KUALA LUMPUR: Property developers have until the end of this month to announce the discount that can be passed on to house buyers arising from the sales and services tax (SST) exemption on construction materials, but cutting prices may not be as easy as it is set out to be.

The Real Estate and Housing Developers’ Association has said that it is conducting a study on building costs under the SST regime, to determine the possible cuts that can be made to house prices.

While there are other major cost components that play a part in property prices — such as land and compliance costs — conventional wisdom dictates that lower input costs from the exemption of construction materials from SST should translate to lower house prices.

Finance Minister Lim Guan Eng has also said that the government could review the tax exemption if house prices do not come down.

However, this is easier said than done, as developers insist they do not directly benefit from the exemption of SST on basic construction materials such as bricks, cement, sand and iron.

They point out that the cost savings would have to go through the entire construction supply chain — from the factories to the contractors — before the developers can pass on the savings to the buyers.

While the government has been vocal on its demand for lower house prices, property developers have been relatively silent on the issue, probably to avoid pre-empting buyers on whether prices could go lower, which could lead consumers to hold off on their purchases.

One developer that has voiced out his concern is Country Heights Bhd, with its founder and chairman Tan Sri Lee Kim Yew suggesting that the different parties involved in property development — developers, construction companies and the government — cooperate to address the issue.

“The property developers would like to work with the government in bringing house prices down. We would like to bring prices down by 10% or even further, if it is possible, but there are certain issues that need to be discussed,” said Lee.

He explained that the developers do not build the houses or directly purchase the materials, as the developers would employ contractors, which, in turn, obtains the construction materials from the factories that manufacture the products.

Unless the contractors cooperate with the developers and the government in lowering costs, Lee said the developers would not be able to cut prices.

“If the construction operators do not want to cooperate, we won’t be able to bring down the price. We also have to listen to their side because maybe there are some challenges that they are facing in lowering costs,” Lee said.

Another top executive of a property development company, who requested anonymity, voiced similar concerns, noting that there is a misconception that developers would benefit directly from the exemption of tax on building materials.

“People misunderstand this issue, thinking that developers could benefit directly from the SST exemption. The contractors are the ones that are buying the materials and if they get them for cheaper, they should pass the savings to us.

“If they don’t pass the savings to us, then we cannot pass it on to the buyer,” he told The Edge Financial Daily.

Meanwhile, he points out that the contracts for projects that are currently under construction have already been awarded and locked in, so it would be a challenge for developers to renegotiate with the contractors to take into account the savings from the SST exemption.

If the construction works of a certain development are about 70% complete, for example, developers cannot just assume a lower price and expect to renegotiate with the contractors for a lower contract sum for the remainder 30% of works, he explained.

“After all, 70% of the works were done for a higher rate and the contractors have already bought their construction materials. If there are any savings, the contractors might also decide to keep them to themselves rather than pass the savings to the developers,” he said.

Another developer said property prices should not be suppressed, as properties — like bonds and stocks — are investment assets which should generate yield and appreciate in value.

He added that the government needs to be clear about what it intends to do, adding that lowering house prices through tax exemptions will not solve the affordable housing conundrum.

“Firstly, is the government talking about lowering prices of affordable homes or non-affordable homes? The government has to be very clear about what it is trying to do and I think the focus should be on providing supply of houses priced RM300,000 and below for people to buy or rent.

“The problem is that land prices and construction costs have gone up and the ringgit has depreciated. All these factors make it very difficult to create properties priced between RM200,000 and RM300,000, unless it’s a very simple, small unit,” he said, adding that the government should also look at tackling the other costs involved in property development.