Base Rate Malaysia

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Sometime early this year, Base Rate (BR) was implemented to replace the previous Base Lending Rate (BLR) system. Under the Base Rate system, this rate will be the main reference rate for new retail floating rate loans. Banks in Malaysia can also determine their interest rate based on a formula that was set by the Central Bank.

Unlike the previous Base Lending Rate system where Bank Negara sets the rate based on how much it costs them to lend money to other financial institutions, the rate under Base Rate is based on the Overnight Policy Rate (OPR) set by the central bank of Malaysia.

Why It Was Changed?

The Base Rate system encourages greater transparency from banks in Malaysia and it will also help customers to make better financial decisions. Some banks such as Maybank and Public Bank that are strong in consumer financing will have an initial competitive edge over other banks in offering more competitive and attractive base rates and effective lending rates (ELR) to their customers. In the previous base lending rate system, some banks were found lending out money below the base lending rate in order to attract more customers and to boost their loan growth. However, customers are no longer able to borrow money below the base rate under the new base rate system.

Banks Base Rate and Their Effective Lending Rates

Below is a list of banks in Malaysia along with their base rate and effective lending rates:

  • Affin Bank – 3.8% Base Rate, 4.75% Effective Lending Rate
  • Alliance Bank -3.82% Base Rate, 4.65% Effective Lending Rate
  • Am Bank – 3.8% Base Rate, 4.45% Effective Lending Rate
  • CIMB Bank – 3.9% Base Rate, 4.65% Effective Lending Rate
  • Hong Leong Bank – 3.69% Base Rate, 4.8% Effective Lending Rate
  • Maybank – 3% Base Rate, 4.55% Effective Lending Rate
  • Public Bank – 3.52% Base Rate, 4.45% Effective Lending Rate
  • RHB Bank – 3.65% Base Rate, 4.65% Effective Lending Rate
  • Citibank – 3.65% Base Rate, 4.55% Effective Lending Rate
  • HSBC Bank – 3.50% Base Rate, 4.85% Effective Lending Rate
  • OCBC Bank – 3.72% Base Rate, 5.05% Effective Lending Rate
  • Standard Chartered Bank – 3.52% Base Rate, 4.52% Effective Lending Rate
  • United Overseas Bank – 3.85% Base Rate, 4.75% Effective Lending Rate

How Does It Affect the Borrowers?

This new change from base lending rate system to base rate system will only have minimum impact on the borrowers. For example, the rates offered by Maybank in the previous base lending rate system was 6.85% and the BLR -2.40%. This means that the borrower only needs to pay 4.45% on the mortgage. Under the new base rate system, Maybank will have to reveal its base rate and it must also disclose its margin which will be then used to determine the effective lending rate. Maybank’s effective lending rate was set to 3.20% and the interest presented here is +1.35%. This means that the effective lending rate that the borrower needs to pay on the mortgage is 4.55%, another 0.10% extra. Ultimately, the effective lending rate will be used to determine how much the borrower will have to pay the mortgage. Below is an example on how much a borrower will need to pay for a loan amount of RM550000 with loan tenure of 30 years:

  • Reference Rate – 6.85% Base Lending Rate , 3.20% Base Rate
  • Interest Rate – (-2.40%) Base Lending Rate, (+1.35%) Base Rate
  • Effective Lending Rate – 4.45%  Base Lending Rate, 4.55% Base Rate
  • Monthly Instalment (RM) – RM2770 Base Lending Rate, RM2804 Base Rate

Please note that the examples shown above may vary in its effective lending rate if the base lending rate and base rate changes. With this new base rate system, the borrower needs to pay an additional RM34 per month. This additional figure amounts to RM12240 more by the end of the loan tenure.

Although some of the banks can set higher base rate compared to other banks, these banks can also offer lower effective lending rates to attract customers and to remain competitive. For example, Public Bank has a base rate of 3.65% and Maybank has a base rate of 4.55%. Public Bank can then offer a low effective lending rate of 4.45% while Maybank maintains their effective lending rate at 4.55%. In this situation, this means that Public Bank is willing to take a smaller profit margin so that they can remain competitive.

Base Rate Effect on Banks

So far, banks and mortgage providers are still going on with their usual business because the change from base lending rate to base rate has not significantly increased the effective lending rate. When it comes to the actual interest rates, the borrowers are still paying almost the same amount in the base rate system as they did in the base lending rate system. However, some of the experts said that this switch is beneficial as it will create a better transparency between the banks and their borrowers. Consequently, this will lead to greater competition among the banks in Malaysia to provide a huge range of loan options for their customers. According to Bank Negara Malaysia, the base rate system will also properly reflect the costs arising from monetary policy and market funding conditions. This will also encourage the banks and financial institutions in Malaysia to have greater efficiency and discipline when pricing their retail financing products.

However, this change may impact on some of the smaller financial institutions as they will start to lose out in the race to attract more borrowers due to the flexibility to determine their respective benchmark rates. Some of these smaller financial institutions may not have much leeway and resources to offer competitive rates when compared to bigger and more established banks and financial institutions.

Base Rate Effect on Property Demand

The switch from base lending rate to base rate is unlikely to have any effect and impact on consumer demand for property. In fact, the base rate system may even benefit home buyers and property investors for them to make better buying decisions because of the transparency in reference rate. These home buyers and property investors are also able to make more sound financial decisions by looking through an array of different loan products offered by various banks and financial institutions.

 

RPGT Malaysia

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Real Property Gains Tax also known as RPGT is a form of capital gains tax imposed by the Malaysian Government on the disposal of property in Malaysia. Real Property Gains Tax was previously suspended temporarily from 2008 to 2009. It was reintroduced again in 2010 and the rates have been increasing since then.

