Industrial demand to ease SST impact on property sector: RHB
KUALA LUMPUR: The overall impact of the revised sales and service tax (SST) on the property sector can be cushioned by the "healthy" demand for industrial properties, said RHB Investment Bank Bhd.
In a research note, the investment bank said that the protracted United States (US)-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 as well as projects in Iskandar Malaysia remain strong year-to-date.
"Hence, although property companies will likely record a slight margin compression, the demand for industrial and commercial properties should stay healthy over the medium term," it said.
The Finance Ministry recently announced that the revised and expanded SST outlined in Budget 2025 will take effect on July 1, 2025.
A sales tax rate of five to 10 per cent will be imposed on selected non-essential goods, while the service tax will be broadened to include sectors such as construction services, with a 6.0 per cent tax applicable to providers earning over RM1.5 million annually.
Meanwhile, the bank said 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, it said the industrial and commercial property prices may also be priced higher – the magnitude will depend on whether developers can fully pass on the cost increases.
"In our view, demand for industrial properties should stay healthy, given the prolonged US-China trade tensions – especially with infrastructure catalysts and incentives in Iskandar Malaysia," it said.
RHB Investment Bank said developers with more exposure to industrial and commercial segments will likely book higher construction costs, as contractors are expected to bake in the six per cent SST when bidding for new projects.
It said industrial and commercial properties currently under construction will also see higher costs for the remaining billings for costs to be incurred.
"Eventually, we expect developers to pass on the incremental costs to buyers, so new industrial and commercial property prices will likely be more expensive and market forces (demand and supply) will continue to play their role," it said.
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