WITH the coming implementation of Goods & Service Tax (GST) in April 2015, many Malaysians are concerned with what this bodes for prices in general. It is inevitable that home prices will also be affected. In this article, we explain how home and property prices will be affected moving forward.

To properly appreciate how GST will affect home prices, it is necessary to first understand how GST works. (Click here for a detailed but simple-to-understand explanation of how GST in Malaysia works).

Aside from GST, one must also have an understanding of the Sales Tax, which is the existing tax scheme affecting the property sector. GST will supplant the Sales Tax come April 2015.

Tax Scheme on Residential Property – The Similarities

In comparing both tax schemes, we have to first identify their similarities.

One similarity between GST and the existing Sales Tax scheme is that no taxes are charged or will be charged to the consumer on the purchase of a home / residential property. For GST, residential properties fall under the “Exempt Rated” basket of goods.(But do take note that GST will be charged to the consumer for commercial property purchases as commercial properties are “Standard Rated”).

However, during the creation of the final product (also known as the input stage in tax parlance), under both tax schemes, developers would incur taxes during procurement of their inputs and materials. And this is where the differences start to become apparent between both tax schemes. The tax rate for inputs and materials vary between GST and Sales Tax.

Sales Tax VS GST for Residential Properties – The Differences

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.

If you understand how GST works, you will notice that in most cases, 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 – The developer.

The developer does not have a next “victim” in the supply chain.
This seems like good news for home buyers as they do not have to pay GST when purchasing a home. However, one should not be too happy about this. It is no stretch of the imagination to think that developers would try to build in the additional tax costs into the final sale price implicitly.

Before & After GST – A Comparison

The tables below show a comparison between the cost of a new property before and after GST. Certain taxes and costs leading up to the sale to the final consumer have been simplified for this purpose.

Also, an assumption is made that developers are able to transfer 100% of all incurred tax costs over to the consumer via the sale price.

The example above shows a price increase of 3.41% for new residential properties post-GST implementation. But there is a plus point to this.

Overall, new residential properties may register a lower overall increase in tax burden compared to Commercial Properties that are Standard-Rated. This is because there still is the chance that developers may only transfer some and not all of their tax cost increases into the final retail price.

The downside to this is that where pricing for new commercial properties will be cleaner (Sales Price + GST), pricing for new residential homes would look inflated. This, in turn, will undoubtedly have a knock on effect on prices in the secondary house market.

Conclusion

As a home buyer, it pays to know what the implementation of GST might bode for home prices moving forward. If you skipped the entire article, here are all the key insights in a nutshell:

1)      With GST, there should be a once-off increase in property prices across the board

2)      While developers may not bill home buyers for GST, they could transfer the costs implicitly via the sale price

3)      The overall price increase for new residential properties could be marginally lower than that for new commercial properties

4)      The secondary home market should see a knock on effect in prices

Armed with this knowledge, you can make a better decision on when to purchase your home.

Source: StarProperty.my

GAMUDA Bhd is the favourite to land the job as the Project Development Partner (PDP) to oversee the implementation of key components of an integrated transportation plan on Penang island

The others in the running for the PDP job that is estimated at more than RM5.5bil for the initial phase are IJM Corp Bhd, MMC Corp Bhd, the Scomi Group and WCT Holdings Bhd.

The state that is expected to issue a request for proposal (RFP) exercise next month have made it clear that only companies with a minimum RM3bil annual turnover and a track record of 15 years can participate.

Two key components of the RFP would be to build a 17.5 kilometre light rail transit (LRT) project that connects the Komtar building to the airport and a link cutting across the island from Bayan Lepas to Tanjong Bungah.

The Bayan Lepas-Tanjong Bungah cuts across a mountainous terrain and would require tunnels.

“The LRT project alone is estimated at RM4.5bil,” said a source.

In return for implementing the entire transportation system, which is expected to cost RM27bil and to be done over many years, the PDP would be awarded with the rights to reclaim a sizeable amount of land in the state.

