House prices to increase by 2.6% post-GST: Rehda

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The Real Estate and Housing Developers’ Association Malaysia (Rehda) expects house prices to increase by around 2.6 percent once the goods and services tax (GST) is implemented, reported the media.

According to Datuk Ng Seing Liong, chairman of the association’s task force on accounting and taxation, the calculation is based on its consultations with member developers and industry experts.

Rehda’s estimate differs from that of the Customs Department, which sees an increase of between 0.5 percent and two percent on house prices post-GST.

Ng revealed that the association, which is in full support of GST, agrees with Customs GST director Datuk Subromaniam Tholasy that land did not incur the six percent GST rate.

However, land does not account for the biggest cost component in property development.

“As our calculation clearly spells out, the construction cost, which constitutes 46 percent of the total development, is not only the largest component but also the component which will attract the GST of six percent,” said Ng.

He noted that the GST on this component will eventually lead to an increase in home prices.

Appending calculations for a residential unit originally priced at RM400,000, Ng revealed that the price would go up to around RM410,560 post-GST.

Under the 46 percent construction component, costs were divided into service taxable and non-service taxable segments, representing two percent or RM8,000 and 44 percent or RM176,000, respectively.

The service taxable segment includes fittings/sanitary and tiles, while the non-service taxable segment includes items like steel, cement/concrete, bricks and sand.

Based on the existing sales and service tax, non-service taxable category incurs no tax while a tax of up to 10 percent is imposed on the service taxable category.

Rehda’s calculations indicated that the non-service taxable cost increased to RM186,560 post-GST, while the service taxable cost was unchanged.

Meanwhile, Rehda maintained the same cost estimates for other items, such as infrastructure and pre-development works (10 percent or RM40,000), land (15 percent or RM60,000), finance costs (6 percent or RM24,000), professional fees and marketing costs (six percent or RM24,000) and profit (17 percent or RM68,000).