Expect costlier homes, buyers told after foreign workers levy hike

Buyers can expect to pay higher prices for first property if the foreign workers levy is doubled.
Buyers can expect to pay higher prices for first property if the foreign workers levy is doubled.

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KUALA LUMPUR, Feb 3 — Aspiring house buyers can expect to pay more for their first property as developers will be forced to pass on additional costs incurred following Putrajaya’s move to double foreign workers levy, the Master Builders Association of Malaysia (MBAM) said today.

The group's deputy president Foo Chek Lee said house prices will be among the many effects arising from the new RM2,500 levy that took effect this month, claiming the hike would see labour cost go up 10 per cent while overall costs will spike by two per cent.

“Yes, we could definitely see increase in house prices," Foo told a media briefing at MBAM's office in Taman Desa here.

“If the labour cost is going to increase, it would definitely be passed on to the consumers,” he added.

Earlier this month, industry experts said property prices will likely experience a “moderate drop” this year as demand dwindles and auctions of foreclosed properties add to the existing oversupply.

MBAM said a two per cent increase in overall costs could cause some contractors to fold as the profit margin for small players in the industry are usually single digit.

“Two per cent is the bottom line for some of us. The profit margin in construction is usually single digit. Some don't even make two per cent,” its former president Kwan Foh Kwai told reporters.

Amid protests, Home Minister Datuk Seri Dr Ahmad Zahid Hamidi had said the new levy structure was necessary as foreign workers were also enjoying various benefits, such as subsidised prices for food and other necessities only meant for Malaysians.

The new rate, which takes effect this month, is expected to generate some RM2.5 billion in revenue for the government, the minister said.

But MBAM argued that the government could easily profit from legalising existing illegal foreign workers in Malaysia, which are estimated to number around half a million.

Foo said “converting” illegal workers could channel significant money into Putrajaya's coffers without hurting industries like construction, which is heavily dependent on foreign labour.

Industry players had previously claimed that hiring local workers was near impossible despite their willingness to pay them reasonably high wages due to Malaysians’ “pickiness”, a point it reiterated today.

“For example machine operators, we were willing to pay as high as RM3,000 a month. But they still don't want to..they prefer air conditioned work and short hours,” Kwan said.

Foreign labourers on the other hand are usually paid just above minimum wage while the more skilled ones get higher wages, some up to RM3,000.

Yesterday, traders groups echoed the protest against the new levy and warned of a possible inflation catastrophe that would ultimately lead to higher prices in goods and services.

MBAM said the construction industry is already among the worst hit by the decline of the  ringgit as import for raw supplies has skyrocketed.

It also claimed the Goods and Services Tax had exacerbated the situation. Embassies were said to have asked for an increase in salaries to help its citizens cope with the rising cost of living that followed the implementation of the consumption tax.

“Some are even asking for salaries in US dollars since the ringgit had dropped in value,” said Tan Sri A K Nathan Elumalay, the group's vice president.

MBAM also said the new levy could encourage more illegal employment as developers aim to cut costs, a problem already rampant in construction.

It said improved and streamlined processes for foreign labour hiring could curb the problem, but claimed bureaucracy has made it costlier as an otherwise simple system gets compartmentalised to “accommodate” outsourcing entities.

There were claims in the past that these outsourcing entities were often run by politically connected businessmen.

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