Concerns about rising household debt and the introduction of a goods and services tax (GST), which came into effect on April 1, are likely to contribute to a cooling in the residential segment of Malaysia’s property market.
However, the slowdown is partly seen as a welcome respite given the rapid expansion of mortgages and personal loans since 2008.
Residential property prices have increased by 60 per cent since then, according to the IMF, outpacing income and rental growth, with a corresponding surge in debt levels, particularly among young adults and low-income families.
As a result, measures have been introduced in recent years to curb the growth of household debt, with the implementation of the GST slowing appetite further. However, many. think that this could be a temporary slowdown, with momentum expected to build again in 2016.
GST set to bite
The introduction of the new GST, which will see a six per cent levy imposed on most transactions, is also contributing to a drop in activity. While house sales themselves are exempt from the GST, factors contributing to housing prices, such as the labour and materials used in construction, are not. Increased costs will inevitably affect overall prices. Analysts expect the GST to push up house prices by around four per cent, while Redha in March puts the increase at more than six per cent.
Siva Shanker, the president of the Malaysian Institute of Estate Agents, believes the residential segment of the property market is set for a slowdown this year, with activity rising in 2016.
“2015 will be a bit flat, but better for the secondary market. In 2016, the market will start climbing a bit,” he told local media in April. “In 2017, we’ll see serious interest and 2018 can be the next property high.”
Some analysts have suggested that the introduction of the GST could boost interest in older properties since these are less likely to be affected by higher costs, while for new builds there is likely to be a greater emphasis on affordability.
Tong Seech Wi, CEO of integrated property developer MCT, said his firm was looking to maintain revenue flow and earnings by sharpening its focus on more moderately priced units, with more than half of its output to be priced at RM500,000 or below.
“This is what this market needs,” Tong said “We believe with this right product and pricing, we should be able to ride through this difficult period.”
Read full story at Borneo Post
4 Factors Affecting Property Prices
Property prices capture some of the main talking points among fellow Malaysians these days. After all, the sky high prices do pose a problem to those seeking to buy.
The house price index graph below indicates a fall in housing index in the second quarter of 2014 with respect to the first.
1. Leasehold vs Freehold
Homeowners generally prefer living in neighborhood with a freehold tenure rather than leasehold. Ownership in freehold property remains intact with its titleholder with no time limit unless transferred legally to other party. Leasehold is a fixed asset with maximum lease period of 99 years. Eventually, it has to be returned to the government or if the current owner needs to forego a fee to lease it further.
For those interested, the formula below highlights the premium on the land excluding the building situated on it. According to, Section 7 entitled ‘Premium’ of the Selangor Land Rules 2003,
Example: For a 4000 sqft residential property in Damansara with 20 years remaining on lease, valued at RM150 per sq ft by the Authorities, the lease renewal fee will cost
Property prices under the freehold tenure may differ from the leasehold, i.e. it could be higher or lower regardless but it is well known that freehold properties tend to perform better in terms of long-term capital appreciation due to substantial lease fee amount.
There are multiple factors that deem a good location for some individuals. Let’s take a look at some below.
a) Distance from School, Workplace & Retailing Outlets
Generally, the closer they are to the housing areas, homeowners are expected to fork out more for the luxury. Availability of shopping centres and hypermarkets nearby definitely adds value to the premise. After all, shopping is one of the top family activities for us, Malaysians!
With the current rising crime rates in Malaysia, any housing with added security becomes a necessity. Gate-guarded and fully landscaped neighborhood with perimeter walls, security personnel and CCTV are desirable for the safe-minded individuals. A premium can be inserted in housing price if the community is fully secured.
c) Environmental qualities
The constant urbanization creates a shortage of green space views. Most individuals prefer the era with natural landscape and views of green space. The opportunity cost of planting native tree species around the area is the amount that the developer could have received from sale of more properties instead. This cost is reflected in the higher price of properties that has an acceptable threshold environmental quality.
Getting from home to city or around the city remains an issue for most Malaysians who are unable to afford private transport. They are obliged to take public transport such as trains and buses. Having LRT and MRT within a 20 minute walk from housing areas is convenient but to a certain extent. If located too close could result in congestion, noise and petty crime. A 20-minute walk may appeal to be long for some of us; thus, it’s crucial that bus stops are close to the properties.
