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New Straits Times
13 hours ago
- Business
- New Straits Times
Malaysia sees container spillover as shippers reroute from China
KUALA LUMPUR: Malaysian ports are expected to maintain high container volumes in the coming months, despite a 90-day 'grace period' granted by the United States to China for tariff renegotiations. Maritime scholar and commentator Nazery Khalid said Malaysia has experienced positive spillover effects from US tariffs on China, particularly at its ports. These ports have benefited from the rerouting of containers carrying finished and semi-finished goods originally destined for the US. He told Business Times that many American importers, especially small and medium-sized enterprises (SMEs), are cancelling orders or refusing shipments from China. Consequently, these containers are either unclaimed at US ports or sent back. Nazery explained that faced with higher costs, these SMEs prefer to abandon the cargo rather than absorb the tariffs or pass the added costs to customers, which could harm their businesses. Concurrently, containers turned back or those that never leave China for the US are redirected to other countries, including Malaysia, which also imports many finished and semi-finished goods from China. "This has resulted in several Malaysian container ports reporting an increase in throughput volumes in the months following the announcement of US tariffs on China. "A large share of these containers comes from intra-Asian trade, mainly from Chinese ports, which dominate the list of the world's top 20 busiest container ports by volume," he added. Nazery said while a rebound in US-bound containers from China is expected once the grace period ends, it is likely to occur towards the end of the third quarter of this year. This is because shippers and shipping companies sailing from China to the US are 'frontloading' their cargoes and services ahead of the 90-day 'breathing period' expiry. In the interim, he said Malaysian ports are likely to continue handling higher-than-usual container volumes over the next two to three months, until seaborne trade between the US and China stabilises following the disruption caused by the tariff standoff. He noted that the 90-day window granted by the US expires in mid-August, making it unlikely for normal trade flows between the two economic superpowers to resume before then. However, due to US President Donald Trump's unpredictability, it remains unclear what he will do after the 90-day trade embargo against China ends. "Should he stick to his 90-day timetable, container bookings, shipping services, and freight rates in the Trans-Pacific trade between China and the US can be expected to rebound from current lows. "Malaysian ports will likely cease to enjoy the purple patch of container spillover and return to handling normal container throughput volumes once order has been restored between the US and China," Nazery said. *Seizing opportunity amid uncertainty* Malaysia's maritime industry could face both challenges and opportunities if global supply chains shift due to US-led efforts to reduce reliance on China. Nazery said Trump's administration could push American firms to "re-shore" production closer to home in a bid to revive domestic manufacturing and reduce their reliance on China. He said that while such a change would take time, given the well-established global supply chain order that has taken decades to build, Malaysian exporters and logistics providers risk losing long-standing business with US companies seeking shorter, localised supply chains. "Our ports and logistics service providers could also find themselves handling fewer US-bound cargoes should the re-shoring shift of suppliers from Asia Pacific or Southeast Asia to the US or to neighbouring countries or regions materialise," he added. However, Nazery said the disruption could also drive Malaysian firms to innovate and climb the value chain. Rather than producing low-cost goods easily replaced elsewhere, he said local companies may focus on higher-value, specialised products. "The US-China tariff war could also motivate Malaysian ports, shipping companies, and logistics service providers to upgrade their infrastructure and strengthen their human capital. "This, in turn, would help them improve efficiency, productivity, service quality, and cost competitiveness, ensuring they remain relevant and are not bypassed, regardless of future developments," he added. Regionally, Nazery said Malaysia can use its Asean chairmanship to drive several key initiatives. These include boosting intra-Asian trade, deepening economic integration, and enhancing Asean's appeal as a destination for foreign direct investment. He added Malaysia can also work to strengthen governance, reduce trade barriers, harmonise trade rules, and promote good regulatory practices and transparency. "The decoupling of the US economy from China could become a powerful force that reshapes Asean," Nazery said. "It may allow the region to fully realise its potential, assert itself as a significant player on the global stage, and demonstrate its readiness and resilience in facing shocks such as the tariff war and its geopolitical impacts." *Strategies to boost maritime competitiveness* To remain competitive in today's increasingly borderless, hyperconnected, and digitalised global economy, Nazery said Malaysia must transform into a more value-adding, knowledge-based, and innovation-driven economy. He noted that despite Malaysia's strategic location and access to major shipping lanes, the country's economy remains heavily reliant on assembling low-value goods and exporting raw materials, missing out on downstream opportunities. He cited national initiatives like the National Smart Manufacturing Plan under the New Industrial Master Plan 2030 and the National Fourth Industrial Revolution Policy as positive steps to automate and modernise manufacturing and enhance industrial capabilities. However, he stressed that the critical success factors identified to attain the objectives of those plans must be executed steadfastly to ensure they are met. These include establishing a supportive ecosystem that offers incentives, improves infrastructure, develops human capital, and promotes the adoption of Industry 4.0 technologies and solutions. He added that policymakers, ports, shipping companies, logistics service providers, shipyards and other maritime industry players must work more closely together. Their collaboration is essential to keep Malaysian ports attractive to global shipping lines and to strengthen the country's integration into global supply chains. "In this way, we can shield ourselves better from the vagaries of the VUCA (vulnerabilities, uncertainties, complexities, and ambiguities) landscape and minimise the impact of game-changing global events like the tariff tiff, or even position ourselves to benefit from them. "All these must be done without compromising the need to safeguard the environment, practise good governance, and adhere to international standards and rules, as long as they do not conflict with our policies and our national and strategic interests," Nazery said.
