Malaysia’s New 6% SST on Construction: What It Means for the Property Market

What is the New 6% SST on Construction Services?

The Malaysian government declared that an SST of 6% will be imposed on all construction services above RM1.5 million with effect from July 2025. It shall cover:

• Construction and civil engineering works
• Development of infrastructure and utilities
• Sub-contracting services related to bigger developments.

The shift is a drastic one, given that construction services had earlier been made an exemption from SST under certain conditions.

Why the SST Was Introduced

The government has several reasons:

• The generation of revenue to assist in financing national infrastructure and other public services.
• Industrial tax parity.
• Formalisation of construction sub-sectors that used to exist without equal taxation.

How It Impacts the Property Development Sector

1. Increased Construction Costs

Whenever the project is large, the developers will tend to incur the increased initial costs. They will impact materials, labour, and subcontractor services and increase overall budgets. For Example, a residential development of RM50 million could now face an incremental cost of SST of RM3 million, which might tension the viability of the project.

2. Potential Price Hikes for Buyers

The industry associations, such as REHDA (Real Estate and Housing Developers Association), have cautioned that the added costs might be transferred to the consumers, increasing the selling price of the homes, especially the mid-range and luxury homes. This is more so urgent in markets such as Klang Valley, Johor, and Penang, where the level of development activities is great.

3. Delayed or Downsized Projects

The net effect of the new costs on smaller developers and contractors may be to cause delay or reduction in scale of planned developments, and this may involve:

• Delayed project startups
• Less building speculation
• Potential decrease in housing supply in 12-24 months

4. Pressure on Affordable Housing Targets

The tax would indirectly affect the segment, even though there is the possibility of some affordable housing projects being exempt or getting partial relief. The construction companies are likely to focus on the projects with high-profit margins at the expense of the government-associated housing projects, delaying the implementation of new affordable housing.

What Does This Mean for Property Buyers and Investors?

1. For Buyers: There may be changes in price in future launches. Consumers are advised to buy property before the third quarter of 2025 or secure pre-launch prices where available.
2. For Investors: In the short run, the SST threatens to compress supply, which is likely to aid capital gains in prime locations. Nevertheless, development costs may be expected to be higher as well, and stagnation of rental should be considered in ROI calculations.
3. For Contractors & SMEs: The new tax introduces an administrative burden and narrower margins- small players might have to change cash flow models and compliance systems.

Final Thoughts:

Although the intentions behind the 6% SST on construction services are to improve the fiscal policy, as well as regulation of the industry, the consequences of the decision regarding the real estate sector are high. Whether it is cost increases or the likelihood of slowed project delivery, each of the market participants, including developers, contractors, buyers, and investors, will have to adjust.

Regardless of whether you are intending to invest, develop, or purchase, being informed and planning your move strategically will be of great essence in manoeuvring this changing terrain.