Sources familiar with the proposed plan said Gamuda met with the state government officials about two months ago to present its proposal.

“The proposal to construct a LRT line would need the license from the Federal Government which would be the responsibility of the PDP. For instance, if Gamuda wins the mandate, it would also be responsible for securing the licence,” the source said.

The Scomi Group is the dark horse for the project because it already has a mandate from the Federal Government to carry out a train project on the island.

“The mandate was given in 2008 but could not be implemented after the state government fell into the hands of the opposition,” said an industry official.

In exchange for carrying out the project, the state is giving the PDP the rights to reclaim large tracts of land and the option is in two areas on the island.

The first option is an area in the southern part of the island involving reclamation of some 2,000 acres of which about 30% or some 600 acres will be carved out for the state for the future expansion of the Penang International Airport and to enlarge the Free Industrial Zone (FIZ).

The other option is for the PDP to reclaim the seagrass land located in between the Penang Bridge and the river mouth of Sungai Pinang, which is popularly known as the Middle Bank seagrass.

The state has already indicated that it would start work on an integrated transportation master plan last month.

In relation to this, on June 13, Penang Local Government, Traffic Management and Flood Mitigation Committee chairman Chow Kon Yeow had said in a press conference the Penang government would call for a RFP in August for companies to bid to be the Project Delivery Partner (PDP) in the state’s Penang Transport Master Plan strategy.

According to Chow, the appointed PDP must be a reliable partner to the state to guarantee the projects’ delivery.

“They will have to oversee all the projects with costs estimated at RM27bil. The costs cover highway infrastructure (RM16bil) and public transport (RM9bil). The institutional costs amount to RM905mil,” Chow had said during the press conference held in June.

Chow had said that any interested company or consortium comprising local or international companies could take part in the RFP and the submission period was open for three months. Chow said the appointed PDP had to ensure that the projects complied with government policies and procedures, and obtain all relevant approvals including securing of funds.

He said the PDP would not be working on the projects but only acting as a consultant to the state.

“However, the PDP will be involved in the calling for tender process of the transport master plan projects and will have to step in should the contractors fail to deliver, either to replace the contractors or to do it themselves under their own cost,” Chow had said.

The concept is almost similar to Chief Minister Lim Guan Eng’s plan to build a tunnel between Penang island and Butterworth together with a traffic dispersal system near the Gurney Drive and Tanjong Bungah area.

The project was awarded to Consortium Zenith BUCG Sdn Bhd, a joint venture between a Malaysian company and a China company. The entire project is expected to cost RM6.3bil and is to be paid by the company having some 110 acres of land in the reclaimed area of Tanjong Tokong.

Source: StarProperty.my

THE state Implementation and Coordination Unit (ICU) of the Prime Minister’s Department has approved 14 projects under the 1Malaysia Maintenance Fund (TP1M) for Penang this year.

Eleven of the projects are for Penang Municipal Council and three for the Seberang Prai municipality.

State Housing, Town and Country Planning Committee chairman Jagdeep Singh said these were among the 40 projects under consideration by ICU.

“We applied for 119 projects to be considered under TP1M and we were informed that 40 projects were under consideration by ICU.

“Other than the 14 approved projects costing RM9,772,850 in total, we have had no reply as yet from ICU on the other 26 projects,” Jagdeep said at Komtar.

Under TP1M, the Federal Government bears the maintenance of low-cost and low medium-cost housing units under a 90:10 and 70:30 ratio respectively with management bodies.

The state government has allocated RM50mil to pay for the management bodies’ remaining share of 10% and 30% cost through its Housing Assistance Programme of Penang Yes! (Happy!)

Jagdeep said ICU rejected the application for reimbursement of the Taman Pinang TP1M maintenance works costing RM279,000.

“When we were informed that the (Taman Pinang) project under the low-cost category was being considered, we went ahead and paid the amount for the repair works, particularly for the roof was in critical condition,” Jagdeep said.

