Kuala Lumpur: The overall impact of the revised sales and service tax (SST) on the property sector can be cushioned by the demand for industrial properties, said RHB Investment Bank Bhd.
According to BERNAMA News Agency, the protracted United States-China trade war and shifting tariff policies are expected to drive more companies in the region to relocate their operations to Southeast Asia.
Sales of industrial properties, along with projects in Iskandar Malaysia, have remained strong year-to-date. The bank noted that although property companies may experience a slight margin compression, the demand for industrial and commercial properties should remain steady over the medium term.
The Finance Ministry recently announced that the revised SST outlined in Budget 2025 will take effect on July 1, 2025. A sales tax rate of five to 10 percent will be imposed on selected non-essential goods, while the service tax will be broadened to include sectors such as construction services, with a six percent tax applicable to providers earning over RM1.5 million annually. The bank mentioned that the imposition of SST on construction contracts and leasing income will likely have a slight impact on developers’ profit margins.
Given the higher construction costs, industrial and commercial property prices may be priced higher, with the magnitude depending on whether developers can fully pass on the cost increases. RHB Investment Bank suggested that demand for industrial properties should remain healthy, given the prolonged US-China trade tensions, especially with infrastructure catalysts and incentives in Iskandar Malaysia.
The bank further noted that developers with more exposure to industrial and commercial segments will likely incur higher construction costs, as contractors are expected to include the six percent SST when bidding for new projects. Properties currently under construction will also face higher costs for the remaining billings for costs to be incurred. Eventually, the bank expects developers to pass on the incremental costs to buyers, leading to higher prices for new industrial and commercial properties, with market forces continuing to play their role.