GST: Prices down vs Prices up.

Just two weeks ago, a colleague had lunch with me and asked what would happen with GST in April. She has a condo which she may want to sell and all her friends said that sell only after GST so that she can get a higher price. Then, she also said that she is thinking of buying another property but not sure if she should buy now or wait because everyone said market is bad. Yet, after GST what if prices go up? Let me tell you what I told her at the end. Few days ago, I read something online. For now, let’s listen to all the three different opinions from the Customs Department director of GST, Datuk Subromaniam Tholasy, Real Estate and Housing Developers Association (Rehda) chairman Datuk Ng Seing Liong as well as IFCA MSC Bhd’s chief financial officer Daniel Chow. No bonus for guessing it right based on the designations.
Yes, Subromaniam said that prices should be coming down because the prices of inputs have been decreasing especially with the falling oil prices. Therefore, the developers should pass the savings to home buyers. In fact, there’s no tax on residential land, thus there is no justification for any increase. Of course he also said that if everything was the same as previously, the actual increase with GST would be between 0.5% to 2% at maximum. However, as he has said, with the falling costs, this is no longer the case and the prices should fall even with GST.
Ng said that any extra costs would not be absorbed by developers but would be passed on to buyers. Based on REHDA’s own calculation, this should result in a 2.6% increase. He said the main issue was because of major components such as cement, concrete, bricks and sand. These are not zero-rated and yet it consists of 44% of the total cost of construction.
Chow said that the prices would not be increasing because there would already be an oversupply of residential properties by the end of the year. There has been many buyers who bought properties with the 5% downpayment two to three years ago and these are completing end 2015 and 2016 and the buyers would have to come up with money to pay. The holding power is not likely to be strong. He said with this huge pressure, property developers would have to think again whether can they increase the prices by even just 1 percent.
I told my colleague that I seriously do not believe developers would increase price with the current market condition. In fact 2015 is fast becoming a year of affordability. just look at all the new launches. Majority are RM500,000 or lower or even just very slightly higher. Gone are the days when RM700,000 seemed to be the usual price. Ok, perhaps the size may be a bit smaller and the location not that awesome and the number of units are pushed up but hey, think objectively, during good times, would we have this opportunity? I also think the huge supply from the 2011, 2012 and even 2013 years are coming into the market and it’s going to be a huge supply. Prices would not crash though. At worst, the sellers sell at a slight premium to what they bought and prices remain almost the same as the current market. We shall see what happens yeah. Sorry, everyone is just guessing. That includes me too.
written on 3 Feb 2015
Next suggested article: Oversupply, Yes. Crashing Down? No.


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