By Simon Loh
The introduction of the 6% Goods and Services Tax (GST) in April 2015 has become the biggest issue for the property market this year and will pose a challenge to property developers as well as property owners. The implementation of GST come April 1st will present an obstacle in terms of inflation, but it is merely a case of adjusting and making the right market decisions. For instance, while residential properties will be exempted from GST, it does not necessarily mean the cost of supplying these properties, namely constructing, developing and selling, will be free from GST as developers will still need to pay this tax on almost all aspects or levels, particularly materials, to construct a home.
Property prices are expected to rise due to cost-push inflation factors such as labour shortage following a boom in construction projects and infrastructure works that are currently ongoing, whilst cost of construction materials may rise after the implementation of GST. Once GST has been fully implemented, the cost of doing business will undoubtedly increase for property developers. Property players eventually will have to brace themselves for greater competition in terms of product offerings and product pricing, targeting buyers and financing facilities. This will ultimately lead to property developers investing more into product development and marketing innovation in order to stay ahead of the competition.
Property developers should never raise their property prices arbitrarily (i.e at their own whims and fancies) for fear of pricing themselves out of the competition. Implementing the GST can certainly create an uncertain sentiment in the property market as well. There are bound to be some buyers who will wait on the sidelines pending the GST taking effect. Many investors, however, continue to take the ‘wait-and-see’ approach as they remain cautiously optimistic about the prospect of the Malaysian property sector this year. Nevertheless, more transactions are expected in the affordable housing segment following various incentives announced in the Budget 2015 recently.
Overall, a steady demand for mass market properties in 2015, mainly for mid-range properties ranging below RM500,000, driven by an increased demand from first-time house buyers, home upgraders, new household configuration and government incentives to spur and spark home ownership. Home buyers and property investors are also rushing to complete transactions prior to the April 1st dateline, with most property buyers opting for second-hand properties until the full impact of the GST is realised.
Commercial properties might experience a slowdown or sluggish growth as incomplete properties may also be taxed. The third quarter of the year will probably pick up steam due to price adjustment and public acceptance of the GST. Projects with strategic location and easy access to public transport as well as major expressways coupled with good infrastructure with excellent facilities and amenities are still deemed the preferred choice. The delivery system and pending approvals from authorities will improve in various areas to reduce or cut down the holding cost of developers. Despite the unknown and countless challenges in the future, 2015 has been foreseen and fancied as a positive year for property developers and property investors alike.
The real estate industry in Malaysia is booming business. Malaysians’ strong preference for homeownership, plus a general view or perception of property being a good hedge against inflation, there is a natural inclination towards purchasing properties. This lure or appeal of owning properties coupled with high liquidity in the financial markets led to a spiralling property price growth. Certain quarters or parties were concerned that the average homeowner was being priced out of the market due to heavy buying by investors. To ensure house prices remained stable and affordable, our Government introduced measures in 2013 to discourage excessive market speculation and price manipulation. Previously, the Government has also enforced new guidelines for housing loan applications to be based on net income debt servicing ratios instead of the prevailing practice of gross income. This resulted in better market accountability and a more stringent lending atmosphere. In short, it is much more difficult today to borrow money solely for property purchases per se. Additional capital outlay is also required and there is greater transparency in sales promotional packages as well.
Various cooling measures have been undertaken to provide for stability to the market and to safeguard or insulate against property bubbles which could harm or hurt the national economy. While it has taken quite some time for the cooling measures to curb the rapid surge in property prices among regional economies, the impact of the 2013 measures in Malaysia has been sharp and strong. Most analysts and industry practitioners are anticipating a difficult year ahead due to specific concerns such as the impending GST, higher construction costs, rising cost of living and uncertainty in the global economy. Buying interest is expected to gain momentum in 2015 once buyers recognise and accept the fact that prices are unlikely to drop or fall drastically. ¬In any event, the local property market is robust and resilient, and will continue to grow to meet the needs of the nation.
1. Will GST affect property prices drastically to dampen the sale of property particularly in the local housing sector?
a) No significant changes to local property prices in general.
b) Local property market will continue to be robust in 2015.
c) The housing market is expected to grow & expand post-GST.
2. Will the implementation of GST in 2015 cause a glut in the property market specifically in the Malaysian housing industry?
a) A glut in the property market has been forecasted post-GST.
b) Certain sectors of the property market will register a glut.
c) No property glut whatsoever with the inclusion of GST.
3. Should house buyers and property owners be concerned with the impact of GST on property prices in Malaysia?
a) Many people would be concerned with the impact of GST have on property especially if property become too costly & unaffordable.
b) Most potential investors and new house buyers would be worried about the rise of property prices as it concerns their profit margin.
c) Few qualms or little concern about the impact of GST on property.
4. How will the government alleviate the concerns of house buyers and property owners with the introduction of GST on property?
a) Government policies being ‘people-centric’ have always had the rakyat’s welfare or well-being in mind.
b) Housing projects such as PR1MA and other 1Malaysia housing schemes have continued to benefit Malaysians.
c) Taxation policies like the GST have always been deemed positive and favourable to Malaysian citizens and local investors alike.
5. Will the imminent implementation of GST on Malaysian property discourage new or first-time property buyers and house owners?
a) The implementation of property GST is meant to regulate and streamline prices in the property market. So initial concerns on the effects of GST on property is likely anticipated and predicted.
b) First-time property buyers and house owners should expect a rise in property price but the initial increase is most likely temporary.
c) The housing market is projected to strengthen in 2015 though the general sentiment is the property market is gradually cooling off.
6. What is the price difference post-GST between commercial and residential properties in Malaysia come 2015?
a) The overall price increase for new residential properties could be marginally lower than that for new commercial properties.
b) Commercial as well as residential properties have always been market-driven. However, local property prices remain stable.
c) A one-off increase in property prices across the board is certain. The secondary home market should experience a knock-off effect.
7. Do home buyers need to pay for additional GST fees when purchasing a house or other property?
a) For houses and other residential property, GST is waived.
b) Additional purchases of homes may incur GST charges pending a review of current government taxation policy.
c) Government policy on property GST for homes may change in the nearby or foreseeable future.
Attn: Please take note that the correct (i.e. most accurate) answers are marked in RED, although some questions may possess more than one probable solution or a single possible outcome.