GST removal ― what it means

(File pix) From June 1, GST would be zero-rated. This news was received with much optimism in the market. Archive image for illustration purposes only. Pix by Aizuddin Saad

By SIVA SHANKER - May 31, 2018 @ 12:16pm

THE euphoria of the spectacular 14th General Election results may have gone down a couple of notches for Malaysians by now. The excitement is still in the air though.

Everywhere we go, the conversation is generally centred on the GE14 and its unexpected result.

All eyes are on the man of the hour: Tun Dr Mahathir Mohamed. The nation watches him with bated breath as he gets down to business. There is much anticipation in the air. A new hope has dawned on Malaysia.

As the house-cleaning gets underway, the average man on the street is amazed at how much has been uncovered in just a matter of days. As more time goes by, there is no doubt in everyone’s mind that more shenanigans will be uncovered.

Among all the promises made by Pakatan Harapan in their manifesto, the most highly anticipated one must be the abolishment of Goods and Services Tax (GST). When Dr Mahathir made the announcement soon after taking office, the whole nation applauded.

But, how does this affect the property market?

MAKING THE ANNOUNCEMENT

Having made the announcement but without any details or explanations would actually have spelt serious trouble for the property market. Investors expect the GST to be abolished, but do not know when that would happen. So, what they would do is to halt any property purchase until things become clearer.

Actually, they would halt all other sizeable purchases, too. Why would anyone pay GST if in the foreseeable short term, they would not have to. So, all they have to do is defer their purchase until the plan is finalised.

SETTING A TIMELINE

Luckily for all of us, the new team in charge has displayed far-sighted thinking. Within days of announcing the GST abolishment plan, they put a firm and definite timeline to the exercise. From June 1, GST would be zero-rated. In essence, you would have to pay nothing in tax.

RECEIVING THE NEWS

This news was received with much optimism in the market. Although I personally would have voted against the abolishment of the GST, the majority of Malaysians obviously did not agree with me.

What was expected to happen? Well, many people felt that the price of goods and services would miraculously fall immediately.

I do not think this would happen.

I have found, from many years of observation, prices of goods and services in Malaysia move only in one direction — upwards.

COMMERCIAL AND INDUSTRIAL PROPERTIES

The sector of the property market affected by GST is the non-residential sector.

Residential purchases are exempted from paying this tax.

What this essentially means in absolute numbers is: For example, you purchase a shop-office for RM1 million. Your purchase will automatically attract GST, which is currently at 6 per cent. This means that on top of the RM1 million, you will need to pay a further RM60,000 in tax. This is indeed a heavy burden for the average investor.

In a soft market currently, some purchasers would disagree with paying this amount. If the vendor was desperate enough, or was keen on a quick sale, they may just volunteer to pay the RM60,000 on the purchaser’s behalf. If that happens, the price of the property has actually gone down to RM940,000.

Either way, both parties lose, and hence the anger against this tax from the public.

WHAT HAPPENS NOW

Luckily for the property market the government has announced a definite timeline for the GST abolishment. June 1 is merely two weeks away from the day the announcement was made. In the world of property investments, two weeks is insignificant.

So, there is no danger that deals that are currently underway would run the risk of stalling. At most, some people may have waited two weeks to complete the sale or sign the agreements.

GOOD NEWS FOR THE MARKET

The abolishment of the GST would have a positive effect on the property market.

Absolute prices of non-residential properties would go down immediately with no tax to be paid. Prices of residential properties are also expected to reduce in time, with tax on various components of building materials being abolished as well.

Let’s hope that this is indeed a new tomorrow for Malaysia. I look forward to the property market finally moving into positive territory after so many years in the dark side. I can already feel the enthusiasm in the air and am confident that the upward climb will be able to be felt really soon.

Until then, happy hunting and may the force be with you.