New Straits Times
3 days ago
- Business
- New Straits Times
Revised SST could push property prices higher [BTTV]
KUALA LUMPUR: Malaysia's property prices, especially in the commercial and industrial segments, are likely to rise as the revised Sales and Service Tax (SST), effective July 1, 2025, is set to increase construction and development costs. The sector may see some developers delaying project launches to reassess pricing strategies, safeguard profit margins, and re-evaluate overall project viability amid the evolving cost landscape. Olive Tree Property Consultants CEO Samuel Tan said the non-residential segment will likely bear the brunt of the tax hike, though broader ripple effects across the entire property market cannot be ruled out. Developers facing rising input costs are expected to pass these on to buyers, especially in commercial sectors like retail, office buildings, and industrial facilities, he told Business Times. Although residential properties are exempt from SST, Tan noted that indirect effects, such as shared infrastructure costs and inflation across a developer's portfolio, could still impact pricing in the housing segment. Under the revised SST framework, selected non-essential goods will be taxed at 5 per cent to 10 per cent, while construction services related to infrastructure, commercial, and industrial buildings, where taxable value exceeds RM1.5 million annually, will face a 6 per cent service tax. Tan warned that the SST's potential retrospective application could disrupt ongoing contracts, project timelines, and budgets, raising financial uncertainties. Tan urged the government to reconsider applying SST to the construction sector, which already bears multiple layers of taxation on materials, labour, and equipment. He also argued that the current timeline gives insufficient lead time for stakeholders to adapt. Tan suggested lowering the SST rate for construction services from 6 per cent to 4 per cent and limiting the tax to only the service portion of a project, excluding hardware and building materials. He also questioned the appropriateness of applying SST to construction, arguing that sales tax is meant for tangible goods sold by manufacturers, not services. "The construction sector involves labour and materials. Therefore, to impose SST on the construction sector is wrong. Construction is not providing a sale or service," he said. Tan highlighted that many pre-construction activities, like site clearing, planning, and regulatory approvals, already incur service taxes. Adding another layer risks double taxation, increasing project costs and ultimately burdening end purchasers. Residential exemptions and policy clarifications Housing and Local Government Minister Nga Kor Ming clarified on Sunday that residential properties sold under the Housing Development Act (HDA), including serviced apartments on commercial land intended for residential use, will be exempt from the revised SST. The exemption follows discussions with Finance Minister II Datuk Seri Amir Hamzah Azizan, in response to concerns from property developers about potential cascading tax effects. To prevent double taxation, the government will implement business-to-business (B2B) exemptions, ensuring that the service tax is applied only once in the transaction chain, Nga said, according to Bernama. The Finance Ministry also clarified that basic construction materials such as cement, sand, and aggregates will remain zero-rated. Of the 400 tariff codes for building materials, only eight will see a tax increase, affecting items like laminated glass, netting, and vats, representing just two per cent of all codes. Contractors may also separate material and service components in billing, ensuring SST applies solely to the service portion of the work. Nga reaffirmed the government's commitment to balancing fiscal reforms with housing affordability. Despite reassurances, analysts warned that the residential sector could see knock-on effects from higher non-residential construction costs. "For current commercial and industrial projects, developers may be locked into pre-agreed pricing and unable to shift the additional tax burden to buyers. But in future developments, cost transfers will depend on market demand," one analyst said. "In a weaker market, developers may absorb the added costs, compressing margins and delaying launches. In a stronger market, prices will likely be adjusted upward." Analysts also flagged a lack of clarity over how the SST will apply to existing contracts, leaving developers and contractors exposed to unexpected tax liabilities and project risks. "Without clear transitional guidelines, managing costs and contracts will become increasingly complex," said one expert. "Even if residential