How Does GST affect Property Purchasing Process?

No hotter topic than GST at this moment with less that 48 hours to go. It’s challenging and when google search  research was done on the web for few days, found that many discussed the impact and possible effects of GST on the property market. What we would like to discuss will be the direct impact on every steps on the Property Transaction process.

GSTProperty

Kindly refer back to the earlier discussion for the process of purchasing a property : https://ethanetteh.wordpress.com/2015/01/29/what-should-i-do-next-buying-a-property/

  1. Placement of Booking
    1. No GST to be charged at this stage as no actual transaction taken place yet at this moment.
  2. Application of Mortgage Loan
    1. If there’s payment of processing fee to be made, the processing fee is subjected to GST, but at this moment no processing fee is charged and therefore no GST involved.
  3. Acceptance of Loan
    1. At this stage, most of the time, no charges involved unless the set-up fee charged by bank for Flexible Loan (Typical amount: RM 200), this Set-up fee is a service charged by Bank and therefore is subjected to GST. Subsequently the monthly maintenance charge (Typical amount: RM10) or redraw charge (Typical amount : RM 10 to RM 50) are also subjected to GST.
    2. Besides that, mortgage protection plan, MRTA or MLTA also signed at this stage and since both are life insurance, no GST should be charged unless Critical illness or others riders included.
  4. Valuation Report
    1. Valuation report is required only for Sub-Sale of completed property. The valuer needed to provide a valuation report for the Open Market Value of the property to bank and the valuation fees will be subjected to GST.
  5. Signing of Sales & Purchase Agreement (SPA)
    1. Up to this part, all the above involve both Residential (GST Exempted) and Commercial Properties. For the discussion below, only commercial properties which are subjected to GST apply unless otherwise stated.
    2. During signing of SPA, purchaser will pay the down payment of 10% and this is part of the transaction, therefore, the down payment is subjected to GST.
    3. The Legal Fees for SPA documentation and Loan Documentation are also subjected to GST, but this is merely to replace Gov Tax charged earlier which is also 6%. The Memorandum of Transfer (M.O.T) and Stamp Duty payable to land office will be excluded for GST.
  6. Commission to Real Estate Agent
    1. Commission payable to Real Estate Agent is subjected to GST. For the common practice in the market, the booking fee paid by potential purchaser is normally treated as commission to Real Estate Agent, this will cause some complication as Seller will need to pay GST for the amount of Commission or brokerage fees paid to Real Estate Agent. (Regardless Commercial / Residential Property because this is payment of commission to brokerage agent) (for more details: http://gst.customs.gov.my/en/rg/SiteAssets/industry_guides_pdf/Guide%20on%20VALUERS%20APPRAISERS%20and%20ESTATE%20AGENTS%2031102014.pdf} )
  7. Interim/Full Payment to Seller
    1. Either under construction or completed property, for ease of discussion, every time a payment is done to the seller, the purchaser will have to pay GST. i.e. in the event of completed property, when Bank pay the balance sum to seller, purchaser will have to pay the GST of that amount.
    2. In the event the property was under construction, the scenario is still the same, whenever Developer invoices for interim payment, the purchasers will have to pay the GST. This also apply to property which is currently under construction which has not been fully paid up even though the property was purchased 2 years ago.
    3. Example. Mr K purchase an office unit in year 2014 and is 60% completed. The next stage billing comes in the month of May 2015 (10% of the purchase price), bank will release the 10% as the loan was offered earlier but Mr K need to pay the GST for that 10%. With this, Mr K actually need to prepare additional 6% for the remaining 40% which is additional 2.4% of the initial purchase price. At the moment when this article was written, no banks is financing GST.
    4. For more details, refer to Guideline from Royal Malaysian Custom Dept. : http://gst.customs.gov.my/en/rg/SiteAssets/industry_guides_pdf/Revised/Guide%20on%20Property%20Developer%20%20updated%20draft%20as%20at%2011%20Mac%202014%20-%20amended%20_1.pdf

Residential property was listed under Exempted Item for GST which is different from Zero Rated Item. For Exempted item, input tax could not be claimed, hence, it will be transferred to end-user even the final price is not subjected to GST. Item 5 & 7 discussed above do not apply to residential property.

*For reference and discussion only. Discussion was made with understanding of author on the material available. Kindly email to ask@ethanteh.com for further discussion.

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4D Betting – Betting for Wealth? Greed or Hope?

Since holiday is coming and let the discussion diverted slightly from serious topic. What prompted me to discuss about this was the phenomenon observed on draw dates for 4D betting in Malaysia. Normally these area will be slightly congested especially during few hours before bet closing time on draw dates. Some of the hawkers will also set up their stall near to these shops on draw date.

4D betting in Malaysia take place around 3-4 times a week.

4D Logo

What is the reason for these customers to place their bet? Is it due to Greed? Everyone would like to get rich without having to work? Do we really think that the desire to become richer is Greed? Or is it because the method to become richer by placing a bet is considering greedy because the amount of effort placed is less?

Would it be HOPE? Would it be they are actually buying a HOPE. By placing a bet of RM 1, one is hoping that he/she could win RM 50 ~ RM 2,000. Multiply the amount by 10 or even 100, that person still could not be rich enough to stop working. It is just a hope of winning some to lessen their burden for a period of time or loosen their financial stress for a period of time. How often we heard of a story that one become wealthy enough to stop working and enjoy a life after winning a 4D bet. But still the story of a single person could inspire thousands, ten thousands or even hundred thousands of others who have not win any for their whole life to continue to pay for the HOPE.

A lot of people are willingly squeeze the budget to buy a hope. How high is that hope actually? Statistically, the winning of 1st prize is 1:10000 and by betting the correct 4D, one win about RM 2,500. Statistically in order to win RM 20,000, one will have to bet RM 8 for each betting date at 3 different operators in Peninsular Malaysia which sum up to RM 24 for a chance of 0.01%. Multiply by 3 draws and 4 weeks a month, it will sum up to RM 288 a month.

Now, let’s face a reality of life. The probability of getting a cancer in Malaysia by age of 75 is 15%. Or we could calculate new cancer cases in year 2012 over 29.3 Millions of population in Malaysia, the probability stands at 0.13%. This is 13 times higher than the chance of hitting 4D. With the same budget, one can prepare an emergency fund of RM 1 Million per year and could include other financial threatening possibility. Further to that, most of the time, the money invested for this risk mitigation plan come with certain saving. (Statistic from : Malaysian Cancer Oranisations and Resources)

The purpose for this post was not intended neither to against anyone/anything nor promoting betting.

*This post was started before Chinese New Year season, but wasn’t completed until today. Since it’s completed now, just for reading pleasure. Next discussion will be on GST on property.