Category Archives: 3.GST 2015

How GST Will Impact Home Prices & The Property Market


How GST Will Impact Home Prices & The Property Market


WITH the coming implementation of Goods & Service Tax (GST) in April 2015, many Malaysians are concerned with what this bodes for prices in general. It is inevitable that home prices will also be affected. In this article, we explain how home and property prices will be affected moving forward.

To properly appreciate how GST will affect home prices, it is necessary to first understand how GST works. (Click here for a detailed but simple-to-understand explanation of how GST in Malaysia works).

Aside from GST, one must also have an understanding of the Sales Tax, which is the existing tax scheme affecting the property sector. GST will supplant the Sales Tax come April 2015.

Tax Scheme on Residential Property – The Similarities

In comparing both tax schemes, we have to first identify their similarities.

One similarity between GST and the existing Sales Tax scheme is that no taxes are charged or will be charged to the consumer on the purchase of a home / residential property. For GST, residential properties fall under the “Exempt Rated” basket of goods. (But do take note that GST will be charged to the consumer for commercial property purchases as commercial properties are “Standard Rated”).

However, during the creation of the final product (also known as the input stage in tax parlance), under both tax schemes, developers would incur taxes during procurement of their inputs and materials. And this is where the differences start to become apparent between both tax schemes. The tax rate for inputs and materials vary between GST and Sales Tax.

Sales Tax VS GST for Residential Properties – The Differences

Based on the Sales Tax Act of 1972, basic building materials such as bricks, cement and floor tiles fall inside First Schedule Goods, in which all the goods in this category will not be subjected to sales tax. Meanwhile, other building materials fall inside Second Schedule Goods, in which all the goods in this category will only be charged sales tax of 5%.

Under the new GST implementation, all building materials and services (E.g. Contractors, engineers) will be subject to GST with a standard rate of 6%. This will invariably raise the production cost for developers.

If you understand how GST works, you will notice that in most cases, the additional tax cost is simply passed on to the final consumer (Standard-Rated goods), or is claimed back from the government (Zero-Rated goods). But in this case (Exempt-Rated), the additional tax cost is borne by the party before the final consumer – The developer.

The developer does not have a next “victim” in the supply chain.

This seems like good news for home buyers as they do not have to pay GST when purchasing a home. However, one should not be too happy about this. It is no stretch of the imagination to think that developers would try to build in the additional tax costs into the final sale price implicitly.

Before & After GST – A Comparison

The tables below show a comparison between the cost of a new property before and after GST. Certain taxes and costs leading up to the sale to the final consumer have been simplified for this purpose.

Also, an assumption is made that developers are able to transfer 100% of all incurred tax costs over to the consumer via the sale price.

How GST Will Impact Home Prices & The Property Market How GST Will Impact Home Prices & The Property Market

The example above shows a price increase of 3.41% for new residential properties post-GST implementation. But there is a plus point to this.

Overall, new residential properties may register a lower overall increase in tax burden compared to Commercial Properties that are Standard-Rated. This is because there still is the chance that developers may only transfer some and not all of their tax cost increases into the final retail price.

The downside to this is that where pricing for new commercial properties will be cleaner (Sales Price + GST), pricing for new residential homes would look inflated. This, in turn, will undoubtedly have a knock on effect on prices in the secondary house market.


As a home buyer, it pays to know what the implementation of GST might bode for home prices moving forward. If you skipped the entire article, here are all the key insights in a nutshell:

1)      With GST, there should be a once-off increase in property prices across the board

2)      While developers may not bill home buyers for GST, they could transfer the costs implicitly via the sale price

3)      The overall price increase for new residential properties could be marginally lower than that for new commercial properties

4)      The secondary home market should see a knock on effect in prices

Armed with this knowledge, you can make a better decision on when to purchase your home.


GST and OPR will affect house prices

PETALING JAYA: The anticipated goods and services tax (GST) and the hike in the overnight policy rate (OPR) will impact housing affordability and sales, according to Maybank IB Research.

It said the benchmark OPR of 3% was expected to rise 50 bps (basis points) to 3.5% following the central bank’s monetary policy committee meeting in early July.

The report said a 50bps increase in the mortgage rate could lead to a 6.8% jump in monthly instalments based on a base lending rate (BLR) minus 2.4% for a 35-year loan.

“This would impact affordability and investment decisions for new purchases,” it said.

The report also said the housing affordability index has been trending down since 2009 due to hikes in the BLR to 6.6%. The BLR was set at 5.6% between 2009 and 2011. Other reasons for the index to trend downwards include the spike in property prices without a significant rise in income.

The report said that with most developers already doing GST-related repricing and re-costing exercises ahead of the April 2015 timeline and the anticipated higher interest rates, the housing affordability index could decline further. This would lead to a decline in property sales.

“While developers will be able to pass on the upcoming GST to buyers of non-residential properties, they may have to absorb some of the GST impact for residential properties that were sold during/before 2013 and which remain uncompleted on April 2015.

“We believe a majority of the sales secured in the last one year have not taken into account the implementation of GST,” the analyst said.

Margins are also likely to compress in the coming period due to the offering of more non-cash incentives to attract property buyers.

On top of that, the report said higher labour costs and higher transportation costs after last September’s fuel price hike were expected to eat into margins.

Malaysia’s high household debt amounted to RM854bil last year, accounting for 86.8% of nominal gross domestic product (GDP).

Maybank IB said investors felt Eco World Development might be the new leader for the property sector given the support by former S P Setia staff and its expansive land bank worth RM43bil in gross developmental value.

Meanwhile, Batu Kawan in Penang was introduced as a new property hotspot in Malaysia. It stands to benefit from the new second Penang bridge and better control on land supply from the state government.

