By P PREM KUMAR & ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL

Prices of new residential properties are expected to go down by 10% after the government agreed to exempt basic construction materials and construction services from the Sales and Services Tax (SST), said Finance Minister Lim Guan Eng.

The exemptions, which were not granted under the former Goods and Services Tax (GST) regime, are meant to stimulate the property market.

“Under GST, 6% was imposed on construction services. But under SST, we have decided not to impose the tax because we want to stimulate the property sector. We hope that it would lead to a decline in house prices,” he told a media conference in Parliament yesterday.

The Real Estate and Housing Developers’ Association Malaysia (Rehda) had previously announced that the tax waive would allow savings of between 2.5% and 5% for developers.

Rehda president Datuk Soam Heng Choon said in view of the soft market of new launches, developers are looking to lower prices by a minimum of 5% depending on the location and type of product.

In contrast, Lim said a reasonable reduction would be 10%, instead of 5%, as developers have benefitted from cross-subsidies that arise from the waiver.

He said the developers would be given time for the price reduction to take place.

“I would like to say 10%. They (Rehda) will be working towards it and I will give them some time — but for me, I would want to see a 10% reduction.

“Developers can benefit from cross-subsidies. They build both residential and commercial units. If commercial construction cost is also exempted, they should be able to get some cross-benefits which should be translated back to residential owners in the form of low prices.

“They said, ‘Why do you waive 6% and ask for 10%? You are asking too much.’ No, we are very reasonable.

“We are talking about a waiver on all construction services including industrial, real estate investment trust and commercial. The benefits there, please pass them on to residential owners,” Lim said.

Lim said the reduction in prices will only be applicable to houses that have not been constructed and not those in the affordable or mid-range segments.

The minister also said the government will announce similar plans for houses that are already on the market in the upcoming Budget 2019.

“I’m not interested in packages. I’m interested in house prices. If you want to talk about discounts, I can also talk about rebates or exemption of SST. I can also play the same game.

“What we want is when we waive, we expect to see a similar response in reduction of house prices,” he said.

Lim expects developers, especially Rehda members, to comply with the request. He said errant developers will be punished by the market.

“I’m sure Rehda members will comply, but it is always a question of market demand. When everyone decreases their prices and you don’t, how can you sell your house? They will be punished by the buyers. What we want to see now is this trend to cut down prices,” he said.