Retail sector to get a boost
Zero-rated GST a boon – but for how long?
IT’S been a month since the general election... and a lot has already changed.
The goods and services tax (GST), which has been zero-rated, has already created quite an impact on the local retail property market. Earlier this week, Retail Group Malaysia (RGM) revised their growth forecast for the year to 5.3% from 4.7% previously.
“The change in ruling party after the general election on May 9 is expected to boost consumers’ confidence level and increase their willingness to spend. At the same time, the largest festival in Malaysia, Hari Raya, will be celebrated in June,” it says.
Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan says the current “tax holiday” until the imposition of the sales and services tax (SST) in September – is a much-needed boost for local retailers.
However, he is still cautious about the near-term outlook for the local retail property market.
“The elections are over but things are not rosy yet. With the new government in, I don’t think things will get better so fast. It will take some time.”
Chan believes it’s possible that things may actually get a little worse.
“It may get worse especially with the country’s RM1 trillion debt. Give it a year or two and things will improve,” he says.
The government has announced numerous measures to tackle the country’s debt level, from reviewing and scrapping large infrastructure projects that will bring no economic benefit – to even setting up a trust fund (Tabung Harapan Malaysia).
Savills Malaysia says the removal of the 6% GST will spur spending and boost the local retail property market.
“We see the likelihood that retail turnover will pick up in areas where the GST is lifted from merchandise. We hope that luxury goods will fall into that category, making Malaysia a major tourist shopping destination,” the property consultancy says in a statement.
It says groceries, food and beverage, and mass prestige fashion brands will see positive impact from the lifting of the GST.
Chan concurs that the local retail property segment will experience a big boost from now until September.
“The 6% tax removal is only part of it. Malls will also be having huge discounts in conjunction with the upcoming Hari Raya holidays,” he says, adding that he believes the local retail segment “will definitely be better off than last year”.
“I expect the local retail property market to grow more than 6% in 2018,” Chan says.
SST – will it affect spending?
The reintroduction of the SST in September is expected to result in lower prices of goods in general. However, a potential spike in the prices of some items can be anticipated – including the cost or charges for services rendered.
In a recent StarBiz report, Tax Advisory and Management Services Sdn Bhd tax consultant Yong Min Jie noted that the sales tax is based on the manufacturing cost or import cost. He emphasised that if the sales tax was based on the earlier tax rate of up to 10%, then the prices of goods would come down.
“This is good for consumers as unlike GST, which resulted in the hike of the prices of goods. On the other hand, if this tax regime covers a wider range of services, there could be a higher price or charges for services rendered on the whole.
“The services rendered could be from a company to another company or from a company to an individual like professional services, etc.”
Yong added that the cost of the implementation of the SST would not be as huge as the GST which, among other things, involved the relevant upgrading of systems. Yong said the SST is estimated to bring RM30bil in collections for the government.
In the same report, AmBank Group chief economist Anthony Dass said there would be a mixed impact from the reintroduction of the SST.
“For consumer items such as food and beverage and retail, we can expect prices to be slightly lower by around 3% from the savings of input costs. This bodes well for the retail business.
“On the whole, the SST is expected to create more disposable income, which, in turn, is expected to boost consumer spending and business activities. Such a rate will create adequate disposable income to spur private consumption and in turn business activities,” he was quoted as saying.
Chan is hopeful that the “feel-good factor” of the “tax holiday” will continue once SST is imposed.
“The 6% removal – it’s more of a feel-good thing. It’s not so much the difference it will make to consumers once it has been zero-rat- ed. It comes down to sentiment.”
He says the removal of monopolies on essential goods and items, such as rice and sugar, will be a move in the right direction.
“In the longer term, breaking up the monopoly is important. Rice, sugar... can actually be cheaper. This will help boost spending and the economy.”
On Wednesday, the government announced that the monopoly to import rice by Padiberas Nasional Bhd has been terminated.
Agriculture and Agro-based Industry Minister Salahuddin Ayub said a working paper on breaking up the monopoly would be drafted with feedback from both the ministry and other stakeholders before being submitted to the government for further action.
“To protect the interests of local padi farmers, we have identified the modules used in other countries (on importing the staple), among them Indonesia, which has been successful in its approach in opening up the monopoly on rice,” Salahuddin was quoted as saying.
Tax holiday
In light of the GST being zero-rated, RGM has adjusted its second quarter retail growth rate from 3.7% to 6.3%.
“This new estimate took into consideration the tax holiday during the last month of the second quarter as well as the Hari Raya celebrations in the middle of June.
“Many retailers, large and small throughout the country, have taken this once-in-alifetime opportunity to offer great discounts to attract shoppers. Higher expenditure from tourists, including Singaporeans, is also expected during this period,” says RGM.
The association says the retail sales growth rate for the third quarter has been revised from 5.2% to 6.8%.
“This revision took into consideration the remaining two months of tax break before the SST is to be re-introduced from September.”
For the last quarter of this year, RGM revised downwards its growth projection from 5% to 3.5%.
“This lower adjustment is needed to reflect higher consumers’ spending during the three-month period with zero-rated GST. Major purchases are expected to have been made from June to August of this year.”
On its projections for the current (second) quarter, RGM says its members are hopeful that their businesses will recover during the period.
“They projected an average growth rate of 6%.
“The department store cum supermarket operators are expecting a better performance with a growth of 4.6% for the second quarter of this year. The department store operators are expecting to sustain their businesses with a growth rate of 4.7% for the second three-month period of this year.
“On the other hand, supermarket and hypermarket operators will not see improvements in their business (during the period). They expect to remain in the red zone with 4.4% negative growth rate for the second quarter of 2018.”
Stable segment
According to the Valuation and Property Services Department’s Property Market Report 2017, the retail sub-segment’s performance was stable at 81.3% in 2017 compared with 81.4% in 2016, recording an annual take-up of more than 6.78 million sq ft.
Kuala Lumpur, Selangor, Johor and Penang saw a significant take-up rate as their newly completed shopping complexes secured commendable occupancy.
Johor was leading with nearly 2.82 million sq ft followed by Selangor (1.17 million sq ft), Kuala Lumpur (1.01 million sq ft) and Penang (778,833 sq ft).
In November last year, the government banned the construction of offices, shopping malls and high-rise luxury residential projects with units costing above RM1mil.
The move comes following Bank Negara’s recent study on the mismatch of housing demand and supply. However, all projects that had already been approved and ongoing projects would not be affected by the decision.
Chan says the retail property market “wasn’t as bad” as some people made it out to be.
“Paradigm Mall JB was launched last year with over 90% occupancy,” he says, adding that Southkey Megamall, slated to open by year-end in Johor also, has already achieved an occupancy rate of 70%.
“There are pockets of malls doing badly. But they need to ask themselves why they’re performing poorly. They need to go back to the basics.”
Chan says these under-performing malls usually offer lower rents, adding however that no tenant would want to rent at a place where business prospects are bad.
He says that at the end of the day, the success of a mall is dependant on whether the mall operator has “done its homework”.
“Mall managers and owners need to look at themselves and ask if they’re catering to the needs and wants of the market that they’re in. They must also consider whether they’re in the right location and if they’re delivering the right concept for customers.”