Market Watch Malaysia Construction Industry 2011

8/2/2019 Market Watch Malaysia Construction Industry 2011

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Market Watch Malaysia 2011

Construction Industry

General information about MalaysiaMalaysia is centrally located within the ASEAN and consists of the Malaysian Peninsula and

the States of Sabah and Sarawak on the island of Borneo. The former British colony gained

its independence in 1957 and is a Parliamentary democracy with constitutional monarch

since. Malaysia has a tropical climate and is with a total area of 330.000 km 2 slightly

smaller than Germany. Due to its bio-diverse range of flora and fauna, Malaysia is one of

the 17 megadiverse countries. Malaysia is a multi-ethnic, multicultural and multilingual

society with 28.31 million inhabitants. Malays make up the majority of the population at

50.4% followed by Chinese 23.7%, Indian 7.1% and other local Malays 11%. The Malaysian

constitution guarantees freedom of religion, although Islam is the largest and official

religion. Approximately 60.4% of the population practiced Islam, 19.2% Buddhism, 9.1%

Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese

religions. The official language of Malaysia is known as Bahasa Malaysia but English as well

as Chinese are the business languages.

Economical Overview

Malaysia is a dynamic country constantly on the move. From a country dependent on

agriculture and primary commodities decades ago, Malaysia has now become an export-

driven economy spurred on by high technology, knowledge-based and capital-intensive

industries. Malaysia is one of the 20 largest trading nations worldwide and is ranked 30th

out of 125 countries by the Global Enabling Trade Report 2010, published by the World

Economic Forum as well as the 21th largest exporter among the trading nations worldwide.

The country is strategically located in the heart of South East Asia and offers a cost-

competitive location for investors intending to set up offshore operations for the


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Malaysian-German Chamber of Commerce, Market Watch 2011 The Construction Sector

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manufacture of advanced technological products for both regional and international

markets. In addition, the Malaysian economy is supported by a market-oriented economy

and pro-business government policies. The new Economic Transformation Programme

(ETP) by the PEMANDU, the Performance Management & Delivery Unit of the Government

from Malaysia, has been presented to the public. The ETP is anchored on 12 National Key

Economic Areas (NKEAs), which are drivers of economic activities that have the potential

to materially contribute to the growth of Malaysia. ETP is developed under the patronage

of the Prime Minister, the objective also known as Vision 2020 to transform Malaysia

into a high income country until the year 2020 is to be achieved. Therefore, it is

planned to increase the Gross National Income (GNI) per capita to US$ 15,000.00 or RM

48,000.00. To reach this, an annual growth of the GNI of 6 % is necessary. Within the

programme, it is planned to reach a growth of the service sector from 58 to 65 % and to

create 3.3 million new jobs.

Economical Key facts Malaysia1

Currency: 1 Ringgit (RM) = 100 Sen

Exchange rates: 1 EURO = 4.2 RM; 1 US$ = 3.1 RM (14.12.2010)

GDP (billion RM): 2007: 639.8; 2008; 738.7; 2009: 674.4

GDP - real growth rate: 2009: -1.7%; 2010: 4.5 - 5.5%

Inflation rate : 2-2.4 % (2010)

Exports: $157.2 billion (2009)

Exports - commodities: electronic 36.5% , petroleum and products

8.3%,Chemical products 6.6%, natural gas

6.4%, fats & oils 6.4%, electrical engineering 4.6%,

machinery 3.5%

Exports - partners 2009: Singapore 14.0%, China 12.2%, US 11.0%, Japan

9.8%, Thailand 5.4%, Hong Kong 5.2%,

Germany: 2.7%

1Source: Germany Trade & Invest


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Imports: $119.3 billion

Imports - commodities: electronics 29.4%, chemical products 9.1%,

machinery 8.9%, electrical engineering: 7.2%,

petroleum and products 7.0%, food and living

animals: 6.2%, iron and steel 3.6%, raw

materials: 3.4%

Imports - partners: China 14.0%, Japan 12.5%, USA 11.2%,

Singapore 11.0%, Thailand 6.1%, Germany:

4.2%

Unemployment rate: 3.7% (2009)

