Many are asking the question but so few know the answer,” quips Malaysian Institute of Estate Agents (MIEA) president Siva Shanker (pic) when asked about the impact of the GST on the housing sector.
He says he speaks for his entire fraternity of estate agents when he says they are “not 100% clear” how the GST is going to work.
“Over the last six months, I’ve attended four or five talks on the GST. Some were by accountants and one was from the (Finance) ministry but at the end of these one-and-a-half hour sessions, I was no closer to understanding what it all meant than when I first started.
“I haven’t yet met a person who can tell me with authority how it works. Everybody is wishy-washy. When I ask the accountants, they explain it but my opinion is that they are acting on theory.
“So how does it all affect the property market? We don’t know!”
Siva says that when other countries imposed the GST, there was a spike in property transactions and value in the quarter preceding the GST.
“Then the market found its own level again.”
Because he had no other data to go by, Siva says, he had previously thought this too would be the case for Malaysia – that from January to March there would be a spike in transactions in property and value as people rush to buy before the GST, much like how they would queue overnight to buy petrol before the price of petrol goes up.
“But I want to revise my own projection. I see there is so much doom and gloom for 2015 that I am convinced there won’t be a spike because the perception of gloom and doom has overridden the greed to acquire before the GST.
“How the market behaved in 2014 is pretty much the same as how it is going to behave in 2015, which means it is going to be a flat-ish market with no upward growth and no downward slide.”
Siva reveals that in 2011 and 2012, the market dropped by 4% and 5% while in 2012 to 2013, it went down by a whopping 10.9%. In 2014 it was a flat market but the figures of the second half of 2014 are not in yet.
In 2011 and 2012, he says, although the number of transactions went down, prices went up. And it was the same for 2012 and 2013.
“Transactions slowed three years in a row but prices were still going up.
“My opinion is that in 2015, the upward climb of prices has been arrested and the downward slide of transactions has slowed down. I feel the market will reach its equilibrium soon.”
For estate agents, the GST is no big deal because they have already been paying a 6% government service tax previously on their fee, he says.
“Now it is replaced with the Goods and Services Tax (GST) which is also at 6%. So for the average estate agent, life goes on without a little bump.”
For buyers, residential property is exempt from GST but commercial property is charged the standard 6%.
“It (the 6% for commercial property) doesn’t look like it’s going to go away. So people just have to bite the bullet and learn to pay for it.”
But Siva has questions about the sale of commercial property.
“If I sell you a shoplot for RM1mil, you have to pay 6% GST, which comes up to RM60,000. I am not sure who is the collection centre. I think it will be the lawyer who will collect that RM60,000 from you and remit it to the Customs Department.”
As for the estate agent, he would bill the owner of the property he just sold for a 2% commission on the sale price, which in the case of the RM1mil shoplot would come up to RM20,000, as well as 6% of that commission, which works out to RM1,200 for the GST.
“The agent collects the RM1,200 on behalf of the owner and sends it to the Customs Department.”
Siva also wonders what will happen to a residential property owned by a company if that company is sold.
“A lot of people own property but park it under a company for tax purposes or estate planning and other purposes.
“There is no GST on residential property but if I have a house worth RM6mil but say my company Siva Shanker Sdn Bhd owns it and I sell off my company for RM6mil.
“We think it’s no big deal. But the question is, does the sale of the company attract a 6% GST even though it is a residential house? I don’t know the answer to this question.”
Siva feels that with the bad things that have happened to Malaysia last year, like the MH370 and MH17 tragedies, and also the Indonesia AirAsia Flight QZ8501 crash, and the current economic uncertainties with petrol prices dropping and the ringgit depreciating, the implementation of the GST should be held back.
“We are taking too many hits at the same time. It would be a clever political move to consider suspending the GST for a while and implementing it next year or the year after.”
For now, he suggests that the Government cuts down its expenditure and rein in the wastages and excesses which are highlighted every year in the Auditor-General’s report. - By The Star