How much will GST impact property prices?
THE predictable announcement by Prime Minister Datuk Seri Najib Tun Razak on Oct 25, 2013 that the Goods and Services Tax (GST) will take effect from April 1, 2015, bundled with several other measures will certainly have an impact on the property market.
Most property developers have started to feel the slowdown in their sales recently and I anticipate that the property market may need at least two years to digest and recover from the various cooling measures that came into effect from this January. After this, I believe that “water will find its own level”.
Nevertheless, the interest in properties by investors is undoubtedly maintained. Apart from the above factors which have caused a pause to investors’ inclination to invest, the other important driving factor is the concern on how GST will impact property prices moving forward.
To understand the effect that GST will have on real estate, it is worthwhile to review the prices of suppliers in the existing supply chain of real estate versus the expected prices moving forward, come April 1, 2015.
It is a given that with the introduction of GST for the first time in Malaysia, there are bound to be uncertainties. Nevertheless, the direction from the Government in treating residential properties as an “exempt supply” and non-residential properties as a “standard rate supply” with GST at 6%, is firm.
As a result, you may be surprised to hear that tax-exempt items such as residential properties will get more expensive even though they fall under exempt supplies.
The reality is that tax-exempt goods are only exempted from GST at the point of sale, that is when residential properties are sold by the developers.
The goods and services which are used by the developers in the making of these tax-exempt goods are not exempt from GST.
For example, residential property is tax-exempt but the materials such as marble, concrete, steel, roof tiles, bricks, sand, cement, wood, electricity and so on are not tax-exempt, which means that developers will almost certainly pass these cost increases to the consumers.
In this regard, I have done a quick simulation on how GST will impact property prices moving forward and have arrived at the following results for non-residential and residential properties.
The following summary of the simulation results is based on three different possible scenarios as follows:
(i) Assuming that the sub-contractor, main contractor as well as the property developer will maintain their original selling prices but will add on a 6% GST to arrive at their final selling price to their customers wherever GST is applicable;
(ii) Assuming that the sub-contractor, main contractor and the property developer will adjust their selling prices according to the actual costs incurred but retain the original profit margin percentage which they used to achieve.
In addition to this, they will add on 6% GST to arrive at the final selling price to their customers wherever GST is applicable; and
(iii) Assuming that the sub-contractor, main contractor as well as the property developer will adjust their selling prices according to the actual costs incurred but retain the actual profit which they used to achieve (as opposed to profit margin in [ii] above).
In addition to this, they will add on 6% GST to arrive at their final selling price to their customers, wherever GST is applicable.
Based on the simulation above, you will note that, with the implementation of GST come April 1, 2015, the estimated final selling price of residential properties as well as non-residential properties will increase accordingly.
However, do note that the above simulation is done with the assumption that all the supply chain entities have the same mind-set when it comes to adjusting their prices according to the scenarios mentioned above. In the event of any party adopting a different approach, the percentage of increase in prices should be changed accordingly.
In a nutshell, given the above GST outcomes for the supply of residential and commercial properties, we can almost be sure that the chances of property prices coming down in the near future should be close to zero.
Hence, will it be worthwhile to invest now rather than later if the opportunities permit?
>> Fennie Lim heads the Crowe Horwath KL Tax Division and has been in the tax profession for the last 22 years. She has a wide range of experience in tax compliance, tax advisory and indirect taxes, and has advised many large local and multinational clients on complex tax engagements.
Source: StarProperty.my
The cost of ownership is not only confined to the price of property. It also includes the legal fee, bank loan agreement and the subsequent cost of house renovation.
Extra 6% GST on the legal fee, materials purchased for renovation and labour charges definitely will increase the total cost of property ownership.
6% GST? What’s the big deal? As of now, especially for Penang island, developers always suka suka increase price as they wish, RM600psf, then RM700psf, then RM800psf all within months! GST? Sap sap sui lah!
@SoWhat?
