Residential property to cost more under GST?

Will residential property cost more under GST? To answer this question, we need to take a look at the mechanics of GST for exempt supply.

Under the Malaysian GST Bill, it is proposed that the supply of residential properties be classified as exempt supplies.  Other examples of exempt  supplies are health services, childcare services, selected financial services, and transport services (bus, train, taxi, highway toll).

For purposes of GST, exempt supplies are not subjected to GST.  Consumers need not pay any GST on the purchase price of the residential property.   Although residential property is exempted from GST, the cost of building materials such as cement, steel, bricks, labour work etc, is subjected to GST.

The housing developer will not be able to claim the back the GST tax that they pay for the materials used to construct the residential homes. This will inevitability cause the supplier to increase the selling price of the homes in order to recover the additional cost incurred. 

There is time for the government to reconsider the treatment of residential housing for GST purposes.  In order to avoid a potential increase in the prices of houses, the government should consider classifying residential properties as a zero rated supply.   Zero rated supply is a taxable supply, where the GST rate is fixed at 0%.   A supplier of zero rated goods and services is eligible to claim the input tax credit, and therefore will not have a reason to increase the prices of homes.

 On another note, the government should also come out with clear rulings regarding residential homes built on commercial land.  For example, should GST to be charged on the sale and rental of housing units classified as SOVO or SOHO?