00:00All right, for this segment, we're going to be still focusing on service side SST, especially on the commercial leasing with the impact of 8% SST on commercial leasing and construction services.
00:11And we're going to analyze its effect on rental yields, tenant demand and the development of viability.
00:16And for that, I welcome you. Our guest ready on the line is Sulaiman Sahir, Director Research and Consultancy Services Rahim & Co-International Sedan Berhad.
00:23I want to say thank you very much Sulaiman for joining us.
00:26Firstly, how will the introduction of an 8% service tax on commercial and leasing services affect rental yields and tenant demand, particularly for office and retail spaces?
00:40Good morning. On the SST imposition right now, when the new tax is actually being enforced currently,
00:52it essentially erodes a bit of the rental yields, basically.
00:58Right now, if the cost is actually being burdened onto the tenants, as how it is supposed to be for the commercial leasing category,
01:09typically in a contract, the imposition of those additional taxes would be passed over to the tenants.
01:16But in terms of a commercial decision, that's where the landlords would actually be negotiating.
01:23But then typically when a lease is currently under contract in enforcement,
01:29they typically will actually defray or postpone the negotiation until the term actually ends.
01:34By that time, there are developers or investors, landlords especially, who probably will actually have to absorb.
01:43It's either them absorbing or the tenants have to actually buy the cost.
01:46Nonetheless, it will be increasing the burden of cost of doing business in terms of the imposition of the 8% tax
01:55onto the rental revenue for commercial properties.
01:58And what strategies might developers or landlords adopt to mitigate the added SST burden?
02:05Will they absorb the cost, as you mentioned, pass it to the tenants, some of it, or restructure leases?
02:15In terms of doing business, the sales revenue is actually very important.
02:20So the sales revenue here, it's going to be a two-tier effect.
02:25I guess in terms of the cost of living right now, especially with the expansion of SST right now,
02:31the rakyat probably have to bear certain costs, which means that they actually reduce their capacity
02:38in terms of certain expenses, especially on the luxury items as listed.
02:44When that actually impacts the retailers, if they were to impact retailers,
02:50retailers' revenue would actually be reduced.
02:52So when they can't actually bear the cost of this additional cost of SST or the service tax,
02:59then the landlord would actually have to make a commercial call.
03:04If they can't actually pass it down, they would negotiate.
03:07So I guess one is actually negotiation of who to bear the cost, 100% of the whole 8%.
03:14Or sometimes they actually negotiate in terms of how do they defray.
03:17Certain costs will be passed down partially, maybe it's actually about 50-50, if it's so.
03:22But this is still all theoretical because it's only been a couple of days
03:27that the regime is actually implemented.
03:31So we have yet to actually really see how the full impact of this.
03:36But one thing is, due to this uncertainty, it's where the concern is.
03:43Because the implementation is actually done as such where the market currently is actually still very challenging.
03:51And in terms of even for property transactions, for example, although the numbers are still commendable,
04:00but first quarter results, for example, first quarter results for this year is actually lesser
04:05in terms of property market activities compared to first quarter last year.
04:11So these are the impacts that would actually be a factor moving on throughout the year.
04:19And even with the reduction of subsidies and the electricity tariffs revision,
04:24and this will actually overall create the need for new commercial terms,
04:32especially for the situation where there's a non-renewable or non-reviewable contract.
04:41Although there is actually a 12-month exemption, but still moving forward,
04:46longer than the 12 months from today, we'll still have yet to see how it's going to unfold.
04:54And definitely after this, we will see more tenants and non-reviews having discussion or negotiation
04:59on how can they fulfill all of this extra, or we can say this new service tax.
05:06But we can also see a trend or a shift within the consumer in terms of purchasing housing, commercial lot.
05:15So could this tax, especially expansion, shift consumer demand towards smaller,
05:19more affordable residential units or alternative models like co-living and rent-to-own?
05:27First, we have to acknowledge that the new tax regime provision
05:34has actually exempted residential for residential properties, including residential rentals and whatnot.
