While many may expect property prices to drop following the exemption of basic construction materials from the Sales and Service Tax (SST), industry players only expect a slight change in prices, reported The Star.
This comes as construction materials account for just a small portion of a house price.
According to John Chong, Executive Director of Total Investment Sdn Bhd, construction materials account for about 20 percent to 30 percent of the total cost in building a house.
“And this is the full spectrum of materials, including basic materials and other items such as doors and windows, glass, wall and floor tiles, roof trusses and roof tiles, taps and sanitary fittings,” he said. “So a 10 percent movement in tax translates to only about a two percent change in the price of a house.”
He noted that there are other costs, such as labour, land, compliance authority fee, other materials, loans and finance costs, marketing and management costs, as well as working capital that need to be taken into consideration.
Chong explained that the percentage of 20 to 30 percent he was citing was based on home prices in Ipoh.
“In places such as Kuala Lumpur, where the house prices are much higher, the percentage will be lower… For example, at 20 percent, the full spectrum of construction materials for a house is RM60,000 for a RM300,000 house in Ipoh,” he said.
“That same house might be priced at RM800,000 in Kuala Lumpur, which means the construction materials would only represent 7.5 percent of the house price.”
In fact, if the exemption on the four basic materials – bricks, sand, cement and iron – would be computed, their percentage of the total price in building the home would be much lower than 20 to 30 percent.
“It will only account for a very small percentage of the house price…So the tax movement is not likely to result in a major price change.”
Ng Fui Kong, Managing Director at Para Development, also had reservations on a significant drop in property prices – which he said is the outcome of two major factors – market forces and costs.
“Considering the cost savings from the SST and its representation in the total cost to build a house, the overall savings could just be around one percent, which is quite small,” he said.
This article was edited by the editorial team of PropertyGuru. To contact them about this or other stories email editorialteam@propertyguru.com.my
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