KUCHING: With the imposition of Goods and Services Tax (GST) next year, the cost of local residential properties is estimated to increase by three to four per cent.
Whether the increased cost will be transferred to house buyers depends on demand for the property concerned.
For highly-demanded residential properties, the increased cost is expected to be borne by house buyers. For those in the less demanded areas, extra cost due to GST would likely be absorbed by the developers.
“GST will definitely have an impact on cost of construction or development and thus the selling price of residential houses. But if the demand for the property is poor due to reasons such as poor location and design, any adjustment of selling price to include GST (of building materials) will make the property undesirable or unsellable.
“On the other hand, if the property is highly demanded where demand exceeds sale, the developer involved is expected to include cost incurred by GST imposition into the selling price of the property.
“Simply put, GST will make impact on house prices of highly-demanded properties and very minimal on less-demanded ones,” Sheda secretary general Sim Kian Chiok told The Borneo Post yesterday.
To reduce the impact of GST on residential houses, developers’ associations in Malaysia, including Sarawak Housing and Real Estate Developer Association (Sheda), have examined the effects of GST on house prices and recommended to the government through a memorandum not to impose GST on building materials which were not subject to sales and service tax before.
Based on the Sales Tax Act of 1972, basic building materials such as bricks, cement and floor tiles are classified as First Schedule Goods which are not subject to sales tax while other building materials classified as Second Schedule Goods are charged five per cent sales tax.
If First Schedule Goods are to be classified as zero-rated goods where no GST is imposed, impact of GST on residential properties may be kept to a minimum.
“By doing so, GST implementation will not add more cost to the construction of houses, thus keeping the tax effect to the minimal,” said Sim.
The developers’ associations are also appealing to the government to classify residential houses as ‘zero rated’ basket of goods rather than ‘exempt rated’ as home property which they presently fall under.
If houses are classified as zero rated goods, developers can apply to claim back GST imposed on building materials; if houses fall under ‘exempt rated’ goods, developers will not be able to claim back GST that has been imposed on building materials. In the case of the latter, it is expected of the developers to transfer the increased cost to the buyers, leading to higher house prices.
On commercial property, however, GST would make a direct impact where it would be imposed on top of selling price, thus causing the price of commercial buildings to rise.
Sim said GST has been one of the factors affecting property prices. Other factors at play include Bank Negara’s policy on lending and its rates and general economic performance of the market.
“It has been our state government’s vision to reach developed status by 2020 and that is only six years away. If salaries are generally doubled within these six years where people’s spending power increases, then house prices in the state will also be increased,” said Sim.
GST will be imposed starting May 1 next year at six per cent across the board to replace the 10 per cent Sales and Service Tax.
Goods and services will be categorised under three groups – ‘standard rated’ where six per cent GST will be imposed; zero rated and exempt rated.