Highways are definitely one of the fastest ways to get to the city. Knowing that Malaysians will most likely locate the fastest route possible, housing areas with easy access to highways such as the LDP or Kesas are higher in demand, therefore higher price.
For those with cars, we all know how frustrating a task of hunting for car parks are. Countless litres of petrol are wasted through searching for them. Ample car spaces make a particular area more attractive.
Other accessibility factors such as recreational facilities could drive up the property value. After a long day of studying and working, all we want to do is sit back and relax. What a better way to do this than having a swimming pool, gym and sauna, BBQ corner nearby. Obviously, this comes with a hefty price for the housing properties.
4. Future development
High-end areas with appreciative development in the future are obviously valued more. One example includes the rezoning of land in Section 13 of Petaling Jaya from industrial use to commercial use. As a result of this shift, the value of this location spiked up.
The availability of land for expansion plays a part in property value. With vacant land in urban areas diminishing, for example in Klang Valley and general increase in population, land prices are rising.
read more at loanstreet
GST No Excuse To Raise Rent, Maintenance Fees
Implementation of the Goods and Services Tax (GST) must not be used as an excuse to raise house rents and maintenance bills for residential properties which are exempted from the tax, according to the Royal Malaysian Customs.
Senior assistant director of Customs II, Real Property, Construction and Professionals sector, Raizam Mustapha, said the development of land or buildings used for residential, agricultural land or for general purposes is not subjected to any GST.
“Any property in Malaysia categorised as residential is exempted (excluded) from GST.
“Whereas, buildings that are not deemed residential buildings are considered commercial and subjected to six per cent GST,” she said in a GST media briefing related to the property and housing sector here, Friday.
The GST will be implemented from April 1 at the rate of six per cent to replace the Sales and Services Tax (SST) totalling 16 per cent.
Commenting on maintenance bills, Raizam said they are also exempted from GST to prevent occupants, especially of stratified residential properties from being burdened.
She explained that any charges related to a building’s maintenance bill is determined by the Joint Management Body (JMB) or Management Corporation (MC) and it should not be associated with the implementation of the GST.
At present the JMB or MC is exempted from registering with the GST, therefore maintenance bills should not be increased, she added.
“For cleaning purposes, the JMB or MC may get the services of parties (companies) which are not registered for GST, which has a turnover not exceeding RM500,000,” she said.
Moreover, Raizam said under GST era, residential land developers can recover the costs for the construction of public facilities such as schools, housing estates, religious houses and roads from the government through the input tax.
However, she explained that the six per cent claim is only eligible if the developers surrender all the public facilities erected to the government.
published by BERNAMA
GST GUIDE FOR PROPERTY OWNER AND PROPERTY HOLDING COMPANIES
This article provides some insights on the application of GST for property transactions following the issuance of the Guide on Property Developer
REAL estate for this purpose refers to land and everything attached to it, whether on or below the surface. Land includes buildings, trees, vegetation and other structures and objects in, under or over it. Real property is the right to use real estate and includes activities concerned with ownership, use and transfers of immovable property.
WHAT IS DEFINED AS SUPPLY IN PROPERTY DEVELOPMENT?
The GST Bill 2014 provides that the tax “shall be charged and levied on (a) any supply of goods and services made in Malaysia, including anything treated as a supply under this Act and (b) any importation of goods into Malaysia.”
Land that is under charge (mortgage), lien or caveat is not a supply. Likewise, entering or lifting of caveat is not a supply by lender or borrower. A land title charged to the lender by the developer to obtain a loan is regarded as security for payment of debt and thus is not regarded as a supply, and hence is not subject to GST. However, when the lender sells land under power of sale in satisfaction of debt or foreclosures on the land of the developer, the developer is regarded as making a supply and the tax will be accounted for by the lender. Converting an inventory to investment property per se is not a supply as it is not considered as disposal. The supply of land and buildings used for commercial, administrative and industrial purposes such as shop lots, offices, retail business, small office home office (SoHo), small office virtual office (SoVo), small office flexible office (SoFo), factories, hotels, motels, inns, hostels and warehouses is subject to GST.
Whereas land used for agricultural, residential (such as link houses, semi-detached houses, detached houses, apartments including serviced apartments and condominiums) or general purposes such as burial grounds, playgrounds and religious purposes is exempt from GST i.e. exempt supply.