OPR & BLR Increase from 10th July 2014

Source from www.malaysiahousingloan.com

This OPR hike may translate to an increase in the pricing of loans for consumers.

Banks had started to announce their increase in Base Lending Rate (BLR). Public Bank are one of the banks that had confirm their new BLR is 6.85% effective 10th July 2014.

Most analysts are expecting a high probability of a rate hike in 2014, which it is true. While less a handful opined that it could go up to 50bps by end of 2014. If there is a 50bps hike, one can generally expect that BLR will increase to 7.10%.

The OPR is an overnight interest rate set by BNM. It is interest rate at which a bank lends to another bank.The OPR, in turn, has an effect on employment, economic growth and inflation. It is an indicator of the health of a country’s overall economy and banking system.

If you’re a borrower, when the interest rate goes up, you need to pay more in terms of instalment. Alternatively, your term of loan (loan tenure) increases if you don’t want to change your instalment payment.

But, if you are a depositor, for example you have fixed deposit or saving account with the banks, this mean your fixed deposit and saving account dividend will be increase too.

OPR, BLR & deposit interest rate are co-related. Once OPR increase, BLR and deposit interest rates will be follow suit too.

Here is the example of how it would affect you:

Based on the example above, the 25bps hike will not be severely affect. However, over the loan period, it comes up to a substantial amount.

Green Building Index (GBI)

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How GST Will Impact Home Prices & The Property Market

With the coming implementation of Goods & Service Tax (GST) in April 2015, many Malaysians are concerned with what this bodes for prices in general. It is inevitable that home prices will also be affected. In this article, we explain how home and property prices will be affected moving forward.

To properly appreciate how GST will affect home prices, it is necessary to first understand how GST works.  Aside from GST, one must also have an understanding of the Sales Tax, which is the existing tax scheme affecting the property sector. GST will supplant the Sales Tax come April 2015.

Tax Scheme on Residential Property – The Similarities

In comparing both tax schemes, we have to first identify their similarities.

One similarity between GST and the existing Sales Tax scheme is that no taxes are charged or will be charged to the consumer on the purchase of a home / residential property. For GST, residential properties fall under the “Exempt Rated” basket of goods. (But do take note that GST will be charged to the consumer for commercial) 

However, during the creation of the final product (also known as the input stage in tax parlance), under both tax schemes, developers would incur taxes during procurement of their inputs and materials. And this is where the differences start to become apparent between both tax schemes. The tax rate for inputs and materials vary between GST and Sales Tax.

Sales Tax VS GST for Residential Properties – The Differences

Based on the Sales Tax Act of 1972, basic building materials such as bricks, cement and floor tiles fall inside First Schedule Goods, in which all the goods in this category will not be subjected to sales tax. Meanwhile, other building materials fall inside Second Schedule Goods, in which all the goods in this category will only be charged sales tax of 5%.

Under the new GST implementation, all building materials and services (E.g. Contractors, engineers) will be subject to GST with a standard rate of 6%. This will invariably raise the production cost for developers.

If you understand how GST works, you will notice that in most cases, the additional tax cost is simply passed on to the final consumer (Standard-Rated goods), or is claimed back from the government (Zero-Rated goods). But in this case (Exempt-Rated), the additional tax cost is borne by the party before the final consumer – The developer.
The developer does not have a next “victim” in the supply chain.

This seems like good news for home buyers as they do not have to pay GST when purchasing a home. However, one should not be too happy about this. It is no stretch of the imagination to think that developers would try to build in the additional tax costs into the final sale price implicitly.

Before & After GST – A Comparison

The tables below show a comparison between the cost of a new property before and after GST. Certain taxes and costs leading up to the sale to the final consumer have been simplified for this purpose.

Also, an assumption is made that developers are able to transfer 100% of all incurred tax costs over to the consumer via the sale price.

The example above shows a price increase of 3.41% for new residential properties post-GST implementation. But there is a plus point to this.

Overall, new residential properties may register a lower overall increase in tax burden compared to Commercial Properties that are Standard-Rated. This is because there still is the chance that developers may only transfer some and not all of their tax cost increases into the final retail price.

The downside to this is that where pricing for new commercial properties will be cleaner (Sales Price + GST), pricing for new residential homes would look inflated. This, in turn, will undoubtedly have a knock on effect on prices in the secondary house market.

Conclusion

As a home buyer, it pays to know what the implementation of GST might bode for home prices moving forward. If you skipped the entire article, here are all the key insights in a nutshell:

1. With GST, there should be a once-off increase in property prices across the board
2. While developers may not bill home buyers for GST, they could transfer the costs implicitly via the sale price
3. The overall price increase for new residential properties could be marginally lower than that for new commercial properties
4. The secondary home market should see a knock on effect in prices

Armed with this knowledge, you can make a better decision on when to purchase your home.

BUY PROPERTY NOW? What if demand crumbles as interest rates rise?

GST In Malaysia Explained

In Malaysia's Bdget 2014 speech, the implementation of Goods and Service 
Tax (GST) was perhaps the hottest topic.  To be introduced in April 2015, it 
will replace Malaysia's Sales Tax (10%) and Service tax (6%).  Under GST, 
most of the goods and services (except basic necessities) will be charged a 
tax rate of 6% at every stage of the supply chain.  The question now on 
everyone's mind - How will life be after GST ?

To identify the most likey effects, we must first understand the different 
implementations of GST and their mechanisms.

Types of GST

There will be three different categories of goods and services under the GST
scheme in Malaysia.  They are:

1.  Standared - Rated GST

Goods and services in this category will be charged a tax rate of 6% at every 
stage of the supply chain.  The tax is billed and collected by businesses and 
paid to the government.  Every party except the final consumer can claim 
credits on the GST they already paid (know as input tax).  Examples of the 
goods in this category are cloth, car and fruits.  The following diagram shows 
how Standard - Rated GST works:

2.  Zero - Rated GST 

Goods and Services in this category will be charged a GST rate of 0%.  This
means that GST is not charged to the final consumer.  But businesses CAN 
claims back credits on their input tax.  Examples of goods in this category 
are basic food item (meats, fish and cooking oil) and first 200 unit of electri-
city per month.  The following diagram shows how zero-rated GST works, 
assuming the final product is zero-rated but the raw materials are standard
rated: 

3.  Exempt-Rated GST

Goods and services that fall in this category will be non-taxable and are not 
subject to GST at the output stage.  This means that GST is not charged to
the final consumer.  But it also means that businesses, particularly the final
party in the supply chain (before the final consumer) CANNOT claim back
credits on their input tax even if they might have incurred it earlier on.  
Examples of goods in this category are residential property and health care
services.  The following diagram will give a clearer picture on how Exempt-
Rated GST works:

Conclusion

GST is a progressive tax regime that will supplant the Sales Tax and Service
Tax in Malaysia in the near future.  Understanding its mechanisms will help 
us to be better gauge its potential impact of our lives and prepare for it.

Existing Stocks and Houses Supply till 2020

Residential Property Prices Head North ( 2008 - 2012)