GST MISCONCEPTION: No more than 5pc rise as residential properties are exempt-rated
THERE is a misconception that house prices will increase more than five per cent following the implementation of the Goods and Services Tax (GST) in April next year.
There is no doubt that the GST will result in an overall price increase, but the impact should be minimal on the residential segment and more on the commercial half.
The market has been talking about a five per cent increase in the prices of residential properties, but developers are not supposed to be charging more for properties built on residential land as they are exempt-rated under GST.
There will be three categories under the GST scheme: standard-rated, zero-rated and exempt-rated.
In the standard-rated category, local supply of goods and services, supply of land and building for commercial, administration or industrial purposes, and construction of all types of buildings will be subject to GST.
The tax will be billed and collected by businesses and paid to the government. Every party, except the final consumer, can claim back credits on the GST that they have paid. This is called input tax.
Goods and services under the zero-rated category will be charged a zero per cent GST rate. This means that GST is not charged to the final consumer but businesses can claim back credits on their input tax. This is applicable for export sales, international services, basic foodstuff (meat, fish, cooking oil) and agricultural supplies.
Exempt-rated GST are goods and services that are non-taxable nor are subject to GST at the output stage. This means that GST is not charged to the final consumer. Businesses, too, cannot claim back credits on their input tax. Examples of goods and services in this category are transport, toll or highway, certain financial services, sales, lease of residential land, residential properties, private healthcare and education.
In the real estate sector, although residential properties fall under the exempt-rated basket of goods, GST will be applicable for commercial property purchases as they are standard-rated.
Urban Well-being, Housing and Local Government Minister Datuk Abdul Rahman Dahlan said recently house prices could increase by two to three per cent post-GST, based on a study by the Real Estate Housing Developers Association of Malaysia.
He said action would be taken under the Anti-Profiteering Act if property prices were to go beyond three per cent.
Abdul Rahman added that developers who raised house prices beyond three per cent could be referred to the GST monitoring committee under the Domestic Trade and Consumer Affairs Ministry.
“My concern is that prices are hiked not because of the GST but due to excessive profiteering. According to our calculations, the increase should only be about three per cent,” he said.
Deputy Finance Minister Datuk Ahmad Maslan said based on the calculations by the Finance Ministry and the Customs Department, any increase in house prices due to GST could be one or two per cent.
That, too, is just temporary as a number of measures have been put in place to curtail the rises, he said.
Among the measures are increasing the real property gains tax from 15 to 30 per cent, increasing the minimum purchase price of houses by foreigners from RM500,000 to RM1 million, and barring developers from using the Developer Interest Bearing Scheme.
Meanwhile, Sarawak Housing Minister Datuk Amar Abang Johari Tun Openg said buyers would not be burdened by the six per cent GST as developers would enjoy an input tax deduction for the building materials that they use.
They have to pay GST for the materials, of course, but at the end of the (building process) chain, developers can claim the amount back.
“The price of houses cannot be higher than what it is now. At the moment, you are paying 10 per cent government tax plus six per cent sales tax. If GST is imposed at six per cent, then it should be lower. That’s the logic,” he said.
Based on the Sales Tax Act of 1972, basic building materials such as bricks, cement and floor tiles fall under First Schedule Goods, in which they will not be subjected to sales tax.
Other building materials fall under Second Schedule Goods, in which they will only be charged a five per cent sales tax.
Under GST, all building materials and services, including that of contractors and engineers, will be subject to GST with a standard rate of six per cent. This will invariably raise the production cost for developers.
Although a developer cannot impose GST on residential properties, the company would have to pay the tax on building materials and services.
The developer could either absorb the higher cost and make less profit, or pass it on to home buyers by raising the house price.
Meanwhile, turnkey contractor and builder Melati Ehsan Holdings Bhd will continue to pursue quality investments and acquisition of landbanks in strategic locations despite the cooling measures put in place and the GST implementation next year, said its executive director Datuk Tan Hong Hing.
“In the first half of this year, the property sector has been relatively quiet as predicted, as the market was reacting and absorbing the cooling measures implemented by the authorities. The second half of the year is becoming slightly active in terms of new launches and prices in selected locations are looking relatively attractive.
“The buying interest should progressively return as potential property purchasers and investors will come to understand that the property prices are unlikely to fall and that potential inflationary pressures from the implementation of GST could further push up property prices. Under the GST, developers will have to absorb the input GST, which is not passed on to the house buyers via output GST,” Tan said.
Melati Ehsan is optimistic to further grow its property arm, especially in the affordable segment, despite the current challenges.
