CHAPTER 4 CONSTRUCTION INDUSTRY … 4 CONSTRUCTION INDUSTRY PROSPECTS 2017 World Economy World FDI...

CHAPTER 4CONSTRUCTION INDUSTRY PROSPECTS2017

World EconomyWorld FDIWorld TradeMalaysia Economic Prospects 2017Construction Demand ProspectsNew Construction ProjectionEstimated Value of Work Completed for 2016/2017Estimated Value of Renovation Work

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CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017 CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017

CONSTRUCTION INDUSTRY REVIEW AND PROSPECT 2015/2016

80 81Introduction | World Economy World FDI

CONSTRUCTION INDUSTRY PROSPECTS 2017INTRODUCTION

WORLD ECONOMY

WORLD FDI

The Malaysian economy faced an environmentally challenging year in 2015 as a consequence of weak global momentum, low prices in major national commodity, diminishing value of the Ringgit against major world currencies and the rise in consumer goods’ prices. The situation did not adversely impact growth of the resilient Malaysian economy, due to various revitalisation measures through the Economic Transformation Programme (ETP) and Government Transformation Programme (GTP). The Malaysian economy grew remarkably by 5.0% (2014: 6.0%) driven by domestic demand which is indicated by constantly high construction sector expenditure. A total of 6,885 construction projects valued at RM124.4 billion were registered in 2015.

Construction activities catalyses demand in other economic sectors, where it is estimated construction commands the utilisation of 96 products from other sectors whilst employing 9.3% of our national workforce through its various linkages. Hence, the construction sector is capable of assuming the role of an expeditious and effective economic driver particularly in times of a slowdown. It is irrefutable that the high construction sector expenditure has become one of the contributors towards the positive development of the manufacturing and services sectors.

The International Monetary Fund (IMF) forecasted a slowdown in world economy by approximately 3.2% for 2016 (2015: 3.1%) resulting from the low growth in developed economies other than the USA, and the slowdown in developing and rapidly developing economies. However developing and rapidly developing countries are forecasted to experience strong growth of 6.4% in 2016 and 6.3% in 2017. As a result, the world economy is expected to recover to 3.5% in 2017 spurred by moderate growth in developed economies

World Foreign Direct Investment (FDI) leapt to 36.5% at an estimated value of USD1.7 trillion in 2015 (2014: 6.2%; USD1.3 trillion). Contributing to the high growth are cross border Mergers and Acquisitions (M&A), compared to the marginal 0.9% increase in new investments. A large portion of FDI found their way into markets of developed countries (55.1%). Developing Asian countries remained the highest FDI beneficiaries at approximately 32.2% on the regional level, an increase of 15.0% and the ASEAN region saw a decrease of 7.0%. As the high increase of FDI in 2015 has been the result of M&A’s, the United Nations

Conference Trade Development (UNCTAD) foresee that a continuous high growth momentum would be less sustainable. Much lower FDI growth is forecasted for 2016 on the prospects of a fragile global economy; erratic world monetary market movements; weak demand especially from developing countries; and the West Asia geopolitical tensions that have hampered investor sentiments. However, moderate growth across developed economies will offer positive growth prospects to the global economy, and the diminishing local currency values against the USD wil promote fresh FDI flows. Worldwide investments are projected to expand by 4.5% in 2016 and 7.2% in 2017 by the Economist Intelligence Unit (EIU).

and the strengthening of developing Asian economies.

The drop in prices of crude oil and other commodities, the rise of US dollars and the economic pressures faced by several large market economies like China, India and some East Asia countries and the Pacific has adversely impacted worldwide import demand. A 3.1% growth in world economy for 2015 is seen as less than robust following a deliberated execution of revitalising measures and fiscal policies amongst the developed countries within the European Union (EU). High capital outflow, uncertainties in the world monetary market plus the geopolitical unrest in West Asia have agitated investor sentiments and world trade.

WorldDeveloped CountriesUSAEuropean UnionGermanyFranceJapanUnited Kingdom

Rapidly Developing CountriesEuropeAsiaASEAN-5 ChinaIndia

3.11.92.41.61.51.10.52.26.63.55.4 4.76.97.3

3.21.92.41.51.51.10.51.96.43.55.34.86.57.5

3.52.02.51.61.61.3

-0.12.26.33.35.35.16.27.5

Table 4.1 Forecast of Major World Economies Growth

Source : World Economic Outlook (WEO) April 2015, IMF World Economic Outlook (WEO) April 2016, IMF

CountryChange (%)

2015 2016 2017

Total World FDIDeveloped Economies North America European UnionDeveloping Economies Africa Latin America and the Carribean AsiaTransitional Economies

Total World FDIUSAHong KongChinaNetherlandsUnited KingdomSingaporeIndia

1,245.0493.0146.0254.0 703.0

55.0 170.0 475.0 49.0

1,245.086.0

111.0128.0

42.061.081.034.0

1,699.0936.0429.0426.0741.0

38.0151.0548.022.0

1,699.0384.0163.0136.0

90.069.065.059.0

100.039.611.720.456.5

4.413.638.13.9

100.06.98.9

10.33.44.96.52.7

100.055.125.225.143.6

2.28.9

32.21.3

100.022.6

9.68.05.34.13.83.5

6.2-17.0-51.7

8.13.8

-1.8-10.511.2

-46.7

6.2-46.054.0

0.891.015.045.022.0

36.589.9

193.567.65.3

-30.9 -11.215.5

-54.1

36.5346.5

46.86.2

114.313.1

-19.773.5

Table 4.2 World Largest FDI Beneficiaries by Economic Region

Table 4.3 World Largest FDI Beneficiaries by Countries

Source : Global Investment Trend Monitor No.19 January 2015, UNCTAD Global Investment Trend Monitor No.22 January 2016, UNCTAD

