With GST, demand may slow down next year. True?

Reported in the Star on 29th July. According to UEM Sunrise Bhd’s executive director, Datuk Izzaddin Idris, after GST is implemented, demand for homes may slow down. This is especially do in the second quarter of next year. This was also based on the scenarios in other countries which has implemented GST. Thus, the environment may be more challenging and UEM Sunrise Bhd are prepared to on hold new launches if necessary. In fact, some of the development plans may be changed based on market demands and trends. demand may slow down. Even margins would decline slightly with the rising costs and also due to the slower market.

Would this happen? Would demand really slow down after GST? I think this may happen because of the usual herd mentality. No different from the stock market. When everyone said Mont Kiara is better than Damansara Damai, even if you wanted to consider Damansara Damai you would think three times or more and still may decide on Mont Kiara despite the fact that you may have to pay higher and get a much smaller unit. Just like in Penang, even though Tanjung Tokong and Sungai Ara is just less than 25km away, but the prices are SO different! I have condos in both places. The bigger condo in Sungai Ara is still cheaper than the smaller condo in Tanjung Tokong! So yes, if the transactions start to slow down, even those people who needs to buy their first home would also think, perhaps I should wait a bit.

Another thing which I see is the affordability. The newer launches are no longer priced at a high premium. I think the developers are really in tune with the slowing transactions and are more willing to reduce some of their margins just so that they can sell easier. Just look at those which were sold out within past few months. Majority are RM500psf or around RM500,000. Not many are huge units and hitting higher than RM700,000. In fact even within Penang Island, any condo launched today at RM700,000 will face huge resistance and will not be easy to sell. The ‘affordability’ is a challenge. In actual numbers, if two professionals got married, both are engineers or senior finance executives, their total income would be RM10,000 or higher. It will not be easy but at 90% loan, they can still afford a condo up to RM800,000. Note though that not many are willing to take a high risk with RM700,000 or higher.

So, history aside, I personally also agree that these two reasons will be stopping many new buyers from buying. As for those who are buying for investment, there’s just not many of them around. For developers, they have to rethink their current launches or future ones. Perhaps smaller units, perhaps lower margin and perhaps really do a huge marketing to have the highest probability ever that anyone who needs a new home will see their launching. If you hit huge enough, based on probability and your ‘affordable’ pricing, it will still sell. Based on current demographics, demand is definitely still there.

written on 31st July 2014

Next suggested article: Affordability Availability: Penang Properties (Island).

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  • Ang on July 31, 2014

    Hi Chialih,

    Fully agreed with you, the demand is still there but it is just the matter of price : )
    If the developer keep calling high, in the end, there will be a resistance in selling as it beyonds affordability for local even from husband and wife in high income 10k per month, the problem is …. it is too much of risk to be committed.

  • racistmalaysian on July 31, 2014

    I think I’ve told Chialih about slowing demand after GST and subsequently we will see price falling after GST is implemented. UEM Sunrise Bhd’s executive director just agreed with me. Other party that say property price increase after GST implemented in 2015 are just bull.

    • Ang on August 1, 2014

      True, the news specualtive most probably come from respective people to stimulate the market for their own objective..

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