A word of caution

While agents and developers say demand is somewhat lukewarm right now, they
are expecting a rush in last-minute sales. However, there are still some areas that
need greater clarity.

Petronas Twin Towers in Kuala Lumpur. Photo by Khalil Adis.

Petronas Twin Towers in Kuala Lumpur. Photo by Khalil Adis.

By Khalil Adis

There is a saying among my friends in Malaysia that things over here usually happen “slowly but surely”.

I did not realise this until I made a casual observation when I was recently in Kuala Lumpur with a group of investors from Singapore.

The investors were looking for investment opportunities in the city before the Goods and Services Tax (GST) kicks in on 1st April this year.

The introduction of the tax which was first announced by Prime Minister Najib Razak during the Budget 2014 means that those who are looking to purchase commercial properties in Malaysia will need to pay an additional 6 per cent GST charge after it is implemented.

As foreigners, we can only purchase properties above RM1 million so the cost saving works out to RM60,000 which is quite a lot.

While the urge to buy was quite apparent among foreigners, it appears to be a different case among locals. A quick check with local agents and developers during the site visit seemed to suggest that there was no buying frenzy among locals as yet as according to them, “Malaysians will take time to react until it is close to the deadline.”

Coming from a Singaporean’s perspective, we found it rather strange as we in Singapore are generally very ‘kiasu’ (afraid to lose) and would rush to buy as the cost savings are quite substantial.

This is especially true in regards to the current market as properties in Singapore are relatively expensive and are affected by the various cooling measures such as the Total Debt Servicing Ratio (TDSR).

In fact, only the well-to-do can afford to invest in them.

As such, for those who are adversely affected by the various cooling measures in place, Malaysia is the next closest market to invest in.

Additionally, the strengthening of the Singapore dollar versus the Malaysian ringgit has made it an even more attractive option.

An ambiguous situation

In a recent news report citing Deloitte Malaysia, tax consultants were reported as saying that five out of 10 buyers are “not in a rush to buy”.

The rest, they say, see “no point in rushing to buy now”.

If so, why are 50 per cent of Malaysians not rushing in to purchase or looking to purchase property after the GST kicks in?

Perhaps there is more than meets the eye which can help explain the reluctance among locals.

Firstly, you still need to pay the GST charge even if you had bought your property before the cut-off date.

While it appears on paper that the tax does not apply should you sign your Sales and Purchase Agreement (SPA) before 1st April 2015, it is actually not that clear-cut.

Experts and property developers who I have spoken to saythe GST being payable on commercial properties depends very much on the progress of the project’s construction.

For example, should you sign your SPA before 1st April 2015 when the property is only 10 per cent completed which would typically put it at the piling stage, there is no GST charge.

However, there is still a GST charge on the remaining 90 per cent or RM900,000 on the property after that date.

This works out to RM36, 000.

Other grey areas

The Meridin@Medini which has SOVO units. Picture: Courtesy of Mah Sing Group.

The Meridin@Medini which has SOVO units. Picture: Courtesy of Mah Sing Group.

Secondly, there are still grey areas surrounding certain property types.

Several kinds of ‘hybrid properties’ have been introduced in Malaysia over the years which blur the line between commercial and residential developments.

While small office home offices (SOHOs) and serviced suites in Singapore are considered commercial properties, this is not the case in Malaysia.

In fact, during the site visit to Kuala Lumpur, I came across a development that is in a commercial zone but has a residential zoning use under the Housing Development Act (HDA).

Such units include serviced apartments, serviced suites, SOHOs, small office flexible offices (SOFOs) and small office versatile offices (SOVOs).

Will fools rush in?
What about the remaining five out of 10 investors?

Are they considered foolish or savvy if they rush to buy a commercial property before the stipulated deadline?

Depending on how you look as the situation, “there is always room for negotiation” according to my Malaysian friends.

Regardless of what your decisions are, it is perhaps best to do your homework by writing in to the relevant government bodies or engaging a lawyer to get some clarification on the
issue before you proceed with your purchase

This article was first published in the March 2015 issue of iProperty.com Malaysia.

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