“It is unlike Iskandar Malaysia, which relies on the bilateral relations between Malaysia and Singapore,” the research house said.

Maybank IB observed that the share price of land owners Tambun Indah, Malton and Global Oriental rose 14%, 19% and 24%, respectively, benefiting from interest in Batu Kawan.

Overall, the research house maintained a “neutral” call on the property sector, citing that foreigners were more focused on the property sector in other emerging markets.

Do you have to charge GST on your rental income?


Do you have to charge GST on your rental income?

Crowe Horwath
Property Tax Vistas

ON Monday, April 7, 2014, the Government passed the GST (Goods and Services Tax) Bill.

With it, the Government has finally drawn the line in the sand after two earlier attempts at introducing this new tax. There is therefore no turning back now.

As for the man on the street, what are you doing to prepare yourself for the implementation of GST? This depends on which of the two groups of persons you fall under the ones who pay GST on the goods and services that they buy or the group which is also allowed to charge GST on the goods and services that they sell.

Leasing out a property for rental is a service for GST purposes and may be chargeable to GST.

However, if you are a buyer of property for your own use, then you only need to pay GST when you buy non-residential properties as there is no rental income to declare.

What if you are a property owner with at least one property for rent?

If so, you may need to start thinking about whether you have to charge GST on your rental income and pay it to the Government.

Most individuals who are casual property owners may not be required to charge GST. Why?

This is because you only need to charge GST if you are in business.

If you are not in business, you do not have to. Even if you are in business, you do not have to charge GST if you are receiving rental from residential properties which are exempted from GST.

In addition, you need to have more than RM500,000 in your annual turnover, that is, RM500,000 of rental income from non-residential properties.

Other conditions that need to be met are that you need to be “making taxable supplies in Malaysia”, which is another way of saying that you are receiving rental income from properties in Malaysia.

However, this condition can only be met if your principal business activity of earning more than RM500,000 in annual turnover is from the rental of non-residential properties.

So, are you involved in business and need to be registered for the purpose of GST? This is a perplexing question.

To be technical, the GST Bill says that a business “includes any trade, commerce, profession, vocation… whether or not it is for a pecuniary profit”. The GST Bill also deems certain activities to be a “business”. For all other cases, we have to apply the “business test”.

Do you have to charge GST on your rental income?


Applying the “business test”

So, what is the “business test”? The “business test” became famous in the court case of Lord Fisher when the judge reiterated the six principles of determining a business laid down in the Scottish case of Morrison’s Academy Boarding Association.

Lord Fisher lived in the United Kingdom and had a hobby of shooting wild birds on his 3,000-acre (1,214 hectares) estate.

He would invite his friends and relatives to join the shoot but they were not charged. Instead, they had to make contributions towards the cost of the shoot.

Lord Fisher himself contributed towards the cost from his own pocket.

The question for the court was whether he had to charge VAT (Value-Added Tax) which is similar to GST on the contributions.

The conclusion was that he would have to charge if he is carrying on a business.

The court held in favour of Lord Fisher because “the sharing of the costs of a sporting or other pleasure activity did not by itself turn such an activity into a business”.

So, there lies a grey area when a person is on the borderline of whether he is in business.

Hobbies are generally not treated as a business.

So are those activities that are not substantial or serious enough to constitute a business.

As such, there is difficulty in deciding whether a person is in business for certain cases.

Basically, there are the six tests of a business laid out in the Lord Fisher case. Please refer to the table.

Do you have to charge GST on your rental income?


These include the following considerations:-

1) Is the activity a serious undertaking, work earnestly pursued or a serious occupation not necessarily confined to commercial or profit making undertakings?

2) Is the activity actively pursued with reasonable or recognisable continuity?

3) Does the activity have a certain measure of substance as measured by the quarterly or annual value of taxable supplies made (supplies generally mean sales of goods or services)?

4) Is the activity conducted in a regular manner and on sound and recognised business principles (business like nature)?

5) Is the activity concerned with the making of supplies for a consideration (consideration generally means price)?

6) Is the activity concerned with the making of supplies of a kind commonly made by commercial organisations?


Generally, individuals may not pass this test and therefore do not have to charge GST unless they own and manage properties like a serious business.

Companies on the other hand, may be presumed to be in business.

They therefore, have to charge GST on the rental income, if they meet the conditions.

This evaluation has to be done for each and every potential “taxable person” including every company in a group of companies.

Moving on, if your company has to charge GST, are you or your company ready? We term this as “GST implementation”. This involves a wide variety of matters such as transactions, paperwork, processes, systems, touchpoints and strategy. The larger and more complex the organisation, the more important it will be in tackling this issue.

Many consultants have their own methodology in assisting organisations to implement this tax.

At Crowe Horwath, we have adopted a 12-step process which covers all the steps in reaching a successful implementation.

For example, one has to examine all the sales of an organisation and ensure that the correct rates of GST are being applied.

If the GST rate used is higher than the correct rate, it will involve disputes with the customers.

On the other hand, if the rate is lower than the correct rate, the organisation has to pay the GST out of its own pocket together with the penalties thereon if this is discovered by the Customs authorities.

As a result, there is now a flurry of activity in the market as organisations rush to get themselves ready for the new tax.

Are you ready? If you are not, it may be time to seek the help of professionals since the Government has made it clear that there is no turning back when it comes to GST.

Please note that the information contained in this article is for general use only and should be seen just as a rough guide.

Readers are advised to seek independent professional tax advice for their GST affairs.

>> Fennie Lim heads the Crowe Horwath KL Tax Division and has been in the tax profession for the last 22 years. She has a wide range of experience in tax compliance, tax advisory and indirect taxes, and has advised many large local and multinational clients on complex tax engagements.