05:41But this is where it becomes a little complex, because right now, for the residential,
05:47pure residential schemes, it's pretty much clear, because it's on a residential title,
05:52it's a residential development.
05:54But most of the residences or dwellings where people live, housing accommodation,
06:00are actually constructed within, on a commercial title.
06:04That's where the clarity needs to be redefined, much clearer, because how it's going to be treated
06:11in terms of all this, there could be some trickling effect or indirect effect
06:16that actually imposes certain additional costs, additional costs, which impacts prices,
06:23one, or even sometimes compressing some returns to investors and developers.
06:29When we talk about whether it will shift over to the co-living, smaller units,
06:37we are talking about affordability.
06:38So in terms of affordability of the residential sector within Malaysia,
06:45it is a perennial issue.
06:47Right now, without this new tax position, it is already an existing challenge
06:53that we have to actually face.
06:55moving towards the smaller units, hence, cheaper pricing, relatively,
07:01would actually, has actually been the focus or strategy in the market.
07:07But again, it would not be much different if it's for residential,
07:11because it's already exempted.
07:13But for the service departments, or even co-living,
07:16because co-living might be rendered as, treated as a short-term rent,
07:22which is going to be something that's actually going to be included within the service tax.
07:29And we know that residential tax has been exempted from this.
07:34And given that construction services are also taxed,
07:37how might this affect project viability for mixed use or commercial developments moving forward?
07:42For a residential, the exemption for the residential sector is basically towards the tail end of the supply chain,
07:51if you like.
07:51It's like from the developer to pass on to the end user, to the buyers.
07:56That's where it's actually exempted.
07:57But as you can imagine, the construction period of the whole supply chain towards realizing the residential unit,
08:05the house or the condominium, it actually flows down towards the construction,
08:11which is actually between the contractors and the developers.
08:15Over there, those segments would actually be factoring the additional costs of the 6%
08:23in terms of the sales tax and service tax,
08:27which is not necessarily going to be opened up towards the residential segment
08:34for the developer to recover from the residential buyers.
08:39Hence, it will actually eat up their margins.
08:42Their margins are actually what developer associations like RADA have actually been talking about
08:48in terms of their returns have already been compressed because of the construction costs,
08:54because of the labor costs and all the other costs.
08:58On top of that, the affordability is actually a factor where pricing,
09:02we can't push so much of the pricing because the market will only accept
09:05off a certain price bracket where it's affordable.
09:09This is where it is trapped.
09:11Developers are actually trapped to actually absorb the additional costs
09:16in the next few months.
09:20Probably my last question.
09:21We have only less than one minute.
09:22Suleiman, we can share with us for the next second half of this year.
09:26What's your prospects with the new policy of expansion of SST towards property?
09:33What's your prospect towards property for the second half?
09:36The general fundamentals of the property sector is still on solid ground.
09:44We have seen some corrections, not really a market situation
09:50that we should be overly worried about.
09:53There has been corrections, but it is still on solid ground.
09:57However, with the track and challenges, global challenges,
10:01as well as the cost of living, that's still a big concern to everybody.
10:05Imposition of additional costs such as these would probably affect
10:11certain segments of the market, especially the commercial sector.
10:14And that would actually dampen a bit.
10:18However, I have to actually say that this is probably more of a knee jerk reaction,
10:23especially when the changes have started to be felt.
10:26Moving on further, probably the market will adjust itself,
10:29which is actually supporting the call to actually have a bit longer of a gestation period
10:37or transition period so that the market can adjust,
10:40so that it can actually meet to a new equilibrium for a better growth in the market.
10:46Thank you very much for helping us understand the SST on the rental property.
10:52Again, I want to say thank you very much to Slyman Sahih,
10:54Director of Research and Consultancy Services Rahim and Co-International Sudam Rahat
10:58for helping us understand and sharing with us the strategic responses
11:01from landlords and developers and also how it's going to be all the shifts
11:05in the consumer housing preference in the future.
11:09Again, I want to say thank you very much and all of our discussion here
11:13will be featured in astroawani.com and across all social media platform.