“This segment has been underserved for many years now and there is a strong sign of demand. Overall, the fundamentals that drive the property market are still strong and these are proven in the high number of housing loan applications, but approvals have fallen due to strict assessment criteria implemented under the cooling measures.
“We are constantly looking for new landbanks for future development and expansion plans. Focus will be given to the areas where we have a presence and we will lock it in if the price and payment terms are attractive,” Tan said.
Melati Ehsan has a few construction and development schemes in hand, which have combined order book value of about RM3.8 billion.
Tan said these projects will keep the company busy for the next three to five years, contributing positively to its earnings.
MAH Sing Group Bhd, one of Malaysia’s top property developers, is focusing on launching more mid-range or affordable residential properties that are priced below RM1 million, in the next three years.
Its chief executive officer Ng Chai Yong said although the firm has mixed products ranging from various types of residential and commercial properties, it would launch more affordable homes to provide opportunity to first-time buyers.
Meanwhile, Mah Sing’s executive director, corporate and investment, Datuk Steven Ng Poh Seng, said the company’s future plan is in line with the government’s aim to encourage home ownership, especially among the middle-income earners.
“In the last two years, we have been accumulating land to develop townships to focus on the mass-market.
“Eighty seven per cent of our residential property launches are priced below RM1 million this year and next year over 84 per cent of our products will be below RM1 million,” he said at a media briefing after the groundbreaking ceremony of Mah Sing’s Southville City@KL South direct interchange access and the launch of Block C1 for Savanna Executive Suites, yesterday.
Southville City is a new master plan township of 173.20ha, expected to serve more than 230,000 catchment within Bangi and over 1.13 million catchment from the surrounding neighbourhoods such as Seremban, Kajang, Semenyih, Putrajaya, Cyberjaya, Nilai and Dengkil.
It is a sustainable mixed-use township development and has an estimated gross development value of RM8.3 billion.
Meanwhile, the direct interchange access from North-South Highway will provide access into and out of Southville City and it is estimated to be completed by 2018.
The completion is expected to coincide with the handing over of the vacant possession of Southville City’s first-phase development, the Savanna Executive Suites, which are 956 sq ft three-room apartments priced from RM350,000.
He is confident it will be sold out by the first quarter of next year.
FRASER & Neave Holdings Bhd (F&N) will be launching the first phase of its integrated property development, dubbed “Fraser Square”, in April next year.
The property would comprise three high-end condominium towers to be developed on 5.14ha at Section 13, right at the heart of the Petaling Jaya, Selangor.
Its non-independent and non-executive director Datuk Ng Jui Sia said the project was expected to be completed in six years and would diversify the company’s portfolio.
“The first phase will see the launch of an initial 300 units and the next phase will depend on market response.
“Despite some of the cooling measures currently in place, we are hoping that with the Fraser branding, consumers in Malaysia will have the confidence in purchasing the units.
“We foresee the second phase to be launched in the second half of next year. Although the show house is under construction, our sales gallery will be open soon.”
Ng added that F&N has landbank remaining in Johor, Kota Kinabalu (Sabah), Butterworth (Penang) and Kajang (Selangor).
On the impact of Goods and Services Tax (GST), Ng said since it is a national tax policy, F&N will be affected as it is part of the value chain.
“We will have no choice but to pass on the GST to consumers. But we will do our best to cushion the impact.
“If we have to absorb some of the taxes, we will. You never know, some retailers may even decide to absorb it, but we will have to see how it turns out.”
The Fraser Square project will have a total gross development value of RM1.7 billion.
The units in Phase 1 will be priced at between RM750 and RM1,000 per sq ft.
Meanwhile, its property general manager Cheah Hong Chong said F&N is expecting mixed responses for the project as it is located in the prime area of Petaling Jaya.
“We have units of various types and sizes to meet purchasers’ needs, including families, individuals or businesses.
“Due to the GST implementation, we expect property price hike of only three to four per cent, which is minimal as properties are exempted,” said Cheah.
Meanwhile, F&N is also eyeing to become Asean’s No. 1 player in the food and beverage (F&B) business through acquisitions.
Ng said as one of its strategies moving forward and narrowing the gap with its competitors, the company is in talks with several parties.
“We expect to see continued revenue growth for the financial year 2015 and it should surpass our yearly average.
“Next year’s performance will depend on the market sentiment and our brand resilience,” he added.
“By 2020, we should be able to reduce the gap in our bid to become the top F&B player in Asia.”
For the fourth quarter ended September 30, F&N’s recorded lower earnings at RM62 million against RM80 million a year ago.
Its revenue for the period was higher at RM965 million against RM897.5 million a year ago.
F&N said solid performance and higher contributions from all its business units, driven by Dairies Thailand, had helped to contribute to the increase in the group’s total revenue.
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