Source : Global Investment Trend Monitor No.19 January 2015, UNCTAD Global Investment Trend Monitor No.22 January 2016, UNCTAD

Economic Region

Country

Change (%)

Change (%)

Proportion (%)

Proportion (%)

Value (USD billion)

Value (USD billion)

2014

2014

2014

2014

2014

2014

2015

2015

2015

2015

2015

2015



82 83Malaysia Economic Prospects 2017World Trade

WORLD TRADE

MALAYSIA ECONOMIC PROSPECTS 2017

According to World Trade Organization (WTO), the world trade for 2016 is expected to grow at 2.8%, a moderate rate similar of that for 2015. Following the plunge in commodity prices and the strengthening of USD in 2015, the value of commodities decreased by 13.0% to USD16.5 trillion (2014: USD19.0 trillion), despite increased in the volume of commodities. This has also affected the Chinese economy, causing a slowdown. Additionally, the trade protection and monetary policies in some European countries had deviated from achieving the ultimate objective of promoting world trade. This phenomenon have prolonged into 2016, resulting in risky trade momentum that would reduce demand from most developing and

Driven by a sustainable domestic demand with support from a moderate external demand, Malaysia achieved a 5.0% economic growth in 2015. The small Malaysian market is very much in need of foreign markets to spur higher growth for continuous development. The wide foreign markets does not only provide benefits in creating greater demand for local industries, but would also attract inflows of foreign capital whilst promoting local investments as well as high technology transfers. Malaysia’s external trade reached RM1.5 trillion in 2015, which translates to 134.0% of the GDP. In 2015, Malaysia ranked 23rd as exporter country in the world with exports value of RM778.0 billion; and was positioned 25th as importer country in the world with imports value of RM686.0 billion; from trading with 200 countries. In 2015, Malaysia received RM36.1 billion in FDIs (2014: RM35.3 billion).

The current world economic challenges will undoubtedly influence the momentum of Malaysian economic growth. Malaysia is expected to be able to withstand these difficult times in 2016, buffered by the effectiveness of the economic transformation strategies and the persevering financial system. Consumer spending and private investments will continue to drive domestic demand for economic growth. Private consumption is expected to be much lower at 5.1% (2015: 6.0%) resulting from the low commodity prices; depreciation of the Ringgit; economic uncertainties; rising cost of living; and the world financial market uncertainties. Inflation is expected to hover between 2.5% and 3.5% in 2016 (2015: 2.1%) from the aftermath of the Goods and Services Tax (GST) implementation; the low Ringgit exchange rate; and price rationalisation measures on

rapidly developing economies, of which majority are the main exporters of commodities. The persistent low commodity prices, especially crude oil, had adversely affected income of these countries. The continuing increase in the value of USD which has prolonged since mid-2014 has made imports expensive. However, this scenario is perceived as stable throughout the subsequent years making world imports to be reasonably forecasted at 5.4% (2015: -12.4%) whilst exports to rise to 4.8% (2015: -13.0%). The world trade for 2017 is expected to be much better with higher demand from developing Asian countries and new rapidly developing countries following their strong domestic economic growths. World trade is forecasted to expand to 3.6% in 2017 with imports and exports to increase to 6.8% and 6.0% respectively.

several controlled items. Though inflation is expected to increase, its impact is offset by low fuel prices and careful household expenditure to counter the rising costs.

The weakened prices of major commodity especially crude oil and natural gas, has impacted on government revenue. The government has recalibrated the 2016 Budget by reducing operational expenditure by RM9.0 billion from its initial allocation of RM215.2 billion, and taken prudent expenditure measures in ensuring targeted fiscal deficit remains at 3.1% of GDP. These measures are expected to lower public consumption to 2.0%. Against the backdrop of economic uncertainties, the business sentiment has been on a cautious mode. Despite this, domestic investments by private sector are expected to continue, although in lesser amounts. Private investment is estimated to dampen to 5.5% (2015: 6.4%). Public investment will see moderate growth at 1.1% (2015: -1.0%), largely to finance on-going infrastructure projects.

Malaysia’s external trade grew by 1.2% to reach RM1.5 trillion in 2015. Ringgit depreciation and low commodity prices were offset by export diversity. Exports and imports managed to rise by 1.9% and 0.4% respectively amidst global economic uncertainties (Table 4.6). Demand for Electrical and Electronic (E&E) is forecasted to increase in tandem with intense development in digital and high tech industries in developed economies (Table 4.7). The economic uncertainty is expected to prolonged in 2016, due to the low oil prices which in return will affect the government’s revenue. The average production cost for crude oil is about USD60.00 per barrel, in contrast to current hovering prices of between USD38.00 and USD50.00 per barrel.

WorldNorth AmericaCentral & South AmericaEuropean UnionCommonwealth of Independent (CIS)Africa & Middle EastAsia

WorldNorth AmericaCentral & South AmericaEuropean UnionCommonwealth of Independent (CIS)Africa & Middle EastAsia