Average wage 2008: Middle management: 6.805RM, senior clerk:

2.650RM, skilled worker: 1.845RM,

consultant: 1.450RM, unskilled workers: 910RM

Population below poverty line: 5.1%

Bilateral Trade: Malaysia & Germany

Despite ruled by the British historically, Malaysians still highly value and appreciate Made

in Germany products. In 2010, Germany remained Malaysias largest trading partner

within the EU and was ranked Malaysias 9th largest trading partner. Malaysias total trade

with Germany recorded a decrease of 22 per cent in 2009, valued at US$ 5.2 billion

compared to US$ 6.7 billion in 2008. Exports to Germany amounted to EURO 3,996.4

million in 2009, while imports were valued at EURO 3,234.4 million. Among ASEAN

countries, Malaysia was Germanys largest trading partner and source of imports.

The Construction Industry in General

The Malaysian construction industry is generally separated into two areas. One area is

general construction, which comprises residential construction, non-residential

construction and civil engineering construction. The second area is special trade works,


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which comprises activities of metal works, electrical works, plumbing, sewerage and

sanitary works, refrigeration and air-conditioning works, painting works, carpentry, tiling

and flooring works and glass works.

Although the construction industry contributed only 3% to the Gross Domestic Product in

the year 2009, it makes up an important part of the Malaysian economy due to the

interaction with other industry branches such as the metals processing industry and the

mechanical engineering or the tourism sector. Hence, the construction industry could be

described as a substantial economic driver for Malaysia.

In order to inject greater dynamism into the construction industry and enable it to be

globally competitive, in 2007 the Construction Industry Development Board (CIDB)

elaborated and submitted a strategic master plan. The CIDB represents a statutory board

under the Ministry of Works. This board also prices individuals or organizations with the

prestigious Malaysian Construction Industry Award (MCIEA) to recognize their contribution,

performance and achievements in the industry. Another purpose of the participation to

vie for this award is to provide a platform of healthy competition amongst industry players

in the quest for excellence by showcasing best practice in project implementation.

One of the profound changes to have taken place over the last two decades in the

construction industry in Malaysia is the emergence of foreign site operatives as an

indispensable component of the labour force. Labour segmentation has prevailed as a

consequence of variability in country-specific traits. Schisms between the foreign

nationals and local workers and between the various foreign nationals operate to the

employers' advantage in which greater control can be exerted. As there seems to be no

sign of the dependence on foreign workers attenuating, future waves of migrant workers

can be expected. Taking this into consideration, the government has to be aware of

proper employer treatment and related issues such as discrimination and violation and

take respective actions.


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Value-added of the construction sector strengthened further by 6.3% during the first half

of 2010 (January June 2009: 2.9%). The expansion was largely led by increased civil

engineering and non-residential activities following the speedy implementation of

construction projects under the Ninth Malaysia Plan (9MP) and the stimulus packages.

Underpinned by sustained property demand, particularly for commercial buildings as well

as positive business and consumer sentiments, the construction sector is envisaged to

expand 4.9% in 2010 (2009: 5.8%).

The Civil Engineering Activity

In the past years the civil engineering sub-sector registered an increase due to higher

activity in the oil and gas sector as well as the implementation of some projects of the

Ninth Malaysian Plan (9MP) and growth corridors development. The 9MP represents the

second phase of the 10-year Third Outline Perspective Plan (OOP3) and determines

whether the economic tools are strong enough to steer the country towards realizing the

objectives of Vision 2020 with the aim to achieve the status of a self-sufficient

industrialized nation by the year 2020. It identifies key economic sectors and focuses on

stepping up productivity, sustainable growth and the creation of a united and just society.

The table below contrasts local and foreign contractors and compares the number of

government projects with private projects respectively. Despite the financial turmoil, the

number of overall projects in 2008 reaches a reasonable level. It also reveals that the

number of private projects generally exceeds the number of government projects,

regardless the status of contractor. Especially for foreign contractors the private sector

plays an eminent role, as most government projects are contracted out to local

contractors.