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Siva Shanker is a real estate practitioner who tries to manage the labyrinth of the property market honestly while consistently maintains a high standard of ethics in his practice. He welcomes feedback via siva@ miea.com.my

Lessons from Buffett's key principles

(File pix) Invest passively in return for extra money or build a sustainable real estate portfolio for big and long-term gains. Archive image for illustration purposes only.

By K. BEGUM for NST Property- May 31, 2018

HOW do you invest in properties and make money from them? Real estate investing is a great business option for most investors.

A good line of credit can go a long way in helping you establish a successful real estate portfolio.

Do it right by investing in progressive, forward-moving areas and you can reap big financial benefits in the form of short-term and long-term gains.

You can either invest passively in return for extra spending money, or build a sustainable real estate portfolio for big and long-erm gains.

Warren Buffett, the chairman and chief executive officer (CEO) of Berkshire Hathaway, is widely considered as one of the greatest investors of all time.

He is currently the third-richest person in the world, with a net worth of US$84.7 billion (RM337 billion). While he made most of his money from stocks, having started at the tender age of 11, real estate investment has also contributed to his wealth.

Carrie Law, CEO of China’s real estate website Juwai.com, has reinterpreted Warren Buffet’s five most important principles that can be applied by property investors.

“By following his advice, you can look forward to many profitable years,” she said.

BUY AND HOLD, AND HOLD, AND HOLD

“Stick with big easy decisions and eschew activity”. Buffet likes to buy an asset “for life” and this differentiates him from investors who buy and sell for quick gains.

He says of all the assets available for investment, only a relatively handful are both of high quality and available at a low price. Finding these true gems could take a lot of hard work.

If you find a great asset that is of high value and generating returns, why not hold to it for life? Once you sell it, you will have to find something else to put your money into.

In real estate, the transaction cost is often high and consists of taxes, commissions, and closing expenses. Buying and holding a great asset keeps your transaction cost to a minimum.

TIME IS YOUR FRIEND

Time is “the friend of the wonderful investment and the enemy of the mediocre”. Your investment will generate cash flow and capital gains over the years and you can reinvest the cash to create more gains.

This is Buffett’s gold standard — an investment which generates cash that can be reinvested to generate more cash, which can in turn be reinvested to generate more and more cash.

PREPARE FOR BAD YEARS

Investors should always be prepared for “economic discontinuities”. Adopting this approach in real estate investment is easy as long as you are realistic and take a long-term view. In any market, there will be good and bad years.

Protecting yourself from disasters during a bad year is more important than earning a little during good years. This is to ensure that your long-term returns will be much higher.

Buffett’s taste for debt is very low and this aversion to leverage has dampened his returns over the years but helped him sleep well. He believes it is “insane to risk what you have and need in order to obtain what you don’t need”.

Property investors should keep their debt low enough to be manageable even during a stretch of bad luck. Just as Berkshire uses the float from its insurance companies to make more investments, you can use equity from your existing assets to fund additional acquisitions.

But don’t risk being forced to sell an asset at a discount because your debt is too big to service.

BUY DURABLE COMPETITIVE STRENGTHS

Look for companies with durable competitive strengths. For real estate investors, this means purchasing properties with valuable features and add-ons, including a central location, access to transit, proximity to good schools, low operating costs, and water views.

Many amateur investors are lured into buying properties in marginal neighbourhoods where prices seem to be growing more quickly than in more established locations. In bad times, marginal locations are the first to lose value. Look for safe value rather than risky gains.

PAY A SENSIBLE PRICE

Buffett’s key tenet — only buy if you can obtain a sensible purchase price. Investors should always measure price against value, not against the market average. By acquiring assets at a discount from its true value, you give yourself a “margin of safety” which will protect you from possible losses.

The desire to acquire good assets at good prices is also behind Buffet’s famous rule: “You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple,” he says.

When others are fearful, they are willing to sell assets for less than their true value. It’s an opportunity for smart and brave investors.

Buffett has beaten the stock market over the past 53 years and more than doubled the wider market’s compound annual gain. US$1,000 invested with him in 1964 would be worth almost US$16 million today.

