Homebuyers should not be unduly concerned over the impending implementation of GST and the volatility of exchange rates. As in many policy implementations and changes, there is always adjustment periods before the market adjusts to the new conditions.
There has been so much conversation on topic and the rakyat have been more than clear about their concerns.
On the property side, GST takes two different forms. One is of exempt-rated supplies which is applicable to residential properties and standard-rated supplies, which is applicable to non-residential properties, commercial and industrial properties.
Residential properties are GST-exempt rated; therefore, home buyers are technically not charged GST. This said, in exempt supply, somebody has to pay the GST.
Based on the Sales Tax Act of 1972, basic building materials such as bricks, cement and floor tiles fall inside First Schedule Goods, in which all the goods in this category will not be subjected to sales tax. Meanwhile, other building materials fall inside Second Schedule Goods, in which all the goods in this category will only be charged sales tax of 5%.
Under the new GST implementation, all building materials and services (e.g. contractors, engineers) will be subject to GST with a standard rate of 6%. This will invariably raise the production cost for developers.
How GST works is that the additional tax cost is simply passed on to the final consumer (standard-rated goods), or is claimed back from the government (zero-rated goods). But in this case (exempt-rated), the additional tax cost is borne by the party before the final consumer which will be the developer. Hence, there has been proposals that residential properties below RM500,000 should be classified under Zero-Rated. However, there has not been any official announcement on this.
For commercial properties, buyers will have to pay for the GST based on the price of the property which means if the property cost RM1million, the GST due will be RM60,000. In the case of new projects, the payment will be subjected to the progressive billings of the stage of construction. For example Stage 2a billing is RM100,000 then the GST due will be RM6.000. In the secondary market, the full amount based on the selling price will be due practically immediately. Having said that, there are exceptions as the above only applies to purchasing a property from a GST-registered person. Rentals (property belonging to a GST-registrant) and maintenance charges will likewise attract GST.
This is not to say that pre- and post-GST; it will be business as usual. During the recent Real Estate and Housing Developers’ Association Malaysia (REHDA) press conference, REHDA President Datuk Seri FD Iskandar shared that there will be some pent-up demand in the property market before 1st April 2015, when goods and services tax (GST) will be introduced.
Iskandar added that there will be a knee-jerk reaction after GST is introduced, and commented that this reaction is not only applicable to Malaysia, but also to other countries when GST is introduced.
Impact from oil prices and exchange rates
According to media reports, Iskandar had shared that the oil and gas sector is only a very small part in the total cost of property development. In terms of construction, he shared that most of the materials used are local-based. In the case of escalators or high-speed lifts, these products are imported.
For affordable homes, and landed properties that are five storeys and below, the majority part of construction would be local, not from overseas.
REHDA vice president (2014-2016) and Melaka branch chairman Datuk Anthony Adam Cho further explained to the media that materials such as bricks, cement and tiles are local-based. It is very seldom that developers would use imported products, except for very exclusive residential units, where they use imported products.
Therefore, is there any cause for concern that residential properties will substantially rise in cost for 2015? There shouldn’t be. Home buyers should consider the fact that a home is an investment of a lifetime, and in the long run, property prices will continue to appreciate.
As in all market conditions, there are always opportunities and challenges. Before embarking on your purchase, do the necessary research.
Chan Ai Cheng
General Manager, S. K. Brothers Realty (M) Sdn Bhd
Registered Estate Agent with the Board of Valuers, Appraisers and Estate Agents Malaysia
Certified Residential Specialist, NAR USA