In August 2008, the Government announced several provisions to allow variation in the

contract value of government projects. This is to assist contractors to cope with

escalating prices of construction materials. For the civil engineering works, the price


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variation is extended from 5 to 11 types of building materials. Contractors involved in

design and build projects will be paid according to price variation of building materials.

Table (1): Number and Value of Projects Awarded by Status of Contractors as ofDecember 2011

TotalNumber

TotalProject

Local Contractors Foreign Contractor

ProjectCategory

OfProjects

Value(RM mil) Government

ProjectsPrivate Projects Government

ProjectsPrivate Projects

No. Value(RM Mil)

No. Value(RM mil)

No. Value(RM mil)

No. Value(RM mil)

2007 7,386 94,416.83 2,954 44,859.22 4,338 43,631.38 4 3,475.32 90 2,450.92

2008 6,522 85,837.07 2,702 33,964.26 3,745 44,152.99 5 4,851.83 70 2,867.99

2009 6,806 73,416.52 2,962 32,213.57 3,794 38,064.05 1 1,313.99 49 1,824.91

- Dec.

2010

5,350 58,346.27 1,546 16,791 3,729 38,214 1 316.22 74 3,024.72

Notes: Total may not necessarily add up due to rounding. Figures are subject to change due to late notification.

Source: CIDB, Construction Industry development Board Malaysia

In the following, a further look into the type, number and value of projects will be given.

Facing the figures of the individual categories, one will detect, that projects related to

infrastructure and non-residents are very high in number and value, followed by projects

targeting residents and social amenities. Construction activity in the non-residential sub-

sector is estimated to increase marginally, supported by ongoing construction of

commercial properties, industrial units and hotels.

Construction activity in the residential sub-sector moderated following the completion of

several high-end properties, particularly condominiums and apartments.


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In addition, the performance of the sub-sector in the first half of 2010 was affected by the

delay in launching new projects during the economic downturn in 2009 when developers

were more cautious. However, following the economic recovery, coupled with attractive,

financing packages and affordable interest rates, housing starts recorded an increase of

3.2% in the second quarter of 2010 compared with the preceding quarter. In addition, the

take-up rate of newly launched residential units improved to 19.5% (January-June 2009:

12.3%). Despite slower housing construction activity, high-end landed properties located

in preferred areas were well-received with 100% take- up rate during launches. The

liberalization of the Foreign Investment Committee ruling on foreign purchases of

properties and the promotion of Malaysia My Second Home (MM2H) also led to the

expansion of the sub-sector.

To conclude, the measure to provide tax relief on interest paid for housing loans will

provide some support to demand for houses.

Table (2): Number and Value of Projects Awarded by Category as of December 2010

Project CategoryTotal Number of

ProjectsTotal Project Value

(RM mil)

2007 7,358 93,294.20

ResidentialNon ResidentialMix DevelopmentSocial AmenitiesInfrastructureOthers

1,8532,291

101,3801,787

37

16,878.4626,422.62

97.1012,097.5737,611.14

187.31

2008 6,522 85,837.07ResidentialNon ResidentialMix DevelopmentSocial Amenities

InfrastructureOthers

1,4862,143

161,258

1,57940

16,933.8723,737.75

919.2219,114.39

24,858.70273.13

2009 6,718 72,862.82ResidentialNon ResidentialMix DevelopmentSocial AmenitiesInfrastructureOthers

1,5961,958

01,4721,652

40

13,787.4122,004.62

0.0015,282.0021,635.54

153.25

December 2010 3,602 38,057.80


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ResidentialNon Residential

Mix DevelopmentSocial AmenitiesInfrastructureOthers

9961,222

044092321

10,988.6211,462.78

0.004,382.1711,124.42

99.81

Notes: Total may not necessarily add up due to rounding. Figures are subject to change due to latenotification.

Source: CIDB, Construction Industry Development Board Malaysia

However, due to the escalating prices of construction materials and increased inflationary

pressures, developers were generally adopting a more cautious stance.

