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GST and Property, nothing much, sorry.

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GST is a hot topic these days. Online, newspapers, radio, coffee shop chat topics. What’s in, what’s out, why so many items, why not make the list simpler? Why buy now? With GST, surely property market will slow down? Some say, with GST, property prices will increase instead because everything is up, how can property prices be the only one going down? I have no answers to all the questions but even if I have, you should be listening to me too. 🙂   I am not an analyst of a huge international bank and I am also not a famous property guru who gives talks every weekend to hundreds of listeners. My advantage though is that I am not affiliated to any one of these professionals. I read from all and I share to all.

According to a report in which many senior realtors were asked for their opinions, it is concluded that residential prices are likely to spike up to 4 percent and commercial properties by between 6 to 8.5% once GST starts. However, the prices are expected to stabilise within the year. In brief, the price increase, if any is one off and will not have any continuous effects. If GST is not the key issue, what is it then? Well, it’s more of the existing system of project approval which is both long and complicated. Thus, the costs increase. For prices not to continue going up, at least from the developer’s perspective, the long approval process must be shortened. One example was the additional layer whereby the Urban Wellbeing, Housing and Local Government Ministry was considering a star-rating system. This would progressively rate developers based on project experience and track record, workmanship, project delivery and work quality, among other criteria. This may put smaller developers at a disadvantage.

Personally, I do not agree that the rating would give much of an effect. The reason is because even today, for some ‘clever’ developers, they use price to entice buyers. For example, a similar project in the same area from two different developers are never priced the same. For many buyers, especially the first timers, price is a key consideration and thus, a 10% difference would help the smaller developer to sell faster too. Rating or no rating, smaller developers have always have to price their projects slightly lower anyway. If I am not first time buyer, then I would be willing to pay a premium for the more established and top 10 developers because I think buying from them meant my investment is safe and chances of them running away is virtually none. Looking at the typical net margins, you would see that there are still rooms for developers to play with prices. Read here: Property prices and developer’s profit margin

One comment is very true. Foo Gee Jen said that developers would normally try to maximise their profits through the high-end developments in the housing sector which meant that more often than not, the affordable segment is overlooked. This meant that the house buyers who need these cheaper units would never get them. Coupled with the fact that despite the many plans for affordable housing thus far, the results are not forthcoming to date. Recently, PR1MA CEO said 40,000 units are being built or in process to start by end 2014. We should always remember this and see the results by end of 2017. Of course, we should also note all the affordable housing by the many state governments which are also very slow, if moving at all.

You can see clearly that the reasons for property increase would never be due to GST or at most one time increase of up to 4%. There are suggestions that price may increase 2.6%. So if we assume the range to be between 2.6% to 4%, it simply tells you this, do not bother about GST if you need that property. Buy that one which you like because if you did not, you may need to look for another one next year. Just as time awaits for no men, it is the same case with property. GST and property? Nothing much, sorry.

written on 21 Oct 2014

Next suggested article: With GST, demand may slow down next year. True?

 

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