units remain tax-exempt, rising overall development costs may still push prices upward, especially in integrated or mixed-use projects." Malaysia's residential property market has been gradually stabilising over the past three years following pandemic-related disruptions and inflationary pressures. The market began to recover in 2023 after a sluggish 2022, with the national average home price rising by 3.3 per cent year-on-year to RM467,000, an increase of about RM15,000. The House Price Index (HPI) also showed positive momentum, with nationwide house prices growing by 3.2 per cent. Certain states outperformed the national average, with Negeri Sembilan posting the highest price growth at 6.5 per cent, followed by Johor at 6.2 per cent, suggesting rising demand and development beyond the Klang Valley. This uptrend was supported by improving market confidence, ongoing economic recovery, and renewed activity in both the primary and secondary markets. In the first half of 2024, the HPI reached 218.7 points, with the average home price edging up to RM471,918, a 0.9 per cent year-on-year increase. However, by year-end, the market began to show signs of cooling. The HPI reached about 222 points in Q4, with annual growth slowing to 1.4 per cent in December from 4.3 per cent in September. The slowdown was most notable in the high-rise and high-end segments in urban areas, where supply outpaced demand. In contrast, landed and suburban properties remained resilient, supported by sustained demand from families and owner-occupiers. As of early 2025, Malaysia's average home price stood at RM486,070, up 3 per cent from the beginning of 2024, indicating continued, albeit moderate, market stability. REHDA warns new SST will push up home prices The Real Estate and Housing Developers' Association (REHDA) Malaysia has raised concerns that the 6 per cent SST on construction services will raise developers' costs and likely lead to higher home prices. While acknowledging the Ministry of Finance's intention to boost government revenue through the revised SST structure, REHDA cautioned that the added tax burden could slow down the property sector. REHDA president Datuk Ir Ho Hon Sang said the association is still assessing the full impact, but the new SST could prompt developers to delay or revise projects, ultimately dampening market momentum. He noted that the industry already absorbs indirect taxes on materials and labour and warned that retroactive application of the SST could result in significant cost overruns. Contracts signed before the effective date should not be subject to the new tax. Developers may be forced to absorb costs, which is unsustainable, he said in a statement. Although residential and public housing projects are exempt, REHDA remains concerned about developments built on commercial land, especially serviced apartments within mixed-use projects. "In city centres, where residential units are often part of mixed developments due to land scarcity, subjecting these units to SST will inevitably lead to increased housing prices, ultimately impacting homebuyers who will have to bear the brunt," Ho said. He added that affordable housing schemes like Rumah Madani, Rumah Selangorku, and Rumah Mesra Rakyat may also be affected if located on commercial land. Moreover, some local authorities require commercial elements, such as shop lots, in strata residential developments. These, along with internal infrastructure, would also fall under the SST, further inflating costs. REHDA is urging the government to postpone the implementation, currently set to take effect in two weeks, and to consider a grace period until 2026. Many SME developers have yet to register with the Inland Revenue Board. A delay would provide them adequate time to comply, Ho said. Analysts: SST a negative surprise for the sector Maybank Investment Bank (Maybank IB) said the implementation of a 6 per cent SST on construction services is expected to weigh on property developers, particularly those with ongoing commercial and industrial projects that offer limited room to pass on rising costs. It cautions that for projects already sold or under construction, developers may be forced to absorb the additional tax burden, especially in cases where contracts include regulatory change clauses. This could lead to margin compression across various segments of the property development value chain, the bank said in a note. Maybank IB views the tax measure as a negative surprise for the sector and notes that it introduces further uncertainty at a time when the property market is already navigating soft demand and elevated costs. It highlighted that developers involved in data centre construction, such as Eco World Development Group Bhd (Eco World Malaysia) and