counter a rise in land value. This way, even as property values rise (whether due to increased demand, increased government spending, or inflation), residents and businesses still pay the same amount of money.
How much is the valuation fee?
The Board of Valuers, Appraisers and Estate Agents Malaysia (BOVAEA) regulates valuation fees, which are calculated as below:
- First RM100K = 1/4 %
- Next residue up to RM2 mil = 1/5%
- Next residue up to RM7 mil = 1/6%
- Next residue up to RM15 mil = 1/8%
- Next residue up to RM50 mil = 1/10%
- Next residue up to RM200 mil = 1/15%
- Next residue up to RM500 mil = 1/20%
- Next residue more than RM500 mil = 1/25%
Now you know what property revaluation is, and how it works, you will have a better understanding of why property revaluation needs to be carried out, and what are the pros and cons that come with it. Next, you might want to read up on how Real Property Gains Tax (RPGT) functions in Malaysia, which could come in handy when planning to sell your property.