Total ExportsChinaUSAGermanyJapanNetherlands

Total ImportsUSA ChinaGermanyJapanUnited Kingdom

Exports

Imports

Exports

Import

18.42.50.76.20.71.85.9

18.63.30.76.10.51.65.9

18.92.31.61.50.70.7

19.02.42.01.20.80.7

16.02.30.55.40.51.25.5

16.33.10.65.30.31.35.0

16.52.31.51.30.60.6

16.82.31.71.10.70.6

100.013.6

3.833.7

3.89.8

32.1100.0

17.73.8

32.82.78.6

31.7

100.012.4

8.68.03.63.6

100.012.710.3

6.44.33.6

100.014.4

3.133.7

1.27.5

34.4100.0

19.03.7

32.51.88.0

30.7

100.013.8

9.18.13.83.4

100.013.810.0

6.33.93.7

-0.54.20.01.6

-12.5-5.31.70.53.1

-12.51.7

-16.714.3

0.0

1.06.03.04.0

-4.00.0

1.03.01.02.0

-1.04.0

-13.0-8.0

-28.6-12.9-28.6-33.3

-6.8-12.4-.6.1

-14.3-13.1-40.0-18.7-15.2

-13.2-2.9-7.1

-11.0-9.5

-15.7

-12.2-4.3

-14.2-13.0-20.2

-9.4

Table 4.4 World Main Exporters and Importers by Economic Regions

Table 4.5 World Main Exporters and Importers by Countries

Source : April 2015, Press Release 739, WTO April 2016, Press Release 768, WTO

Source : April 2015, Press Release 739, WTO April 2016, Press Release 768, WTO

Country

Economic Region

Economic Region

Change (%)

Change (%)

Change (%)

Proportion (%)

Proportion (%)

Proportion (%)

Value (USD trillion)



2014

2014

2014

2014

2014

2014

2014

2014

2014

2015

2015

2015

2015

2015

2015

2015

2015

2015



84 85Malaysia Economic Prospects 2017Malaysia Economic Prospects 2017

Source : Trade Performance, 2014, 2015 & January - March 2016, MATRADE

Source : Trade Performance, 2014, 2015 & January - March 2016, MATRADE

Table 4.6 Main Export Markets and Import Sources of Malaysian Products

Table 4.7 Exports and Imports of Major Malaysian Goods

Country

Country

Country% Change(% Proportion)RM billion

% Change(% Proportion)RM billion

% Change(% Proportion)RM billion

2015

2015

2015 Q1 2016

Q1 2016

Q1 20162014

2014

20141Q 2016

1Q 2016

1Q 20162014

2014

20142015

2015

2015

Total Export Value

Singapore

China

Japan

USA

Thailand

Total Import Value

China

Singapore

USA

Japan

Thailand

Trade Value

Exports

Imports

Trade Balance

1,448.3

765.4

108.7

92.3

82.6

64.4

40.2

682.9

115.5

85.9

52.4

54.7

39.6

82.5

1,465.6

779.9

108.5

101.5

73.8

73.7

44.4

685.6

129.4

82.1

55.3

53.6

41.7

94.3

346.4

185.2

26.3

20.8

17.3

19.1

11.0

161.2

30.6

17.5

14.0

13.7

10.4

23.9

5.8(100.0)

6.3(100.0)

8.4(14.2)

-4.8(12.0)

4.3(10.8)

11.0(8.4)

0.7(5.2)

5.3(100.0)

8.6(16.9)

7.1(12.6)

3.3(7.7)-3.0(8.0)

2.6(5.8)15.7

1.2(100.0)

1.9(100.0)

-0.2(13.9)

10.0(13.0)-10.6(9.5)14.4(9.4)10.4(5.7)

0.4(100.0)

12.0(18.9)

-4.4(12.0)

5.5(8.1)-2.0(7.8)

5.3(6.1)14.3

0.4(100.0)

1.1(100.0)

2.7(14.2)

1.5(11.2)-20.6(9.3)13.0

(10.3)5.8

(5.9)-0.4

(100.0)7.4

(19.0)-6.4

(10.9)8.5

(8.7)3.0

(8.5)8.3

(6.4)12.2

Export Value

E&E Products

Chemicals & Chemical Components

Petroleum Products

Oil Palm & Oil Palm Based Products

Machinery & Equipment

Exports 765.4

256.1

51.4

70.4

48.3

30.0

779.9

277.9

55.1

55.5

45.6

36.1

185.2

66.5

13.7

11.1

10.0

9.8

6.3(100.0)

8.1(33.5)

8.2(6.7)

2.9(9.2)

5.2(6.3)10.7(3.9)

1.9(100.0)

8.5(35.6)

7.2(7.1)

-21.2(7.1)-5.6(5.8)20.3(4.6)

1.1(100.0)

3.6(35.9)

6.2(7.4)

-12.6(6.0)

8.7(5.4)22.5(5.3)

Import Value

E&E Products

Chemicals & Chemical Components

Petroleum Products

Machinery & Equipment

Manufactured Metal

Imports

Trade Value

682.9

190.7

62.1

80.0

57.0

41.7

1,448.3

685.6

201.3

65.0

63.5

59.4

44.1

1,465.6

161.2

50.2

16.1

10.8

14.6

9.2

346.4

5.3(100.0)

6.2(27.9)

11.1(9.1)

8.7(11.7)

4.4(8.3)

2.5(6.1)

5.8(100.0)

0.4(100.0)

5.6(29.4)

4.7(9.5)

-20.6(9.3)

4.2(8.7)

5.7(6.4)

1.2(100.0)

0.4(100.0)

8.7(31.1)

3.9(10.0)-27.0(6.7)

4.3(9.0)

-17.9(5.7)

0.4(100.0)

In 2016, gross imports is predicted to increase in parallel with the rise in new investment as well as expansion and diversification in manufacturing activities, especially those pertaining to export oriented products. It is anticipated that Malaysia will achieve a positive trade surplus for 2016. World trade is forecasted for recovery in 2017 driven by high income economies and improved economic growths in developing and rapidly developing countries such as China, India, Russia and Brazil.bNational commodity prices are expected to rise as an effect of the dry El-Nino spell which had hampered oil palm and rubber production. At the advent of 2017, crude oil prices are projected to reach USD50.00 per barrel. The Malaysian trade value is predicted to increase with the exploitation of a much wider market under the bilateral and multilateral free trade agreements privileges. Exports are estimated to be close to the targeted 4.7% under the 11th Malaysia Plan (11MP).