Sime Darby Property Bhd (SD Property), could see project cost escalations that may erode internal rate of return (IRR). With data centres forming a strategic growth area for several developers, the added SST could reduce long-term profitability, the firm said. Moreover, Maybank IB said that developers with a significant exposure to investment properties such as malls could face dual pressure. It said that while the 8 per cent SST on rental income is typically borne by tenants, the ability to negotiate higher rents may be constrained in a subdued economic environment. Maybank IB also pointed out the lack of clarity around how the tax will be applied to ongoing contracts signed before 1 July 2025 but billed after that date. This ambiguity could further complicate financial planning and contract negotiations over the coming months. Developers may attempt to pass on the added costs in future or unsold projects. However, pricing power is likely to be limited by slower economic growth and cautious buyer sentiment, the bank said. In this context, it estimates a reduction of about 4 sen in the revised net asset value (RNAV) of Eco World Malaysia and SD Property due to increased construction costs associated with data centre projects. Despite the near-term headwinds, Maybank IB maintains a neutral stance on the overall property sector, pending further policy clarity. RHB Investment Bank Bhd believes the revised SST will have a limited overall impact on the property sector, thanks to sustained demand for industrial properties. In a research note, the bank said the ongoing US-China trade tensions and shifting global tariff policies are prompting more companies to relocate to Southeast Asia, benefiting industrial hubs like Iskandar Malaysia. "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. RHB noted that the SST's inclusion of construction contracts and leasing income could slightly dent developers' profit margins. It said that developers with greater exposure to industrial and commercial segments are expected to bear higher costs, as contractors are likely to factor in the 6 per cent SST in future project bids. Projects already under construction will also face cost increases for remaining works. "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." MBAM: SST could strain construction sector The Master Builders Association Malaysia (MBAM) has urged the government to review the upcoming 6 per cent SST on construction services, warning that the move could severely strain cash flows and disrupt ongoing developments. The association said that the construction industry is already grappling with numerous financial burdens, including taxes on materials, labour, and equipment. With most contracts being fixed-price and time-bound, the imposition of SST, particularly if applied retrospectively, could lead to breaches of existing agreements, project delays, and escalating costs. The industry operates on tight margins and already bears statutory costs such as EPF contributions for foreign workers, CIDB levies, stamp duties, and HRD Corp contributions. Adding a new layer of tax at this stage could compromise project viability, MBAM said. To minimise disruption and ensure fair implementation, MBAM proposed several key measures. It urges the government to postpone SST application to new contracts signed after Jan 1, 2026, instead of July 1, 2025. The association also proposed reducing the tax rate from 6 per cent to 4 per cent and excluding the tax on ongoing projects to prevent unforeseen cost burdens on contractors bound by pre-agreed budgets. MBAM is also seeking that the government extend the exemption period for non-reviewable contracts from 12 to 24 months and expand the scope to include all contracts. Additionally, it is hoped that the government would limit SST to service elements only, excluding building materials and hardware, and align tax payments with certified progress claims rather than invoice dates, to better reflect actual work and ease liquidity issues. MBAM cautioned that most contractors are not financially equipped to shoulder these tax costs upfront, and doing so could derail projects or lead to insolvency. MBAM is also seeking that the government extend the exemption period for non-reviewable contracts from 12 to 24 months and expand the scope to include all contracts. Additionally, it is hoped that the government would limit SST to service elements only, excluding building materials and hardware, and align tax payments with certified progress claims rather than invoice dates, to better reflect actual work and ease liquidity issues. MBAM cautioned that most contractors are not financially equipped to shoulder these tax costs upfront, and doing so could derail projects or lead to insolvency.