According to the Real Property Gain Tax Act 1976, Real Property Gains Tax is a tax imposed on chargeable gains from the disposal of property. A chargeable gain is defined as the profit derived from selling the property at a higher price than the original purchase price. Real Property Gains Tax is only applicable to the seller and the seller needs to pay to the Inland Revenue Board.

An example of this would be A purchased a piece of property for RM500000 in 2000. After that, A sold this piece of property to B for RM700000 and gain RM200000 as profit. In this scenario, the RPGT is calculated based on the RM200000 profit. The seller will only be taxed on positive net gains after being entitled to deduct the miscellaneous charges such as stamp duty, legal fees, advertisement charges and etc. according to the RPGT Act 1976.

According to Budget 2014, the progressive increase of RPGT rates is to reduce the speculation on the real estate market and housing prices by the Malaysian Government.

Applicable RPGT Rates

The effective RPGT rates are listed below:

  • If the seller sells off the property within 3 years from the date of purchase, that seller has to pay 30% of the RPGT and this applies to companies, Malaysian citizens, permanent residents and non-citizens
  • If the seller sells off the property in the 4th year from the date of purchase, that seller has to pay 20% of the RPGT if the seller is an individual with Malaysian citizenship and permanent resident or companies and 30% if the seller is not a Malaysian citizen
  • If the seller sells off the property in the 5th year from the date of purchase, that seller has to pay 15% of the RPGT if the seller is an individual with Malaysian citizenship and permanent resident or companies and 30% if the seller is not a Malaysian citizen
  • If the seller sells off the property in the 6th year from the date of purchase, that seller has to pay 5% if it is company or if the seller is not a Malaysian citizen while Malaysian citizens and permanent residents do not have to pay any taxes

When Do You Have to Pay RPGT?

As prescribed by the law, the purchaser’s solicitors are required to hold 3% of the purchase price from the deposit. They will then have to remit the same to the Inland Revenue Board within 60 days from the date when the sale and purchase agreement was made to meet the RPGT payable. It is important to note that there will be a penalty of 10% of the amount payable to RPGT if the payment is not made within 60 days. The seller can choose to file the necessary forms with the Inland Revenue Board on their own or they can choose to seek assistance from the solicitors at a fee as prescribed by the Solicitors Remuneration Order 2006. It is also important to understand that the seller does not have to pay for the RPGT if he or she sells the property at a loss because there is no chargeable gain or an allowable loss.

Exemptions

Every seller is also entitled to a once in a lifetime exemption from paying RPGT and this is only applicable to the disposal of a private residence. According to the RPGT Act 1976, a private residence is defined as a building or part of a building in Malaysia that is owned by an individual owner and certified as a proper place of residence. Besides that, permanent residents may also apply for this exemption. However, this exemption is not applicable to commercial properties. In order for the seller to apply for this once in a lifetime exemption, he or she needs to do the following:

  • The seller needs to show that the private residence is owned and occupied by the individual owner
  • The seller needs to show the certificate of fitness for occupation for the private residence
  • The seller needs to show the Certificate of Completion & Compliance issued for the private residence.

Another exemption is the transfer of the property between family members in the form of affection and love. Examples of such instances are the transfer between husband and wife, transfer between parents and child and transfer between grandparent and grandchild. In these instances, the person that transferred the property did not gain any profit or suffer any loss. Hence, it is deemed that the property is sold off at the original purchase price. Besides the examples mention above, other transfers between family members such as transfer between siblings are not exempted from RPGT.

Conclusion

The Malaysian Government believes that the implementation of RPGT will help new home buyers to purchase new houses but the progressive increase of RPGT rates may impact the sales of the sub-sales or secondary home market in the long term. It can also discourage local and foreign property investors to invest in Malaysian properties. However, the good thing about RPGT is that it has a lesser impact on genuine home buyers compared to property speculators.

 

Public Bank FD Xtra Campaign

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public fd extraGood news for those of you who have plenty of money and nowhere to park it. Public Bank and Public Islamic Bank have team up again to come with high interest Fixed deposit plan in Malaysia. This promotion was previously available and now being launched again due to overwhelming response.

For a limited time, you can save up with Public Bank’s PLUS Fixed Deposit or Public Islamic Bank’s Term Deposit-i and enjoy a high interest of 3.83% p.a for the first 6 months and a 4.28% p.a for the following month as a rollover bonus.

Eligibility

This promotion is opened to Malaysians who are 18 years old and above who are existing or new Public Bank customer.  Non existing individuals such as corporation, sole proprietary, partnership are also eligible for the promotion.

The two products which are under the promotion of the campaigns are Plus Fixed Deposit from Public Bank and Term Deposit-i from Public Islamic Bank.

How to Enter

To enjoy a 3.83% p.a interest or profit rate for the first 6 months. An individual will have to place a minimum of RM 20,000 capped at RM 10,000,000 and non-individual will have to place a minimum fixed deposit of RM 50,000 capped at RM 20,000,000 within the campaign period.

Terms

There are no overdraft availability for the products that qualifies under the promotion interest rates. One can enjoy a 3.83% p.a for the first 6 months and can enjoy higher 4.28% p.a as a rollover bonus on the next 6 months if he or she does not uplift the fixed deposit. The interest shall only be credited once on 6 months. These promotion may not be valid if a person makes withdrawals and partial withdrawal is not allowed during the campaign.

This promotion interest rates are only valid for any fixed deposit placement from 27 October to 28 February 2015 which is quite a long time, so hurry up to apply for it today if you are keen !