Based on strong economic fundamentals, Malaysian economy is expected to grow 4.5% in 2016. Slightly brighter prospect for the Malaysian economy is anticipated in 2017, alongside an expected improved global economy. The improved world economy will push further exports and private investment, especially in the manufacturing and services sectors. A stabilised domestic expenditure will create confidence in business sentiment. The commodity prices are expected to be higher in the world market. The inflation

rate will be under control, following self-adjustments made by households in adapting to increased prices. There will be excess capacity to make way for improved national economy.

The government has devised several measures to increase disposable incomes of consumers through cash disbursements; reduction of income taxation; raises in civil servants’ salaries; minimum wage enforcement; and the reduction in Employees Provident Fund (EPF) contributions thus enhancing consumer spending. Public investment is expected to expand with the government’s recommendation for Government Link Companies (GLCs) and Government Investment Link Companies (GILC) to re-invest their offshore-acquired earnings into high impact domestic projects. Strategies implemented a decade ago will continuously strengthen the foundation of the Malaysian economy; the positioning of international reserves; secure internal liquidity; and a well-managed national liability level will develop Malaysia’s resilience and competitiveness in facing sudden future changes in the global economic landscape. Impending fiscal and monetary policies that would be implemented during difficult times are definitely meant to boost growth. Therefore, the 2017 national economy prospects will be encouraging and assuring with a projected growth rate of 5.0% (Table 4.8)



86 87Construction Demand ProspectsMalaysia Economic Prospects 2017

International economic organisations concurred with the assurance of positive prospect in the Malaysian economy for 2016 and 2017. The resilience of the Malaysian economy is proven by strong growth in 2015 amidst challenges arising from an uncertain global economy. This growth indicated that the Malaysian economy will continue to improve moderately at around 4.0% to 5.0% in 2016 and 2017.

Public Expenditure Consumption InvestmentPrivate Expenditure Consumption InvestmentExternal Trade Gross Exports Gross Imports Inflation RateGross Domestic Product

AgricultureMiningManufacturingServicesConstruction

2.14.3

-1.06.16.06.41.21.90.42.15.01.04.74.95.18.2

0.43.8

-4.54.55.32.20.41.0

-0.43.44.2

-3.80.34.55.17.9

1.62.01.15.25.15.54.72.44.9

2.5 – 3.54.0 – 4.5

-0.33.54.14.47.9

3.33.72.77.26.49.44.74.64.82.9

5.0 - 6.03.51.35.16.9

10.3

Table 4.8 Malaysian Economy Growth Forecast by Economic Activity

Source : BNM 2015 Annual Report Quarterly Bulletin, Q1/ 2016, BNM Note : a actual f forecast t target

Economic Activity 2015Change (%)

Annuallyf2015a 2017t

Quarterly 1a

Malaysian Government

Malaysian Institute of Economic

Research (MIER)

Economic Intelligence Unit (EIU)

International Monetary Fund (IMF)

World Bank

Asian Development Bank (ADB)

5.0 - 6.0

4.5 - 5.5

4.5

4.8

4.4

4.4

4.0 - 4. 5

4.2

4.5

4.4

4.4

4.2

Table 4.9 Malaysian Economy Growth Forecast by Economic Analysis Organisations

OrganisationGrowth (%)

2016 2017

CONSTRUCTION DEMAND PROSPECTSThe expected conducive environment that would strengthen trade and investment will instigate positive growth in economic sectors, with the exception of agriculture sector that is undergoing price uncertainties. The manufacturing and services sector will continue to lead growth whilst the construction sector will maintain its catalystic performance. The construction sector is anticipated to grow by 7.9% in 2016, following the on-going public mega infrastructure and government social projects, which are yet to be awarded. Additionally, the commencement of the mega Pan Borneo Highway project; development of new townships; and the extension of the public rail transport during the 11MP will also contribute to the construction sector growth. It is predicted that the construction sector will derive huge benefits from project development activities over the 5 years duration of the 11MP. In the second quarter of 2016, being the first year of 11MP, CIDB recorded 2,179 projects valued at RM59.0 billion. Infrastructure projects are currently the highest contributor towards construction sector demand.

Government Development ProjectsThe 11MP commenced in 2016 with an estimated development allocation of RM260.0 billion. Themed Anchoring Growth on People, the five year 11MP is the final phase towards becoming a developed and inclusive nation by 2020. In line with the importance placed on a people-centric economy, the government has set multi-dimensional goals; encompassing targeted macroeconomics, as well as socio-economics such as income distribution and people’s welfare.

The government has been making large investments in enhancing the people’s welfare with a commitment towards achieving a People’s Wellbeing Index Level of 1.7% in comparison to 1.1% during the 10MP. Welfare is generally related to the status and quality of life that encompass aspects of economy, social, physical and psychological that benefits society such as quality healthcare; affordable housing; improvement in safety and public order; easier mobility of population and product; upgrading of emergency services; intensification of social integration and unity; and a wider participation in sporting activities.

Under the people’s wellbeing enhancement programme, opportunities in construction works have been identified. Listed below are the various nationwide construction project development programmes which have been planned for the next 5 years to improve the people’s wellbeing:

a) 165 1Malaysia clinics;b) Care centres for children with special disabilities;c) 7 self-contained life centres for the disabled (OKU); d) 6 new hospitals and 3 hospitals for upgrading;e) Repair of 400,000 houses;f) 80 new schools (primary and secondary schools);g) 2 new MARA Junior Science Colleges (MRSM); andh) Several residential schools.