At town area..minimum is RM800sqf to RM1000sqf…After GST coming..all the town area condo will boost up the price to minimum range of RM750psf to RM800psf..Good luck ..
@Rich
6% GST will not be the main factor for price on island. Like SoWhat? said, developers just increase price 10-20% by the month anyway, and the price is mainly driven by (1) the “self-fulfilling” land price increase (2) “perceived” supply demand and shortage.
Take Tropicana 218 for example, developer was trying to impose a “perceived” demand by putting a lot of stickers on booking chart and telling everyone it’s almost sold out during the soft launch last year, so that they can sell the few available units at unprecedented high price for macalister area. Today, you can see commissioned salesman still peddling the “stickered” units at shopping malls, in the name of “buyer loan rejected”.
In short, price on island is fueled mainly by speculation, 6% GST will be just “noise”.
True. Actually developer unable to move much condo unit nowaday. Buyer is actually dried up. GST increase house price? Hahaha… my toe is laughing. To me, GST will reduce house price. Why? Because household have less money to spend on house loan due to GST. So less buyer. Less demand. House price drop.
Buy 1 Property before GST, And buy 1 more property After GST
Dilute the risk of your investments.
Cant predict exactly what really will happen after Gst
@Proton
So, are they selling at lower price now? NOPE.
@ezalor
You mean Macalister 218? I believe so, back door discount (negotiable!).
But that is not the main point. I believe the key to keeping a stable property price is PSYCHOLOGY.
Example, cooking oil. I still remember just a few years back when there was a panic buying of cooking oil in the market. The cooking oil section in supermarkets are practically empty! Then the price starts to escalate (in OFF MARKET transactions) amid the buying frenzy, only to find that the RUMORS about cooking oil shortage was totally untrue in the end. For those who bought cartons and cartons of it would have to stop buying after that, causing record low sales for cooking oil at supermarkets in the ensuing months, due to obvious reasons, same population, same food consumption, but plenty of cooking oil in the store room!!…:D
So in short, with no change in cost, supply & demand, sudden price hikes can be resulted by PSYCHOLOGY, due to “hoarding”. That is what developers try to achieve when they put that booking chart up there with “80% units sold” on first day of launching, when they tell you GST will result in significant cost increase, when they tell you phase 2 will be 40% more expensive than phase 1 etc. Psychology! But at the end of the day, when the storeroom is filled with cartons of cooking oil, someone will have to consume that first!
Does it really matter if GST will have a impact on property???
Property in Malaysia is a huge bubble that is about to burst… Developers are getting desperate to of load all remaining units and speculators are getting even more desperate to sell.
So just relax, sit back and enjoy the property crash. Those who have been patiently waiting and did not get sucked in the top of the property market will be rewarded with very cheap properties very soon…
@Who Cares
How soon?
@Who Cares
Would it be similiar approach by holding the purchase to those items, for instance leisure products, for instance TV, household appliance, is it advisable to purchase it before or after GST?
@Who Cares
Would it be similiar approach by holding the purchase to those items, for instance leisure products, for instance TV, household appliance, is it advisable to purchase it before or after GST?
@James
GST is not “additional” tax, it’s just a “replacement” tax, in another form. Do not worry too much about it. I really wouldn’t worry about household appliance, as they are very cheap nowadays. The 6% would be negligible.
For instance, I bought a 42″ LED TV last week for RM1699. But I just saw it at Harvey Norman yesterday selling at RM1299 (that’s a 25% difference). That shows bargains make a lot of difference, not the 6% GST. Same principal applies to properties? You’d have to do some homework and figure that out yourself, that’s a useful skill to have in the long run anyway.
@kucing
The same brand and model cannot be that much difference in pricing.Especially
at Harvey Norman the price should be more expensive.
increase i think , unless there is other factors eg. demand slow down..
Source: http://loanstreet.com.my/learning-centre/How-GST-Will-Impact-Home-Prices-&-The-Property-Market