Property Hunter Magazine October Issue 2014 | Page 82

/// Banking and Investment News

OCBC to Sell Property
Firm Stake to Thai
Billionaire

Overcoming the GST Challenges

Rising Cost: Property developers
want government to soften impact
of new tax on industry

Oversea-Chinese Banking Corp (OCBC)
is in talks to sell its stake in United
Engineers Ltd (UE), a Singapore property
and construction company, to Thai
billionaire Charoen Sirivadhanabhakdi,
said people familiar with the matter.
The discussions are at an early stage,
said one of the people, who asked not
to be identified as the deliberations are
private.
OCBC, its insurance unit and the bank’s
founding Lee family together own 34.1
per cent of UE, according to a report by
Bloomberg.
Buying more than a 30 per cent stake
would trigger a mandatory takeover
offer for UE under Singapore rules.
UE shares were halted from trading
yesterday after they jumped the most
in more than four years, prompting
Singapore’s stock exchange to ask the
company to explain the move.
With trading volume of more than five
times the six-month daily average, the
stock was up 7.4 per cent to S$2.46
(RM6.22) before the suspension, .
Selling the stake would help OCBC
bolster capital after its US$5 billion
(RM15.85 billion) takeover of Hong
Kong’s Wing Hang Bank Ltd this year.
This story was first published by
www.propertyguru.com.my and is
reproduced as part of an editorial
partnership between Property Hunter
and PropertyGuru Group.

Even as property developers
struggle to regain traction and
cope with the rising cost of
construction, they now have to deal
with the six per cent Goods and
Services Tax (GST).
GST, a multi-stage consumption
tax that will come into effect on
April 1 next year, will replace the
government sales and service
taxes (SST) of 10 and six per cent,
respectively.
There are 950 items that will be
taxed under the GST and more
details on this will be realised at the
forth-coming 2015 Budget.
The impact on prices is expected
to vary, where some items will be
cheaper, some goods will maintain
their prices, while others will
become more expensive.
Among the key challenges that
the property market is facing are
high land cost, which includes
conversion, development charges,
premium cost, quit rent and stamp
duty, and scarcity of land, especially
in urban areas such as Klang Valley
and Penang.
Real Estate and Housing
Developers’ Association (REHDA)
patron Datuk Ng Seing Liong
told Property Times that there
is an increased cost of doing
business due to the high capital
contributions and compliance cost
that developers can’t run away
from.
Other key challenges include
highly regulated policies, laws and
regulations, he said at REHDA’s
GST roundtable discussion entitled
“Impact of GST on Property
Industry”, here, recently.
Also present were the Associated
Chinese Chambers of Commerce
and Industry of Malaysia (ACCCIM)

82

www.PropertyHunter.com.my

chairman of construction, property
and infrastructure committee and
deputy secretary-general Tan Sri
Teo Chiang Kok, Building Materials
Distributors Association of Malaysia
president Yang Kian Lock, and
Master Builders Association
Malaysia treasurer-general (MBAM)
Eric Lai Wee Meng.
Ng said REHDA and 13 other
associations that are directly and
indirectly involved in property
development and construction
have submitted a memorandum
to the Ministry of Finance Inc to
highlight the impact of GST on the
industry.
From April 1 next year, purchasers
of commercial properties will have
to pay the six per cent GST, while
buyers of residential properties are
exempted.
Ng said the GST, in its current form,
will cause financial hardship by
adding to the cost of development
and resulting in higher property
prices, which will eventually be
passed on to house buyers.
He said residential properties are
tax-exempted instead of being
zero-rated, leaving developers
unable to claim back the six
per cent as part of input tax
contributed to the GST.
“We cannot claim back input tax. A
developer has to add the tax to the
cost of construction and that will
increase the selling price. We have
sent signals to the government
and they are not responding fast
enough. There are only a few
months left before the GST is
implemented,” Ng said.
REHDA is proposing that residential
properties, including affordable
houses, be zero-rated and
commercial and industrial units to
be standard-rated.
Zero-rated means builders can
claim back the input tax; hence,
they don’t have to pass on the
increase to house buyers, while for
standard-rated, GST is collected
by the businesses and paid to the
government. If their input tax is
bigger than their output tax, they
can recover the difference.

at the point of sale, that is when
houses are sold by the developers.
The goods and services that are
used by the developers in the
making of these tax-exempt goods
are not exempted from GST.
“For example, building materials
such as cement, steel bars, sand,
bricks, wood, ceramic and roofing
tiles are not tax-exempt and
developers will either have to
absorb the cost or raise house
prices. The government is also
proposing that land owners should
start charging developers the GST
as construction cost service.
“All these will add to our current
construction cost, which is around
55 per cent. With the GST, our
margins will be tighter and house
prices will continue to rise. We can
expect a more than three per cent
increase in house prices next year.”
Ng said, with the rise in land prices
and higher cost of construction,
it would be quite difficult to
get affordable homes below
RM400,000, especially in prime
areas in the Klang Valley, Penang
and Johor.
Meanwhile, according to Yang, the
impact of GST on cash flow for
building material suppliers will be
more severe.
“In our business, we provide credit
facilities rangi ng from 30 to 90
days. But under the GST, we have
to pay the tax under 21 days, even
though we have not collected the
money from our buyers. If we don’t
pay within 21 days, there will be
a penalty of RM50,000, among
others. The government has to be
realistic and not impose such a
ruling,” Yang said.
Lai of MBAM said contractors have
estimated a four per cent rise in
cost.
“The four per cent increase in
construction cost coupled with the
six per cent GST on other goods
and services would eventually
lead to higher overall cost of doing
business,” he said.

“The reality is that tax-exempt
goods are only exempted from GST

www.PropertyHunter.com.my

83