Since April 2015, Malaysians have been facing a new tax, called the Goods and Services tax, or GST. Many of us have had to make some changes in our lifestyles and sacrifice some of our spending in order to meet our budget. Some of us are taking on side jobs, working overtime or starting online businesses in order to cope with the rise in prices.

Many will also be wondering what the effects of the GST are in the field of property, so we’ve compiled some of the highlights of how GST effects the regular man on the street who wants to buy a house or a commercial lot.

An increase in new housing project prices

First off, young people and the not so young who are eyeing newly built property have to understand that the prices for these will definitely increase. Residential property itself is classified under Exempt-Rated goods, meaning that they buyers are not charged 6% extra. However, almost all other building materials like cement, bricks, tiles and pipes are all subjected to 6% GST. This will ultimately cause the building costs to rise, which developers have no choice but to pass on to the consumers.

GST different from previous tax

In previous years, building materials were divided into two groups under the Sales Tax Act of 1972. The first group, called First Schedule Goods including basic building material like cement, bricks and tiles were exempted from any tax. All other building material like metal grilled, wooden framed, glass windows, pipes and paints were classified as Second Schedule Goods and were charged 5% tax.

With GST however, as explained earlier, there are no different categories and almost all building materials are subjected to the 6% GST tax.

Commercial Lots are even more affected

While residential properties, whether landed or strata, are categorized as ‘Exempt rated’ goods under the GST and don’t suffer any additional tax on their value, commercial and industrial properties are not exempted from the GST. This means that if you plan to buy a commercial lot worth RM 1 million, you will have to pay a GST of RM 60, 000.

This GST is also levied on those who rent commercial properties, meaning that if you rent a commercial lot for RM 10, 000 a month, you will have to pay RM 600 in GST on top of your monthly rental. This is important also for owners of commercial lots as you will have to rewrite the tenancy agreement to include GST charges.

GST also comes into play when you buy an unfinished commercial project, as the GST will be levied in stages together with payments that are collected based on the level of completion.

So all in all, commercial buildings will have a price increase due not only to GST, but to more costly building materials and administration fees for collecting GST.

What about existing properties?

Existing properties and second hand properties may also suffer an increase in prices as an economic reaction to the higher prices of new projects. However, in the long term, housing prices in Malaysia may see some fluctuations due to demand and supply issues.