Singapore Law Watch
3 days ago
- Business
- Singapore Law Watch
Goh Jin Hian judgment clarifies scope of directors' duties, notes observers as ruling says directors should be a ‘sentinel', not a ‘sleuth'
Goh Jin Hian judgment clarifies scope of directors' duties, notes observers as ruling says directors should be a 'sentinel', not a 'sleuth' Source: Business Times Article Date: 17 Jun 2025 Author: Ranamita Chakraborty Observers say judgment offers practical guidance by narrowing the scope of when a director should be held liable for inaction. Former Inter-Pacific Petroleum (IPP) non-executive director Goh Jin Hian's recent win in his appeal in the Appellate Division of the High Court has given 'welcome relief' to other company directors with its clarification of the scope of directors' duties. The Appellate Division in a judgment on Jun 5 overturned a previous ruling requiring Goh to pay damages of US$156 million to the insolvent marine fuel supplier after IPP's liquidators had accused him of 'sleepwalking through his time as a director'. 'Welcome relief' Adrian Chan, first vice-chair at the Singapore Institute of Directors (SID) and head of corporate at Lee & Lee, said the successful appeal was a 'welcome relief' as it clarifies the boundaries of a director's responsibilities and what qualifies as actionable 'red flags'. The judgment, he added, offers practical guidance by narrowing the scope of when a director should be held liable for inaction. Had the lower court's judgment stood, Chan believes directors could face liability even when unaware of fraud committed by peers or when financial reports show no warning signs. Kelvin Law, associate professor of accounting at Nanyang Technological University's Nanyang Business School, said that the case demonstrated that correlation does not equal causation – a mere link is insufficient. He said: 'This case is a powerful reminder that a link isn't enough as a plaintiff must prove that the director's specific failure was the direct cause of the financial loss. To obtain damages, (the) plaintiff has to show that there's a causal relationship between negligence and damage.' Boey Swee Siang, partner at law firm RPC, pointed out that while Goh's failure to be aware of the cargo trading business constituted a breach of his duty of care, the court clarified that the 'red flags' identified by the company's liquidators were insufficient to trigger an inquiry into its financials. In Goh's case, he was only required to satisfy himself within reasonable limits regarding the company's financial position. 'The non-executive director is not required to make exhaustive inquiries into individual transactions or events, so long as these transactions or events were not, on their face, of such a nature as would raise immediate concerns,' added Boey. Yee Chia Hsing, an independent director at several Singapore Exchange-listed companies, agreed with the judgment, saying directors cannot be expected to be better than auditors and there is a right to presume no fraud unless clear warning signs exist. 'If (there is a) need to presume fraud, a lot of resources and effort would be wasted across the entire system as directors would need to be commissioning forensic investigations from auditors on a regular basis specifically to detect fraud,' he told BT. The court ruled that although Goh breached his duty of care by failing to stay informed about IPP's cargo trading operations, this breach was not due to ignoring red flags within the company. 'Get their hands dirty' Still, SID's Chan emphasised that directors, including non-executive ones, have a duty to guide and monitor management, going beyond mere compliance. He said: 'They have to ask tough questions, roll up their sleeves and get their hands dirty. Rather than playing the role of a mere sentinel, sleuth, investigator or watchdog... a director should more appropriately look upon himself or herself as an active steward – sometimes being called upon to play all these roles and more, as the circumstances and director duties demand it.' The judgment's reference to '(a) director may be a sentinel, but he is not a forensics investigator or a sleuth' resonated with Chan, who stressed that directors cannot simply stand watch passively. 'There really is no such thing as a 'sleeping director' as a director's duty to act in the best interest of the company is an active one that doesn't ever go to sleep,' he added. RPC's Boey believes this decision serves as a reminder to independent directors of listed companies that 'they do owe a duty of care to their companies, but also sets the standard of care to a reasonable one'. Directors and officers liability insurance Beyond training, Nanyang Business School's Prof Law highlighted the importance of having directors and officers liability insurance. 'It provides the financial resources to defend themselves – which, as this case shows, can be a long and expensive process even if they are ultimately successful,' he added. Chan also advised directors to read 'the fine print, exclusions, coverage, territory, and ensure that the scope and size of the sum assured is appropriate for the size of the business'. He pointed to several high-profile cases involving non-executive directors under investigation or charged for failing to disclose material, price-sensitive information – including Hyflux, Eagle Hospitality Trust, Raffles Education and Cordlife. 'The outcomes of these cases will bring further clarity to the role of directors on listed boards, and will help shape corporate governance in Singapore,' he added. Source: The Business Times © SPH Media Limited. Permission required for reproduction. Print
New Straits Times
3 days ago
- Business
- New Straits Times
AirAsia to announce Airbus A220 order at Paris Air Show?
