Lower house prices with SST, say analysts

KUALA LUMPUR: House prices are expected to fall following the Sales and Services Tax (SST) exemption on certain building materials, said analysts.

Nomura Malaysia head of equity research Tushar Mohata said he believed that with the reintroduction of SST, residential property prices would be lower than those seen during the Goods and Services Tax (GST) implementation.

He expected a three per cent drop in property prices, taking into account certain building materials that would be exempted from SST effective Sept 1.

“The reduction in average cost will make properties more affordable compared with the GST era,” he said yesterday.

Tushar was commenting on the impact of SST exemption for certain building materials on house prices.

Master Builders Association Malaysia expected the exemption to reduce overall project cost by between two and 2.5 per cent.

Its president, Foo Chek Lee, said the exemption on major raw materials, such as cement, sand and steel, would reduce the tax burden and construction costs on industry players.

Under GST, construction companies had to pay tax on all materials, he said. Hence, he added, the exemption was good news for the industry.

Foo said generally, the material for reinforced concrete structure accounted for about 30 per cent of the total project cost.

National House Buyers Association secretary-general Datuk Chang Kim Loong agreed that the exemption should lead to a marginal reduction in the cost of construction for future developments.

Nevertheless, Chang said, it remained to be seen whether property developers would pass on cost savings to consumers by lowering the prices of properties.

“We urge developers not to increase their profit margin to take advantage of the reduction,” he said.

“However, there are other costs involved in building properties, such as the land, labour and compliance costs, which may offset any saving from the removal of SST from building materials.

“Still, HBA hopes that developers will transfer any cost savings in the form of lower property prices to their customers.”

On Sunday, Deputy Housing and Local Government Minister Senator Datuk Raja Kamarul Bahrin Shah Raja Ahmad had said since basic building materials, such as bricks, cement and sand, would not be charged under SST, Malaysians could expect house prices to be slightly lower.

He had said house prices were expected to be between five and 10 per cent lower as the materials were previously subjected to a six per cent tax under GST.

“Therefore, as the materials will be exempted under SST, house prices may drop roughly between five and 10 per cent, as there are many categories of houses,” he said after opening the Wan Kien Complex here.

Raja Kamarul, however, said one of other factors that controlled house prices was the price of land.

“As land falls under state governments, we cannot make a decision on that.

“Therefore, we are hoping that state governments will give their cooperation to lower house prices by lowering land premium charges.”

He said development charges imposed by local councils also must be reviewed.