Developers urged to reduce house prices
Reduce prices or SST will be reimposed, says Guan Eng
KUALA LUMPUR: Finance Minister Lim Guan Eng has asked developers to reduce house prices on a national level, failing which the sales and service tax (SST) on construction services will be reimposed if developers do not pass the savings to buyers.
The grim warning came after Penang developers agreed to reduce prices by between 6% and 10% about 10 days ago.
“If this does not happen, then the government may have to rethink the exemption given and find new ways to make houses affordable, especially to first-time buyers,” he said in his keynote address at the Annual Property Developers Conference Rehda Institute CEO Series 2018.
“We may have to reimplement the SST for developers,” he said, adding that he would like to see some positive outcome of the exemption before Budget 2019 on Nov 2.
Rehda Malaysia president Datuk Soam Heng Choon said at a press conference that Rehda was studying the amount of savings to be made from the exemption and would revert before Budget Day on Nov 2. Soam is also IJM Corp Bhd group managing director.
The SST exemption was aimed at reducing cost for developers in the hope that those savings would be passed on to buyers because salaries are not rising fast enough. An increase in income has to be accompanied by productivity growth.
There are also other factors like bargaining power between employees and employers, and because this takes times, the government took this step to exempt construction cost from the SST, said Lim.
Lim’s call for a reduction in house prices on a national level was a follow-up from Rehda Penang, which urged developers about 10 days ago to reduce prices as a result of the SST exemption.
Rehda Penang chairman Datuk Toh Chin Leong said the association would talk to members about reducing prices for all new developments, if not immediately.
A Penang property consultant said Rehda Malaysia had anticipated the call after Lim’s Penang move.
“It (Rehda) saw it coming, which is why even before he gave his keynote address, Rehda Institute chairman Datuk Jeffrey Ng asked the government to do away with the various cooling measures. Now, Lim is asking developers to lower prices further.”
He said it would be interesting to see how developers react to this, bearing in mind that some buyers have already got wind of possible measures to be announced by Bank Negara and are already holding back on house purchases.
“While the Malaysian median income did grow faster, at 8.0% year-on-year, than house prices in 2017, it is not fast enough. Prices of residential properties are already out of reach for many Malaysians, especially those in the low-income group,” he said.
Statistics Department data showed that Malaysian workers on average received a salary of only 35% of gross domestic product in 2016. This includes wages, bonuses and other income. Workers in China, Singapore and the United States enjoyed a higher share of 57%, 42% and 43%, respectively. These are benchmarks the new government is targeting, but it will take time.
Lim said the government is also working with Bank Negara to reassess its lending guidelines, while at the same time remaining sensitive to concerns over rising household debt.
“Debts backed by a decent house priced right should make home-related debt sustainable,” he said.
Lim said the government has also taken note of complaints about the difficulties in getting skilled foreign workers.
“So, we are allowing experienced foreign workers who have been working in Malaysia for 10 years to extend their stay by up to a maximum of three years, with an annual levy of RM10,000 to be paid each year,” he said.
This levy would be split 20:80 between the employer and the foreign worker, respectively, reducing the need to recruit inexperienced workers, although the government hopes to reduce the reliance on foreign workers over the long term.
In view of these various initiatives, “let us meet half way”, Lim said.
Master Builders Association Malaysia president Foo Chek Lee said the government’s plan on the levy split sounded good on paper, but skilled foreign workers, after 10 years on the job here, would rather leave Malaysia, go home or to another country to seek employment rather than pay 80% of the RM10,000 levy.
“This (80% of the RM10,000) would not be considered as a business-friendly move,” Foo said.