The main agenda of the 11MP continues on priorities of rural dwellers and low-income households. Efforts are being made to ensure everyone would enjoy the national development and economic wealth. The government is dedicated in achieving Vision 2020 via strategies that would strengthen the national economy to ensure sustainable growth.

Infrastructure ProjectsUnder the 11MP, among the strategies taken is the implementation of high impact projects with reasonable cost. In this aspect, the existence of good infrastructure is important in providing regional networks and connectivity for the wellbeing of the people, and act as a catalyst in the socio-economic development. Access to basic amenities such as transportation, communications, electricity, clean water supply and sewerage treatment systems are selected targets for achievement in the next 5 years. By year 2020, the government has targeted for 99.0% households to enjoy clean and treated water supply; 95.0% of populated areas to have access to broadband services; 80.0% to be covered by an interconnected sewerage system, and to reduce the loss of treated water to 25.0%. Efficient infrastructures enable people and goods mobility, reducing the cost of doing business, and subsequently increase the nation’s productivity and competitiveness. This development does not only expand physical capacity and its network outreach, but also to enhance performance, productivity and service capacity levels to equal that of developed countries.



88 89Construction Demand ProspectsConstruction Demand Prospects

Various infrastructure projects had been identified to attain the desired targets and objectives. Amongst the infrastructure projects to be developed and constructed are:

a) Construction of 4 new highways;b) Construction of 52.2km MRT2 line from Sungai Buloh-Kajang-Putrajaya; c) LRT3 line linking major cities to Klang, a distance of 36km;d) Electrified double tracking involving construction of 197km parallel tracks from Gemas to Johor Bahru;e) Upgrading of road from North Port to Pulau Indah Expressway;f) Expansion of international broadband (bandwidth) capacity and coverage;g) Wider coverage of High Speed Broadband (HSBB2) and Suburban Broadband (SUBB) for all state capitals and high-impact growth zones;h) Construction of new plants and upgrading of existing water treatment plants to increase supply reserves in excess of 10.0% at all plants; i) Construction of centralised and regional sewerage treatment plants, and also enhancement of small plants’ efficiency and effectiveness as well as discharge efficiency;j) Gas pipeline from the Malaysia-Thailand Joint Development Territory;

homes priced at RM300,000 and below saw the highest demand at 64.4%; residential properties priced between RM400,000 and RM500,000 registered 5.7%; those priced between RM500,000 and RM1.0 million commanded 10.7%; while luxury homes registered 19.2%. The residential property market momentum is expected to be rather challenging in 2016 in view of future supply entering the market, and increasing number of unsold units at all stages of supply.

According to the NAPIC’s Property Market Report 2015, there were 70,723 newly launched units and 168,672 units under construction. Out of these, 58.6% of the newly launched units and 40.8% of those under construction were unsold. Sales in 2015 were much lower at 41.4% in comparison to 45.4% in 2014. A study on the New Property Launch Plan for 1H2015 by the Real Estate and Housing Developers Association (REHDA) shows that unsold units had increased to 78.0% compared to 64.0% in 2H2014.

The main factors for the decline in sales performance are:

a) The existence of an overly cautious sentiment amongst purchasers following uncertainties in the domestic and foreign economies. The world economy remains erratic and employees’

Residential Property DemandResidential property transactions contributed 65.2% (235,967 transactions) in terms of numbers and 49.0% (RM73.5 billion) in terms of value towards total

k) Construction of new and upgrading of power plants to generate 7,626MW of electricity and a power distribution system;l) Construction of 3,000km surfaced rural roads;m) Port expansion; andn) Construction of new and extension of existing airports.

Property DemandProperty includes residential, commercial and industrial buildings. Property demand in 2016 is forecasted to be poor due to the current economic challenges. Based on current global scenario, developers would be more cautious in initiating new launches whilst prospective purchasers adopt a “wait and see” stance. However, the property market will experience spill over effects of the 11MP projects, especially from mega transportation projects; affordable housing policy; first home scheme; and people’s housing programme. According to NAPIC’s 2015 Annual Property Market Report, the property market transactions shrunk by 5.7% to 362,105 transactions in 2015 (2014: 384,060 transactions). Value-wise, the same trend was seen in 2015 with a reduction of 8.0% to RM149.9 billion (2014: RM163.0 billion).

termination by large corporations has begun. Records show that 9,530 employees were terminated in 2015 (2014: 10,431 employees), and this trend is expected to continue into 2016. The financial and insurance industries saw the highest terminations;

b) Difficulties in securing financing. This follows measures undertaken by financial institutions in tightening qualifying terms for housing loans in their effort to control household credit limits and curbing market speculations. The conscientious lending policy implemented by financial institutions saw numerous housing loan applications being rejected. Outcome from the same study by REHDA showed high declined loan applications for not only high-priced residential units but also those with prices around RM250,000 (29.0%) and RM500,000 (35.0%); and

c) High property prices that are beyond the means of most purchasers from the low and medium income group.