KUALA LUMPUR: AirAsia will most likely make a major fleet announcement at the Paris Air Show as early as tomorrow (Wednesday) with industry sources indicating the low-cost carrier is likely to place an order for at least 100 Airbus A220 aircraft. If finalised, the deal would make AirAsia the first low-cost carrier in Southeast Asia to operate the cutting-edge A220 and marks the airline's bold step towards its post-pandemic growth strategy. The A220, a smaller narrow-body aircraft designed for shorter to medium-haul routes, is believed to be able to play a crucial role in expanding AirAsia's regional network, particularly to underserved and secondary cities across Southeast Asia. Both AirAsia's co-founders, Tan Sri Tony Fernandes and Datuk Kamaruddin Meranun, are believed to be in Paris at the time of writing, fuelling speculation that the deal could be unveiled during the international aerospace event. The Paris Air Show, held at Le Bourget, is the world's oldest and largest air show and frequently serves as the platform for major aircraft purchase announcements. Business Times has reached out to AirAsia's parent Capital A Bhd for comment. Meanwhile, an Airbus spokesperson had on June 9 commented to Business Times that the European aircraft manufacturer does not comment on discussions they may or may not have with customers. The aircraft is highly regarded for its fuel efficiency, cabin comfort and suitability for thinner routes. The A220 seats between 100 to 150 passengers and is capable of flying up to 6700km. Analysts said the aircraft is ideal for high-frequency regional routes and point-to-point domestic operations in key markets such as Malaysia, Indonesia, the Philippines and Thailand. AirAsia has long been a key Airbus customer, operating one of the largest all-Airbus A320 Family fleets in the world. Airbus is also eyeing Malaysia as a strategic market for the A220, given the country's growing aviation footprint. Airbus Asia Pacific president Anand Stanley said in a media event in Kuala Lumpur last month that the aircraft fits well with Malaysia's evolving role as a regional hub. "Malaysia is already a great connector between China and India and Asean, and the A220 can cover this region perfectly for long, thin routes, but it can also cover the regional routes perfectly within Malaysia to create that feeder network," he said during a media briefing at Airbus' new office in Putrajaya. While he confirmed that discussions are ongoing with Malaysian carriers, Stanley clarified at that time that no agreements have been finalised. "We are still only in conversations, but we do hope that, even though I cannot comment on timing, that because of the inherent demand, and the nature of Malaysia as a strong hub, that we can see the A220 in Malaysia," he added. Stanley described the A220 as a clean-sheet design aircraft that is unique in its category highlighting its exceptional fuel efficiency, lower carbon emissions, and enhanced passenger comfort. In Asia Pacific, existing A220 operators include Korean Air and Qantas, while Air Niugini, the national airline of Papua New Guinea is set to join the list of operators soon.
New Straits Times
5 days ago
- Business
- New Straits Times
Revised SST could push property prices higher
KUALA LUMPUR: Malaysia's property prices, especially in the commercial and industrial segments, are likely to rise as the revised Sales and Service Tax (SST), effective July 1, 2025, is set to increase construction and development costs. The sector may see some developers delaying project launches to reassess pricing strategies, safeguard profit margins, and re-evaluate overall project viability amid the evolving cost landscape. Olive Tree Property Consultants CEO Samuel Tan said the non-residential segment will likely bear the brunt of the tax hike, though broader ripple effects across the entire property market cannot be ruled out. Developers facing rising input costs are expected to pass these on to buyers, especially in commercial sectors like retail, office buildings, and industrial facilities, he told Business Times. Although residential properties are exempt from SST, Tan noted that indirect effects, such as shared infrastructure costs and inflation across a developer's portfolio, could still impact pricing in the housing segment. Under the revised SST framework, selected non-essential goods will be taxed at 5 per cent to 10 per cent, while construction services related to infrastructure, commercial, and industrial buildings, where taxable value exceeds RM1.5 million annually, will face a 6 per cent service tax. Tan warned that the SST's potential retrospective application could disrupt ongoing contracts, project timelines, and budgets, raising financial uncertainties. Tan urged the government to reconsider applying SST to the construction sector, which already bears multiple layers of taxation on materials, labour, and equipment. He also argued that the current timeline gives insufficient lead time for stakeholders to adapt. Tan suggested lowering the SST rate for construction services from 6 per cent to 4 per cent and limiting the tax to only the service portion of a project, excluding hardware and building materials. He also questioned the appropriateness of applying SST to construction, arguing that sales tax is meant for tangible goods sold by manufacturers, not services. "The construction sector involves labour and materials. Therefore, to impose SST on the construction sector is wrong. Construction is not providing a sale or service," he said. Tan highlighted that many pre-construction activities, like site clearing, planning, and regulatory approvals, already incur service taxes. Adding another layer risks double taxation, increasing project costs and ultimately burdening end purchasers. Residential