KTMB poised to flag first profit

Keretapi Tanah Melayu Bhd (KTMB) chief executive officer Mohd Rani Hisham Samsudin says

By Sharen Kaur - June 4, 2018 

KUALA LUMPUR: Keretapi Tanah Melayu Bhd (KTMB), the country’s largest rail service, will finally turn in its first profit after almost two decades of losses, said its new chief executive officer (CEO) Mohd Rani Hisham Samsudin.

KTMB, which has lost almost RM3 billion since it was corporatised in 1992, is expected to declare a net profit for fiscal year 2017, he told NST Business.

He said the major contributor to the profit is passenger ticket sales.

Mohd Rani forecasts that the profitable ETS (electric train service) as well as shuttle services between Johor Baru and Woodlands in Singapore will ensure that KTMB remains profitable year-on-year.

KTMB will also capitalise on the cargo business for growth, he said.

"When I came in to KTMB, I realised what we need to do first is not transformation of the business. It is about the transformation of working culture and attitude.

"KTMB has about 5,700 employees. The first thing we did was to address the union on what they want to do and what we should do. That way, we all understand the health situation of the company and work towards that direction, the division of roles and functions and at the same time having common agenda to develop and grow the company.

"We have to run KTMB as a business entity. There are performance-based KPIs for everyone,” he said.

Mohd Rani said when there are bad apples in the company, those who do not improve will be asked to leave.

“We have to measure and increase the productivity by improving revenue and reducing the cost per employee," he added.

Mohd Rani was appointed KTMB CEO effective September 15, 2017.

A graduate of Northrop University in the United States, Mohd Rani was previously the CEO of KL Airport Services Sdn Bhd (now known as Pos Aviation Services Sdn Bhd) under DRB-Hicom Bhd.

Prior to that, he served as the CEO of Senai Airport Terminal Services Sdn Bhd, and CEO of Johor Port Logistics, both units of MMC Corp Bhd.

Mohd Rani said his first key task when he joined KTMB was to stop the continuous losses in the company.

"It is a challenge to turn around KTMB but I took on the responsible as I believe it can be profitable. Besides engaging with the staff, we have been reviewing all contracts that were outsourced, and looking at the unprofitable routes.

"Either we cut them off our service, or look at other methods to improve passenger volume. This is despite the constraint from the current track rehabilitation under KVDT1 project that limits the frequency of the train and the number of cargo wagons in one rake," Mohd Rani said.

KTMB, owned by the Finance Ministry, has been recording losses since its corporatisation in 1992. It did post net profit of between RM9 million and RM15 million from 1993 to 1995.

The company started to bleed again from 1996 and has been trying for almost two decades to turn around its fortunes. Despite the many changes to its top management and injection of funds by the government, KTMB has been unable to turn around.

An audit conducted in 2011 showed that KTMB incurred RM100 million in losses, which almost tripled to RM280 million in 2012.

In fiscal year 2015, KTMB suffered a net loss of RM226.25 million.

Low fares are among the main contributing factors that have led to KTMB racking up losses. The fares for the commuter service are currently 10.8 sen per kilometre compared with 15 sen per kilometre for LRT services.

Commuter service could break even if it increases the commuter fare by two or three sen per km.

The other main contributing factor was KTMB’s high operational cost in maintaining its rail coaches and infrastructure, plus high electricity and diesel consumption, and manpower costs.

In 2015, employee benefits totalled RM294.5 million, which was 57 per cent of the RM515.8 million revenue the company recorded that year.

It was reported that as a result of the deteriorating conditions of KTMB’s rolling stock, coaches and infrastructure in stretches along the east coast and south, nearly 40 per cent of its operating expenses is spent on manpower costs.

Early last year, the company was considering downsizing its cargo services to cut losses. The cargo services division reportedly incurs losses of about RM55 million per annum.

KTMB former CEO Datuk Sarbini Tijan said early last year that the company was technically bankrupt. He said that for every ringgit the company made, 80 sen went to staff cost.