The weak momentum in the market pushed private developers to react by slowing down construction and new launches. The number of construction starts were much lower in 2015 (139,189 units) than the previous years (2014: 204,183 units). This measure would allow time for the market to absorb existing unsold units.

property market transactions in 2015 (2014: 247,251 transactions; RM82.0 billion). Both transaction by numbers and value indicate a decline of 4.6% (2014: 0.4%) and 10.4% (2014: 13.9%) respectively. Affordable

Table 4.10 Property Market Transactions

Property TypeNo. of

TransactionsValue

(RM billion) No. of Transactions

No. of Transactions

Value(RM billion)

Value(RM billion)

2015 2015 2015 2015 2015

Change (%) Market Share

2014 2014 2014 2014

ResidentialCommercialIndustrialLandOthersTotal

247,25135,528

8,10093,144

37384,060

235,967 31,776

7,04687,239

77362,105

82.031.614.534.40.14

163.0

73.5 26.412.038.00.05

149.9

0.43.6

-0.381.12.80.8

-4.6-10.6-13.0

-6.3108.1

-5.7

13.9-11.217.9

6.2700.0

6.9

-10.4-16.5-17.210.5

-64.3-8.0

65.28.81.9

24.1-

49.017.6

8.0 25.3 -

100.0

Source : Annual Property Market Report 2014 & 2015, NAPIC Note : - Negligible value

Table 4.11 Market Performance of Residential Property

Supply StageProposed Units Change (%) Unsold Units

(% Proportion )Unsold Units(% Change)

2015 2015 2015 20152014 2014 2014 2014

New Launch

Completed

Under Construction

Unbuilt

Construction StartUpcomingReady StockPlanned SupplyNew Supply

86,997

46,307

148,659

22,916

171,146769,788

4,848,030673,235204,183

70,273

51,042

168,672

16,095

188,757892,099

4,928,883642,405139,189

39.5

-13.9

10.8

0.7

17.413.0

2.613.434.1

-19.2

10.2

13.5

-29.8

10.315.9

1.7-4.6

-31.8

47,506 (54.3)9,733 (21.0)

53,476(36.0)

13,471 (58.8)

n.a.n.a.n.a.

--

41,184 (58.6)11,316(22.2)

68,760(40.8)

10,074(62.6)

n.a.n.a.n.a.

--

19.5

-28.1

2.8

-0.4

-----

-13.3

16.3

28.6

-25.2

-----

Source : Annual Property Market Report 2014 & 2015, NAPICNote : n.a. – no available data





Source : Annual Property Market Report 2014 & 2015, NAPIC

Under the 11MP, 606,000 housing units have been planned for the low and medium income households, with a further 47,000 units to be built or repaired for the underprivileged. In 2016 Budget, the government has planned for 180,200 units through affordable home ownership programme such as:

a) 100,000 units under the Projek Perumahan Awam 1Malaysia (PPA1M) Scheme;b) 32,100 units under the Projek Perumahan Rakyat (PPR) Scheme;c) 5,000 units transit homes by the Projek Perumahan 1Malaysia (PR1MA) and PPA1M;d) 1,500 housing units for orang asli;e) 22,200 housing units for the second generation

settlers shall be built by Federal Land Development Authority (FELDA), Federal Land Consolidation and Rehabilitation Authority (FELCRA) and the Rubber Industry Smallholders Development Authority (RISDA);

f) 5,400 affordable housing units will be built by Sime Darby Property and Kwasa Land;g) 10,000 units Rumah Mesra Rakyat will be built by Syarikat Perumahan Negara Berhad (SPNB);h) 2,000 affordable housing units for armed forces will be built by the Armed Forces Fund Board (LTAT); andi) 2,000 affordable housing units for the Royal Malaysian Police (RMP).

The government has recommended private developers to offer more affordable houses in their projects, thus offering several incentives to reduce initial costs, and helping prospective first-time homebuyers to reduce their financial burden. Amongst the government incentives and aid offered are:

The same trend was seen in retail spaces in commercial complexes with an increase of 10.2% (2015: 1.5 million per square metre; 2014: 1.4 million per square metre), expanding available retail space to 6.5%. This does not affect occupancy rate since there is an improvement in absorption of these additional spaces (2015: 26.0%; 2014: 20.3%) and a drop of completed units to 9.2%. The current occupancy rate at 82.4% is acceptable, better than the previous year (2014: 81.8%). Unoccupied spaces are expected to be higher in view of a large volume in new spaces entering the market, and the sharp rise of new units being built at 68.7% (Table 4.13).

The government has taken initiatives to provide various incentives to the tourism industry in an effort to attract 30.5 million tourists in 2016 to a budgeted income of RM103.0 billion; whilst by 2020, a total of 36.0 million tourists are targeted bringing in an income of RM168.0 billion. Therefore, developers are confident in continuing to offer more retail spaces ahead of the proposal to turn Malaysia into a regional shopping hub. The targeted spending per tourist in retail is between RM1,000.00 and RM1,605.00 per square feet.

Currently, there are 128 premises at the KLIA Mitsui Outlet Park (MOP) in Sepang, covering 24,000 square metres of retail spaces. KLIA MOP aims to have 260 premises by 2021 and plans are underway for the expansion of Phase 2 and 3, with operations expected to commence in 2018 and 2021 respectively. In 2021, retail space at KLIA MOP is expected to increase over 44,000 square metres. Retailers are enthusiastic on the notion that shopping activities will be an element of a modern lifestyle. The additional of new hypermarkets, large supermarkets and departmental stores are in line with the liberalisation of large retail subsector implemented in 1995, offer potential demand for retail

a) Facilitation aid fund for up to 25.0% of construction cost;b) Deposit payment on the first purchase of an affordable home;c) RM20,000 subsidy on purchase of one unit of Rumah Mesra Rakyat; andd) PR1MA house sold at 20.0% below current market price.

The involvement of private companies and government agencies in the affordable housing projects will trigger higher market demand. The outlook for 2017 is more positive with the improvement of the domestic economy parallel to a projected world economy recovery. It is anticipated that the government would continue to fork out various means of financial assistance, subsidies and incentives to stimulate the housing sector, particularly construction of affordable housing. This would assist to develop and boost the domestic economic growth and encourage households in owning a home.