With the strong domestic economic performance coupled with the buoyant secondaryhousing market, potential house buyers, particularly in the Klang Valley, Penang and

Selangor are shifting from a wait-and see attitude in 2009 to ready-to-commit in the

second-half of 2010. In line with the Governments objective to provide affordable houses

for the low-and-medium-income groups, a total of 2,733 units of Rumah Mesra Rakyat

under the Home Ownership for the People (HOPE) project were completed as at the end-

June 2010. In addition, as at the end-August 2010, 4,482 low-cost houses for the rural

poor and hardcore poor were built, while another 12,144 units are under construction.

On the supply side, the number of new sales and advertising permits as well as approvals

to build houses increased 15.9% and 13.2% (January-August 2009: -9.1%; -11.3%)

respectively, indicating developers were more bullish on the housing market. This was

further supported by the findings of a survey undertaken by the Real Estate and Housing

Developers Association (REDHA) in July 2010, whereby developers are confident that

property prices may increase up to 20% in the second half of 2010. Similarly, loans

approved by the banking system for the construction sector rose 52.0% (January- July

2009: -34.5%), indicating the pick-up in construction activity during the second half of the

year.

Growth in the non-residential sub-sector increased strongly, driven primarily by ongoing

construction of commercial properties, particularly purpose-built offices. In addition,

private projects in the five growth corridors, including Johor Premium Outlet and Lido


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Boulevard in Iskandar Malaysia as well as Kota Kinabalu City Waterfront and South China

Place in Sabah Development Corridor contributed to the sub-sector. Construction of new

purpose-built offices expanded significantly to 334,181 square meters (sm) (January-June

2009: 62, 493 sm), while the occupancy rate remained high at 84.2%, reflecting strong

business sentiment. During the first half of 2010, shopping complexes under construction

increased to 1.48 million sm (end- June 2009: 1.44 million sm).

In addition, the completion of 20 new shopping complexes contributed an additional

249,817 sm of retail space, resulting in the existing stock of retail space increasing to

10.32 million sm as at end-June 2010. (end- December 2009: 10.07 million sm). Demand

for retail space in shopping complexes remained strong, with the average occupancy rate

at 81.2%, in the first half of 2010 (January- June 2009: 81.4%), reflecting retailers

confidence in consumer spending.

Construction of leisure properties improved further in line with the growth of the tourism

sector. As at the end-June 2010, 86 hotels were under construction, offering 21,884 rooms

(end-June 2009: 82 hotels; 21,110 rooms). Construction starts involved seven hotels with a

total of 589 rooms, of which three were in Perak, two in Johor as well as one in Kelantan

and Sarawak. The average occupancy rate of three-to-five star hotels remained at 54.0%,

on account of steady tourist arrivals.

In addition, some domestic construction companies were also augmented by overseas

projects, especially in the Middle East, India and Thailand. The projects include

construction of highways, airport terminals and hydropower plants. The turnaround in the

construction sector and the increase of construction companies led to a re-rating of

construction companies listed on the Bursa Malaysia.

Table (3): Number and Value of Projects Undertaken by Malaysian Contractors in

Global Market by Year of Project Awarded

Country

2006 2007 2008 2009 2010

No.

Value(RM m)

No.

Value(RM m)

No.

Value(RM m)

No.

Value(RM m)

No.

Value(RM m)


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ASEAN 13 2,179.74 20 2,582.92 7 1,473.94 2 887.44 5 1,030.31

BruneiIndonesia

PhilippinesSingaporeThailandVietnam

-1

2-10-

-524.40

522.06-1,133.28-

23

-2121

33.581,862.69

-60.00547.8478.81

-2

--32

-20.20

--139.521,314.22

1-

---1

693.00-

---194.44

12

--2-

932.1090.24

--7.97-

India 10 1,149.92 7 4,653.00 1 899.50 2 383.65 4 404.00

Middle East 23 4,622.39 25 11,308.63 24 5,609.65 18 12,593.31 0 0

IranJordanBahrainLibyaQatarSaudi ArabiaSyriaUnited ArabEmirates/Dubai

-1626`-7

-450.001,368.3363.13161.5290.00-2489.41

--1242214

--233.885,130.621,751.67314.82482.843,394.80

--2132-16

--268.4284.00581.201,822.24-2,853.79

1---25-10

2,000.00---281.729,407.84-903.75

--------

--------

Africa 2 839.00 0 0.00 3 924.67 0 - 0 0.00

SudanSouth AfricaAlgeriaPapua NewGuineaMorocco

1---

1

39.00---

800.00

----

-

----

-

--12

-

--854.0070.76

-

----

-

------

----

-

----

-

Others 10 1,398.83 17 1,006,76 20 559.61 4 146.17 2 56.72

BangladeshCambodiaChinaMaldivesMongoliaPakistanSri LankaTrinidad+TobagoTurkmenistan

