Consultants: Property market likely to regain momentum post GST

ALTHOUGH the goods and services tax (GST) has caused uncertainties among the people, the real estate market is expected to even out after the initial rush to close sales, property agents say.

Developers are also taking advantage of public expectations that they would have to pay more for property after the GST becomes effective, real estate consultants say. 

The implementation of the GST is expected to increase house prices by between 3% and 5%. It would likely further exacerbate the market sentiments. “So (until April 1), some buyers are likely to adopt a ‘wait and see’ approach due to the uncertainties on the impact of the GST,” says C H Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen.

The overall price increase will be less in the residential sub-segment, but more in the commercial sub-segment, PA International Property Consultants head of agency Wendy Tong says.

Although residential properties are zero-rated for GST, materials and services supplied in the development process will be subject to GST and these costs are likely to be passed on to home buyers. 

“Pricing is determined by demand and we expect the market to be impacted for at least the first two quarters when the GST becomes effective,” Tong says.

After April, the market will find its own level and even out a little, says Malaysian Institute of Estate Agents president Siva Shankar. As transactions in the first half of 2014 were lower compared with first half of 2013 after the property boom in 2011 and 2012, Shankar expects property transactions in 2015 to move slowly.

“This year, a small growth of between 2% and 5% can be expected as the market braces itself,” he says.

In terms of affordability, however, the general understanding is that the GST will inevitably add cost to houses in the primary market, as a result of developers incurring input costs but unable to charge those costs as output costs for claim.

“Generally, when demand is good, developers can pass the cost down to buyers. It looks like demand would be low because the market is not fully undestanding the situation due to some confusion (on the GST),” says Khong & Jaafar group of companies managing director Elvin Fernandez.

“Those costs will slowly seep into the system in the second or third quarter of 2015,” Fernandez says.

CIMB Research head of research Terence Wong said in a report that this would be a “tricky” year given the pick up in sales momentum in 2014 on expectation of property prices rising post GST. He points out developers have faced a slow first half of last year due to Budget 2014 measures to curb speculation, however, property sales has picked up in the second half on renewed confidence and expectations that property prices would rise.

“The net effect is that 2015 could end up being a similar year to 2014 in terms of property transactions, which we could categorise as a lacklustre year,” Wong said.

In spite of the tough measures, CIMB Research is keeping its “overweight” recommendation on the property sector in its review and outlook sector as valuations of property stocks are attractive and many developers are on track to report record sales and record profits. 

“Many developers had also shrugged off the (anti-speculative) measures and continued to target record sales for 2014. But the first half of 2014 has turned out to be a lot tougher than expected and developers, including UEM Sunrise, have slashed their sales target from RM3.2bil to RM2bil mid-way through the year while others struggled to even match the record sales achieved in 2013,” Wong said.

Based on the experience of several countries that implemented GST, Wong says there has been a pick-up in retail sales ahead of the value-added tax, particularly three to six months before the implementation. Retail sales then eased (in those countries) in the six months after GST before rebounding in the nine to 12-month period after (see chart). 

“If Malaysia goes through the same pattern and property sales also mimic retail sales, the second half of 2015 will be a trying period for developers,” Wong says.

Several developers have lined up aggressive launches to take advantage of pre-GST buying to lock in as much sales as possible before potential post-GST blues set in.

CIMB Research downgraded the property sector from “overweight” to “neutral” in light of tougher property market conditions after the implementation of the GST.

“Savvier and stronger developers such as Mah Sing and Eco World should be able to weather any turbulence better than the rest and therefore we keep them as our only ‘buy’ calls. UEM Sunrise has been downgraded from ‘add’ to ‘hold’ while SP Setia has been downgraded from ‘hold’ to ‘reduce’ after widening their discount to RNAV further. - The Star