GST May Push House Prices Higher, Developers Warn

While house buyers are happy with the government’s decision to increase the real property gains tax (RPGT) with most developers agreeing that it would help curb speculative activities in the long run, SP Setia Bhd has warned that the introduction of the goods and services tax (GST), however, would increase property prices.

“It should be noted that one of the main reasons for the escalating price of properties is the fact that construction costs have been increasing rapidly. While the government has said that residential properties will be exempted from the GST, it does not mean that the cost of supplying such homes are free from GST,” said SP Setia president and CEO Tan Sri Liew Kee Sin in a statement today.

He believes that developers would still have to pay the GST, which will be implemented on April 1, 2015 at a rate of 6%, on nearly all materials required to construct homes which could further increase the cost of construction substantially.

“The removal of subsidies, while necessary, would also increase costs, particularly in the short-term. To counter-balance this impact, we hope that the government will give serious thought to the various proposals which have been made by the private sector to increase competitiveness and reduce the overall costs of doing business.

“This is the only way we can provide affordable homes and other goods and services sustainably into the future,” Liew said.

On other measures in Budget 2014 which was tabled in Parliament today, Liew said there will be “some pain” in the short term as various sectors make the necessary adjustments.

“For property developers, there have been several measures proposed which will certainly have an impact on the market. In the case of the new RPGT rates, to the extent that it is successful in curbing short-term speculation, we believe it is good for the long-term health of the industry,” he said, adding that SP Setia supports the government’s effort in increasing the supply of affordable homes.

Ernst & Young Malaysia tax leader Yeo Eng Ping said the new RPGT rate will be effective in curbing speculative activities, which have contributed to rising property prices.

She said the RPGT has not been a significant source of tax revenue, with only RM300 million RPGT revenue collected in 2011 representing 0.35% of total direct tax collected.

“The new RPGT rate structure differentiates between individual citizens and permanent residents (PRs), companies and non-citizen individuals. This is not new and is reminiscent of the RPGT framework prior to the 2007 exemption period.

“Rates have also increased quite significantly – for the first two categories, the new RPGT rates would be 30% for disposals within three years of acquisition, 20% in the fourth year and 15% in the fifth year.

“Disposals after five years from acquisition will still not be taxed for citizens and PRs, while companies and non-citizens would be subject to 5% RPGT,” she added.

Deloitte Malaysia executive director Tham Lih Jiun believes that the secondary market will be affected by the new RPGT rate, with foreign buyers taking the hardest hit as the RPGT is at a flat rate of 30% for properties sold within the first five years.

“We may expect to see a selling spree in properties by speculators before Dec 31, 2013 because of the increase in RPGT rates, which takes effect from Jan 1, 2014,” she said.

Mah Sing Group Bhd group managing director Tan Sri Leong Hoy Kum said the RPGT would not affect its projects as most of its buyers are owner-occupiers or investors looking for rental income and these buyers tend to keep properties for a longer time frame.

“RPGT is structurally targeting speculators and since it is not an upfront tax, it would not be a deterrent to owner occupiers or investors who buy properties for rental gains. In the long term, it may help to curb to property speculation,” he said.

Leong said the increase of the minimum price of properties that can be purchase by foreigners to RM1 million from RM500,000 also would not affect Mah Sing as most of its properties attract local buyers.

“Our properties have mainly been attracting local buyers, with 76% of our residential products priced RM1million and below. On average, foreign buyers make up some 7% of our purchasers.

“So far, our properties which has attracted foreign purchasers are priced above RM1million,” he added.

Mah Sing is positive on the Private Affordable Ownership Housing Scheme (MyHome) as there will be a subsidy of RM30,000 for each unit, and the maximum prices have been increased to RM45,000 for low cost and RM170,000 for medium cost units.

It also lauded the extension of the application period for Pioneer Status and Investment Tax Allowance incentives for new four- and five-star hotels until Dec 31, 2016 as it has planned new hotels in some of its integrated projects including Icon City Petaling Jaya, Southbay City Penang island and Kota Kinabalu Convention City in Sabah.

By: Eva Leong

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