YemenUnited KingdomAustraliaIrelandHong KongSeychelles

1-32-12--

1-----

1.45-623.92171.91-1.5818.97--

581.00-----

--54-12-1

-12--1

--382.93111.16-185.06136.47-51.95

-2.0516.74--120.40

2392-11--

--11--

52.2236.74308.2772.98-4.5077.93--

--1.305.67--

--2--1---

----1-

--84.01--14.47---

----47.69-

2--------

------

56.72--------

------

Grand Total 558

10,189.88 69 19,551.31 55 9,467.37 26 3,666.77 11 1,491.03

Note: Total may not necessarily add up due to rounding. Figures are subject to change due to latenotification.

Source: CIDB, Construction Industry Development Board Malaysia

Green Building

The Malaysian building construction market is very competitive with local companies

taking the lead. However, with the recent onset of green technology in Malaysia, more

and more foreign participants are involved in the construction sector especially in the

development of green buildings particularly in technologies relating to green building,

prefabrication practice, smart building and energy efficient building. The launch of


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Green Building Index has put Malaysia on the green roadmap and further development is

expected to take place in the coming years.

Outlook

The construction sector is expected to expand by 5.2% at the end of 2011, supported by

the civil engineering segment due to the implementation of projects under the economic

stimulus packages. The success of the construction industry is increasingly predicated on

technology driven investments in information technology (IT) and this is expected to be

even more so in the future. Information Technology (IT) plays a vital role in the sustained

growth of a business and is the sine qua non of all businesses today, including the

construction industry. Hence, understanding its roles and functions in construction firms is

a requisite in assessing their performance.

The governments are now on the verge of implementing the 10th Malaysia Plan that will

set the stage for a major national structural transformation, towards that of a High-

Income Economy. The High-Income Economy will hinge on higher productivity and the

engagement of the private sector participation, which will be the primary driver of growth

and innovation. The Plan which covers the period from 2011 to 2015 will potentially have

high impact on the Malaysian Construction Sector where it is expected the Construction

Sector will grow at 3.7% per annum as compared to 6% per annum GDP growth for the

country.

RM230 billion development allocations and RM20 billion facilitation funds have been

allowed for under 10thMP. Both these allocations will create the impetus in driving

demand for the Construction Sector as out of the RM230 billion for development

expenditure, 60% or RM138 billion will be expended in physical development to be

undertaken by the Construction Sector. The RM20 billion facilitation fund is expected to

attract private sector investments worth at least RM200 billion of which a major portion

would be investments involving the Construction Sector.


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In promoting economic growth through Private Sector participation, 52 high-impact

projects worth RM63 billion have been identified for implementation under the Public-

Private Partnerships (PPP) initiatives. Among these projects are 7 Tolled Highways at an

estimated value of RM19 billion, 2 Coal Electricity Generation Plants at RM7 billion,

Malaysian Rubber Boards Land Development at RM10 billion, Petronas LNG Melaka Plant

at RM3 billion and, 2 Aluminium Smelters in SCORE Sarawak at RM18 billion.


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Malaysian-German C

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Mr. Tho

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11/17/2011/3:29 PM/JY/MKT/Market

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laysian Construction Trade Fairs 2

Contact:

Mr. Thomas Brandt:

as Brandt: [email protected]

udih Yong: [email protected]

rves you with actual information on the Malaysian

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nd our Firmenpool Malaysia will give you a perm

market. Please contact us for further information.

atch Construction 2011

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Date: 22 24 Jul 2011

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BUILDTECH 2011l Building Materials & Construction Techn

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Date: 22-25 Sept 2011

enue: PWTC, Kuala Lumpur

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Market Watch Malaysia Construction Industry 2011