Increase selling price due to GST? It depends on margin.

I think I have never written about LBS Bina Group (LBS) before this. However, after reading an article recently, I think I want to highlight what its managing director Datuk Seri Lim Hock San said. He said that the new Goods and Services Tax (GST) would definitely affect property developers BUT if LBS’s current profit margin is comfortable, the selling price would be maintained. Of course he does think that some developer may increase their prices by 4% or 5% to cover the GST but for LBS, there are none planned for now unless its profit margin suddenly dips. My earlier article here: Property prices up due to GST? Developers should just absorb it.
I think he is being very frank about how the market actually works. No developer would increase their prices just because of GST. There must be some underlying factors. LBS said they would have launches worth up to RM6 Billion within the next 3 years. For a Malaysian developer, this is definitely no longer a small number. Their projects are concentrated in Selangor (60%), 25% (Johor) and 15% (Pahang). Current landbank size is 2,715 acres with a GDV of RM22.5 Billion and this will keep them busy for the next 10 years. LBS also has a joint-venture with a Chinese government-linked company for development of a 264 acres land with a racing circuit (Zhuhai International Circuit). For now, approval is still pending.
Of course, no developer would react based on just its margin. It would also take into account the market situation. For certain hot locations, it would continue to be easy. For newer locations, better be prepared with a lower margin first before increasing them slowly later. It may be foolish to launch first few blocks of a 10 year development at prices so high that these first few blocks all FAILED to sell. Sometimes, these do happen. Just few days ago a friend told me of her friend being offered a condo for RM500psf. It seemed okay except that this particular project was advertised at RM800psf previously. Funny? Not really, just the wrong strategy in the beginning, perhaps due to wrong timing. Happy buying.
written on 12 Apr 2015
next suggested article:  New launches same area, lower priced than previous launches? Post-GST ‘trick’?


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