KUCHING: The widely speculation of the implementation of the goods and services tax (GST) in 2015 would lead to a sudden rise in demand for properties next year.
The research division behing Kenanga Investment Bank Bhd (Kenanga Research) in a report said demand for properties will surge before the implementation of GST due to anticipation of the increases in new house prices.
“We expect property developers to acquire more landbank before the GST comes into force adding that this will be positive for property developers with strong war chest,” it added.
Kenanga Research said once GST is implemented, it will have an upward impact to property prices citing examples in countries such as Australia, New Zealand and Canada.
The research firm pointed out that the impact of higher prices arose not just due to the spill-over effect from higher building material costs but also additional administrative work resulting from the maintenance of GST account.
It highlighted that the ‘hidden costs’ of property transaction will also go up for instance legal expenses, agents, auction fees or advertising whcih are subject to GST.
“Furthermore, any property, regardless whether residential or non-residential which incur monthly maintenance or services charges will be subject to GST,” it forewarned.
Likewise, Kenanga Research foresees higher demand for residential properties in the secondary market as those properties will not be charged with GST.
It observed that at present, the demand for properties in the secondary market is lagging behind new launches as buyers prefer to buy new properties due to the introduction of the developers’ interest bearing scheme (DIBS) and favourable loan conditions.
As such, Kenanga Research believes that with the implementation of the GST soon, demand for properties in the secondary market could return because botha residential sales and rental in the secondary market are not subject to GST.
Post GST implementation, the research firm foresees property demand to cool down due to rising demand for the pre implementation period.
“Among the other reason for lower demand of properties post GST could be the unwillingness of properties developers to unveil new launches as they do not want to be ‘caught’ in a situation of higher future costs against historical sales which could reduce their earning’s margin.
“However, in the long run, we believe that the industry will adjust to GST practice eventually and property transaction will normalise given that the supply and demand will move accordingly upon changes in interest rate and loan to value ratio.”
Moreover, it stated that the government will need to implement active efforts to boost the supply of affordable houses to ease the impact of anticipated price increases.
As for property developers, their top line will be boosted with higher sales and subsequently translated into better earnings next year.
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