exemptions and policy clarifications Housing and Local Government Minister Nga Kor Ming clarified on Sunday that residential properties sold under the Housing Development Act (HDA), including serviced apartments on commercial land intended for residential use, will be exempt from the revised SST. The exemption follows discussions with Finance Minister II Datuk Seri Amir Hamzah Azizan, in response to concerns from property developers about potential cascading tax effects. To prevent double taxation, the government will implement business-to-business (B2B) exemptions, ensuring that the service tax is applied only once in the transaction chain, Nga said, according to Bernama. The Finance Ministry also clarified that basic construction materials such as cement, sand, and aggregates will remain zero-rated. Of the 400 tariff codes for building materials, only eight will see a tax increase, affecting items like laminated glass, netting, and vats, representing just two per cent of all codes. Contractors may also separate material and service components in billing, ensuring SST applies solely to the service portion of the work. Nga reaffirmed the government's commitment to balancing fiscal reforms with housing affordability. Despite reassurances, analysts warned that the residential sector could see knock-on effects from higher non-residential construction costs. "For current commercial and industrial projects, developers may be locked into pre-agreed pricing and unable to shift the additional tax burden to buyers. But in future developments, cost transfers will depend on market demand," one analyst said. "In a weaker market, developers may absorb the added costs, compressing margins and delaying launches. In a stronger market, prices will likely be adjusted upward." Analysts also flagged a lack of clarity over how the SST will apply to existing contracts, leaving developers and contractors exposed to unexpected tax liabilities and project risks. "Without clear transitional guidelines, managing costs and contracts will become increasingly complex," said one expert. "Even if residential units remain tax-exempt, rising overall development costs may still push prices upward, especially in integrated or mixed-use projects." Malaysia's residential property market has been gradually stabilising over the past three years following pandemic-related disruptions and inflationary pressures. The market began to recover in 2023 after a sluggish 2022, with the national average home price rising by 3.3 per cent year-on-year to RM467,000, an increase of about RM15,000. The House Price Index (HPI) also showed positive momentum, with nationwide house prices growing by 3.2 per cent. Certain states outperformed the national average, with Negeri Sembilan posting the highest price growth at 6.5 per cent, followed by Johor at 6.2 per cent, suggesting rising demand and development beyond the Klang Valley. This uptrend was supported by improving market confidence, ongoing economic recovery, and renewed activity in both the primary and secondary markets. In the first half of 2024, the HPI reached 218.7 points, with the average home price edging up to RM471,918, a 0.9 per cent year-on-year increase. However, by year-end, the market began to show signs of cooling. The HPI reached about 222 points in Q4, with annual growth slowing to 1.4 per cent in December from 4.3 per cent in September. The slowdown was most notable in the high-rise and high-end segments in urban areas, where supply outpaced demand. In contrast, landed and suburban properties remained resilient, supported by sustained demand from families and owner-occupiers. As of early 2025, Malaysia's average home price stood at RM486,070, up 3 per cent from the beginning of 2024, indicating continued, albeit moderate, market stability. REHDA warns new SST will push up home prices The Real Estate and Housing Developers' Association (REHDA) Malaysia has raised concerns that the 6 per cent SST on construction services will raise developers' costs and likely lead to higher home prices. While acknowledging the Ministry of Finance's intention to boost government revenue through the revised SST structure, REHDA cautioned that the added tax burden could slow down the property sector. REHDA president Datuk Ir Ho Hon Sang said the association is still assessing the full impact, but the new SST could prompt developers to delay or revise projects, ultimately dampening market momentum. He noted that the industry already absorbs indirect taxes on materials and labour and warned that retroactive application of the SST could result in significant cost overruns. Contracts signed before the effective date should not be subject to the new tax. Developers may be forced to absorb costs, which is unsustainable, he said in a statement. Although residential and public housing projects are exempt, REHDA remains concerned about developments built on commercial land, especially serviced apartments within mixed-use projects. "In city centres, where residential units are often part of mixed developments due to land scarcity, subjecting these units to SST will inevitably lead to increased housing prices, ultimately impacting homebuyers who will have to bear the brunt," Ho said. He added that affordable housing schemes like Rumah Madani, Rumah Selangorku, and Rumah Mesra Rakyat may also be affected if located on commercial land. Moreover, some local authorities require commercial elements, such as shop lots, in strata residential developments. These, along with internal infrastructure, would also fall under the SST, further inflating costs. REHDA is urging the government to postpone the implementation, currently set to take effect in two weeks, and to consider a grace period until 2026. Many SME developers have yet to register with the Inland Revenue