Commercial Property DemandCommercial property covers shop buildings and retail complexes. Demand for commercial properties is estimated to be resilient, driven by township developments, population density, household incomes and volume of tourist arrivals. 2015 saw a drop in recorded transactions by 10.6% to 31,776 transactions (2014: 35,528 transactions) with a value decline by 16.5% to RM26.4 billion (2014: RM31.6 billion) (Table 4.10). Market prospects remains challenging in 2016 when new units are launched. Future market entry for shops is estimated to be 96,664 units, a rise by 17.3% (2014: 82,390 units) whilst the number of unsold units continue to escalate at all stages of supply as well as unbuilt units (Table 4.12).

space. A foreign based retailer from Abu Dhabi, is anticipated to establish 10 hypermarkets throughout Malaysia in the first 5 years commencing 2016, with an initial investment of RM1.3 billion (USD300 million).

Developers will attempt to sell unsold units and secure tenants for vacant spaces. They will be very careful to start planning and commencing new projects. It is estimated that there were 73,254 shop units and 1,667,750 square metres of retail space in commercial complexes at the planning stage at the beginning of 2016.

The commercial market has a vibrant outlook in 2017 with the expected completion of the public transportation infrastructure such as the Mass Rapid Transit (MRT) and Light Rail Transit (LRT) expansion projects. The property prices along the service routes will increase and stimulate the development of new

Table 4.12 Market Performance of Shop Buildings

Supply StageProposed Units Change (%)

Proportion (%) Change (%)

2015 2015 2015 2015

Unsold Units

2014 2014 2014 2014

Completed

Under Construction

Unbuilt

Construction Start

12,230

21,460

2,383

20,512

16,858

28,252

3,628

21,345

-4.8

34.7

-11.7

14.2

37.8

31.6

52.2

4.7

4,324(35.3)7,987(37.2)1,257(52.7)

n.a.

4,972(29.5)

12,882(45.6)2,459(67.8)

n.a.

-7.5

32.2

-30.0

-

15.0

61.3

95.6

-

Property TypeProposed Units Change (%)


2015 2015 2015 2015

Unsold Units

2014 2014 2014 2014

UpcomingReady StockPlanned SupplyNew Supply

82,390406,105

74,81828,824

96,664415,754

73,25416,343

17.23.5

25.770.4

17.32.4

-2.1-43.4

n.a.n.a.

--

n.a.n.a.

--

----

----

Ready StockOccupancy Rate (%)Vacant Space (%) CompletedTake-Up Rate (%)Absorption Rate (%)Construction StartUpcomingPlanned SupplyNew Supply

12,978,49981.8

2,364,218711,004

20.36.5

368,1901,365,5091,037,169

950,539

13,828,95382.4

2,432,499645,878

26.05.7

621,1651,505,2011,029,596

467,335

4.31.7

-4.357.4

7.63.6

40.08.8

114.5220.6

6.50.62.9

-9.25.7

-0.868.710.2-0.7

-50.8

Table 4.13 Market Performance of Commercial Complex

Supply StageGrowth (%)2015

(sq m)2014

(sq m) 2014 2015




commercial and housing areas. At the same time, the 11MP economic and social projects progressing into their second year will be intensified and boost private commercial projects.

Industrial Property DemandThe industrial property segment refers to factories and warehouses. Industrial properties derives from realisation of both domestic and foreign investment. The market prospect for 2016 is expected to ease, arising from the slow momentum of domestic and external demand. Such environment causes trade and consumer sentiments to weaken, thus investors are wary to commit fresh investments.

At the end of 2015, there were 2,061 unsold industrial

The commerce-friendly government administration restructuring strategy and the liberalisation of several industries will provide an immense leeway for commercial expansion. This strategy and the investment incentives being offered are aimed at lowering cost of doing business to make Malaysia the preferred destination for FDIs. Malaysia is the 10th destination in the Asia Pacific for major FDIs by US based information technology company IHS Inc; 4th Business Friendly country by Financial Times (UK) in its 2014 FDI Report; 18th in a list of 189 business friendly economies in the World Bank’s Doing Business 2016 Report (DB2016); 6th place as an attractive investment

as complete the supply chain and national output. Stimulus packages will be continuously reviewed to ensure a stable investment in SMI growth. Subsequently, the SMI Master Plan 2012 – 2020 was established to provide guidelines on SMI growth until 2020. The SMI industry is being developed premised on technology and innovation as one of the sources of new growth. An assortment of incentives and aids in terms of funds, technical and marketing were offered by various government agencies to assist and stimulate SMI growth. During the economic transformation years, the private sector also grew at high investment ratio. By 2020, 92.0% of private investment is targeted for sustainable growth. The government is steadfast in maintaining the momentum set in the last 5 years to attain high-income nation status. The public and private sector will continue to complement each other in playing their roles, with private sector leading in attracting investment into Malaysia while the government focus on developing a conducive and business friendly environment.

Private investment is expected to rise by 5.5% (2015: 6.4%) to RM212.7 billion, which is lower than the 11MP projection of RM291.0 billion in 2016. Malaysian Investment Development Authority (MIDA) has approved 4,887 projects for proposed investments valued at RM186.7 billion in 2015, a decrease of 22.1% (2014: RM239.7 billion). Investment in the manufacturing and services sectors accounted for 98.0% of proposed investment with the possibility of creating 180,249 jobs, and potentially create a major demand for industrial buildings.