“The state government has to bear the entire cost which would only be 10% if the reimbursement was approved,” he added.

Source: StarProperty.my

In May this year, Eco World president and chief executive officer Datuk Chang Khim Wah (pic) told StarBiz that the freehold land status and location near the second link and adjacent to the North-South Highway gave it great potential to be developed as a mixed-development project.

Penang Development Corp (PDC) has firmed up plans to turn some 312ha near the Second Bridge in Batu Kawan into a theme park with a resort and golf course.

Towards this end, PDC is expected to award the development of two projects to two firms that are big names in the property development sector.

Sources said that one of them was Eco World Development Group Bhd, which is the fastest-growing name in the property sector this year because of its links to Tan Sri Liew Kee Sin, formerly of S P Setia Bhd.

“Eco World has won the tender to develop a golf course and mixed-residential property project encompassing an area of 190ha,” said a source.

It is learnt that PDC is in the final stages of negotiations with the group, firming up terms and conditions.

“When PDC called for tenders, Eco World was the sole participant, bidding to pay RM35 per sq ft for the land. If the land is for commercial usage, then the bid will open at RM45 per sq ft,” a source said.

Eco World’s parcel involves the development of a golf course and a mixed-residential scheme. “It’s not a commercial project,” a source said.

Eco World will use 60ha for the golf course project and the balance 130ha for a mixed-residential property scheme.

On an adjoining land measuring 121.4ha, the sources said, a large Kuala Lumpur-based resort and theme park operator had made a bid together with an overseas developer that specialised in theme park development.

“But the tender exercise for the second parcel, which is bigger, has yet to be completed,” an executive added.

Eco World already owns a 24.28ha parcel of land in Bukit Tambun, on which it plans to launch a RM920mil mixed development called EcoMeadows next year.

If it is awarded the job to develop the 190ha land in Batu Kawan, it would pave the way for Eco World to be established as a major land owner and developer in the state.

In May this year, Eco World president and chief executive officer Datuk Chang Khim Wah told StarBiz that the freehold land status and location near the second link and adjacent to the North-South Highway gave it great potential to be developed as a mixed-development project.

He had said the company was planning the development of a mini mall, comprising shops and offices all designed in line with its “Eco” theme that emphasises sustainability and livability.

“Over time, we aim to build up our presence in Penang so that it will be able to consistently contribute around 10%-15% to total group sales,” he said.

On Penang island, the group is planning to preview the RM340mil EcoTerraces in Paya Terubong, comprising luxury landed homes, condominium units and a private residents’ club on a 5.26ha site.

Since the announcement of the second bridge in 2006, property prices in Seberang Prai and on the island have surged significantly.

The price of vacant land in the area, especially in south Seberang Prai where the second bridge is located, is now hovering between RM40 and RM50 per sq ft, a huge jump from 2006’s RM8-RM9 per sq ft range, according to Henry Butcher Malaysia (Seberang Prai) Sdn Bhd associate director Fook Tone Huat.

Land prices in central and north Seberang Prai are now within the range of between RM50 and RM100 per sq ft, compared with RM20 and RM40 per sq ft then.

The attraction of Seberang Prai has also lured Mah Sing Group Bhd to acquire land-bank near the mainland where the second bridge lands.

Last December, Mah Sing acquired a 30.9ha site in Jawi, comprising 20 pieces of prime freehold contiguous land, for RM400mil.

According to group managing director and chief executive Tan Sri Leong Hoy Kum, the group plans to introduce an integrated township called Southbay East, which will comprise linked homes, semi-detached units and town houses.

Source: StarProperty.my

Vona Parkcity, an upcoming mixed development by Vona Properties Group in the established township of Bukit Gambier, Penang. This development is strategically located along Jalan Bukit Gambier, just a mere minutes drive from USM.

This develoment comsists of:

• Condominium – 516 units (Vona Sky)
• Low Medium Cost – 194 units
• Medium Cost – 130 units
• 3-storey Shop Offices – 12 units

More details to be available soon.