Board. A delay would provide them adequate time to comply, Ho said. Analysts: SST a negative surprise for the sector Maybank Investment Bank (Maybank IB) said the implementation of a 6 per cent SST on construction services is expected to weigh on property developers, particularly those with ongoing commercial and industrial projects that offer limited room to pass on rising costs. It cautions that for projects already sold or under construction, developers may be forced to absorb the additional tax burden, especially in cases where contracts include regulatory change clauses. This could lead to margin compression across various segments of the property development value chain, the bank said in a note. Maybank IB views the tax measure as a negative surprise for the sector and notes that it introduces further uncertainty at a time when the property market is already navigating soft demand and elevated costs. It highlighted that developers involved in data centre construction, such as Eco World Development Group Bhd (Eco World Malaysia) and Sime Darby Property Bhd (SD Property), could see project cost escalations that may erode internal rate of return (IRR). With data centres forming a strategic growth area for several developers, the added SST could reduce long-term profitability, the firm said. Moreover, Maybank IB said that developers with a significant exposure to investment properties such as malls could face dual pressure. It said that while the 8 per cent SST on rental income is typically borne by tenants, the ability to negotiate higher rents may be constrained in a subdued economic environment. Maybank IB also pointed out the lack of clarity around how the tax will be applied to ongoing contracts signed before 1 July 2025 but billed after that date. This ambiguity could further complicate financial planning and contract negotiations over the coming months. Developers may attempt to pass on the added costs in future or unsold projects. However, pricing power is likely to be limited by slower economic growth and cautious buyer sentiment, the bank said. In this context, it estimates a reduction of about 4 sen in the revised net asset value (RNAV) of Eco World Malaysia and SD Property due to increased construction costs associated with data centre projects. Despite the near-term headwinds, Maybank IB maintains a neutral stance on the overall property sector, pending further policy clarity. RHB Investment Bank Bhd believes the revised SST will have a limited overall impact on the property sector, thanks to sustained demand for industrial properties. In a research note, the bank said the ongoing US-China trade tensions and shifting global tariff policies are prompting more companies to relocate to Southeast Asia, benefiting industrial hubs like Iskandar Malaysia. "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. RHB noted that the SST's inclusion of construction contracts and leasing income could slightly dent developers' profit margins. It said that developers with greater exposure to industrial and commercial segments are expected to bear higher costs, as contractors are likely to factor in the 6 per cent SST in future project bids. Projects already under construction will also face cost increases for remaining works. "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." MBAM: SST could strain construction sector The Master Builders Association Malaysia (MBAM) has urged the government to review the upcoming 6 per cent SST on construction services, warning that the move could severely strain cash flows and disrupt ongoing developments. The association said that the construction industry is already grappling with numerous financial burdens, including taxes on materials, labour, and equipment. With most contracts being fixed-price and time-bound, the imposition of SST, particularly if applied retrospectively, could lead to breaches of existing agreements, project delays, and escalating costs. The industry operates on tight margins and already bears statutory costs such as EPF contributions for foreign workers, CIDB levies, stamp duties, and HRD Corp contributions. Adding a new layer of tax at this stage could compromise project viability, MBAM said. To minimise disruption and ensure fair implementation, MBAM proposed several key measures. It urges the government to postpone SST application to new contracts signed after Jan 1, 2026, instead of July 1, 2025. The association also proposed reducing the tax rate from 6 per cent to 4 per cent and excluding the tax on ongoing projects to prevent unforeseen cost burdens on contractors bound by pre-agreed budgets. MBAM is also seeking that the government extend the exemption period for non-reviewable contracts from 12 to 24 months and expand the scope to include all contracts. Additionally, it is hoped that the government would limit SST to service elements only, excluding building materials and hardware, and align tax payments with certified progress claims rather than invoice dates, to better reflect actual work and ease liquidity issues. MBAM cautioned that most contractors are not financially equipped to shoulder these tax costs upfront, and doing so could derail projects or lead to insolvency. MBAM is also seeking that the government extend the exemption period for non-reviewable contracts from 12 to 24 months and expand the scope to include all contracts. Additionally, it is hoped that the government would limit SST to service elements only, excluding building materials and hardware, and align tax payments with certified progress claims rather than invoice dates, to better reflect actual work and ease liquidity issues. MBAM cautioned that most contractors are not financially equipped to shoulder these tax costs upfront, and doing so could derail projects or lead to insolvency.