Vigorous implementation of investment in the 5 economic corridors will reinforce demand for industrial buildings. For instance, Iskandar Malaysia has relentlessly attracted foreign investment by providing amenities in large industrial space and offering a range of investment incentives. The same can be said for Selangor, Penang and Melaka; each needing sound investment for continuous state development. Inter-state competition in attracting foreign and domestic investment has prompted the emergence of more industrial zones to benefit potential investors. This will support demand for industrial buildings mainly, and other properties in general. The Refinery and Petrochemical Integrated Development (RAPID) project is the largest investment in the oil and gas industry and alongside the development of the KLIA Aeropolis as a

properties across all stages of supply. This represents only 2.0% of available industrial property stock in the market. A total of 12.0% (243 units) of the unsold units were of ready built supply; 84.0% (1,731 units) were offered as units under construction; and 4.0% (87 units) were yet to be built. This scenario signals that the current market is about to experience an oversupply situation. In response, developers reacted by slowing down construction starts and planned supply. New supply shrunk by 65.1%, while planned supply shrunk by 43.1%. Sales suffered a decline except for units under construction which increased to 41.6% (2014: 36.9%). The weakened demand for industrial properties is presumed to be temporary in tandem with current economic scenario and domestic investment performance.

destination in the world in The Baseline Profitability Index (BPI) 2015 by The Foreign Policy Magazine; and ranked 18th in the Global Competitiveness Report (GCR) from 20th in the previous year. These positive reputation adds value and advantages in garnering FDI inflows.

A large proportion of industrial property demand comes from the Small and Medium-Sized Industries (SMI), which forms 95.0% of Malaysian industries. These SMIs play an important role in the transformation of the national economy. Majority of the SMI activities are domestic oriented that complement as well

logistics hub; all these combined will be the main driver of industrial buildings demand.

The world economic prospect for 2017 is projected to be healthier than in 2016. The positive development will benefit Malaysia’s economy which has long been a profitable investment destination. The Trans-Pacific Partnership Agreement (TPPA) will facilitate a wider market access to spur external demand in 2017. The improvement in world trade balance following a world economic recovery will encourage producers to expand production in response to increasing external demand at the advent of 2017. The high investment growth will enable the absorption of existing property supply in the market. Unsold units in the market are reserves for fulfilling short-term growth demand due to non-elastic property supply.

Office Property DemandThe prospect for office space is seen as less encouraging in view of prolonged oversupply situation, with the exception of offices located in smart buildings and green buildings. At the end of 2015, there were 10.6% vacant office spaces. Another 2.2 million square metres of office space will be on the market whereby 520,718 square metres were completed to raise existing office space stock by 2.9%. On the other hand, planned supply shows a decline by 28.6% to 409,948 square metres. In 2015, newly approved proposals continue to rise by 11.8% to 341,463 square metres (2014: 305,523 square metres).


Table 4.14 Market Performance of Industrial Buildings

Supply StageProposed Units Change (%)


2015 2015 2015 2015

Unsold Units

2014 2014 2014 2014

Completed

Under Construction

Unbuilt

Construction StartUpcomingReady StockPlanned SupplyNew Supply

563

2,114

235

3,41111,25497,70417,534

3,161

583

2,965

106

2,28411,206

103,8689,9811,104

-42.7

30.4

-43.0

75.725.6

2.41.44.8

3.5

40.2

-54.9

-33.0 -4.36.3

-43.1-65.1

226(40.1)1,335(63.1)

148(63.0)

n.a.n.a.n.a.

--

243(41.7)1,731(58.4)

87(82.1)

n.a.n.a.n.a.

--

-47.1

55.4

-43.1

-----

7.5

29.7

-41.2

-----


Ready StockOccupancy Rate (%)Vacant Space (%) CompletedTake-Up Rate (%)Absorption Rate (%)Construction StartUpcomingPlanned SupplyNew Supply

19,553,12984.8

2,971,362443,792

23.34.4

183,3951,735,743

573,997305,523

20,131,81283.7

3,287,842520,718

7.513.0

481,6421,667,750

409,948341,463

3.02.1

38.9213.2

8.72.1

-36.9-18.9

3.8252.2

2.9-1.110.617.3

-15.88.6

162.6-3.9

-28.611.8

Table 4.15 Market Performance of Office Space

Supply StageGrowth (%)2015

(sq m)2014

(sq m) 2014 2015



94 95New Construction ProjectionConstruction Demand Prospects

A large portion of demand for office buildings comes from professional services; oil and gas; finance and insurance; product promotion; brokerage, educational services; health services; etc. The services sector contribution to GDP serves as an indicator whether a country has reached developed nation status. In 2015, the services sector contributed 53.5% towards GDP and is projected to contribute at 54.0% in 2016. Meanwhile, the services sector contribution towards GDP under the 11MP has been targeted annually at 56.5%. To boost growth, intensive efforts are being made to increase numbers of knowledgeable and skilled technical workforce to support the services sector growth towards Vision 2020.

Proposed investments in the services sector approved by MIDA for 2016 stood at 4,150 projects valued at RM108.2 billion. This reflects 58.0% of total approved proposed investments, which has the potential to create 112,194 jobs. The sluggish demand for office space has been a result of the absence of new, large services firms and the slow growth of existing firms. This sector encompasses a multitude of services such as foreign regional office placement; global hub operations; auxiliary services; Multimedia Super Corridor (MSC) companies; distribution; financial; health; telecommunications; utilities; tourism; hotel; education; transportation services; and properties. Large portions of foreign investments are placement of global and regional operations involving 201 companies with an investment value of RM8.2 billion and 4,217 jobs. These global and regional operations will provide professional services related to supply chain management; financial management; and data information services.

The Greater KL/KV programme aims to turn Kuala Lumpur into an international class city and a desirable destination for knowledgeable and high-income earners. Various efforts are in place to attract more Multinational Corporations (MNCs) from Fortune 500 and Forbes Global 2000 to establish their regional operation offices here. In 2015, InvestKL successfully attracted 10 MNCs to invest in Greater KL/KV and aims to attract another 100 MNCs by 2020. The establishment of more of MNCs offices in Malaysia will create jobs and business opportunities that will drive increased demand for workspace.

From 2011 to 2014, a total of 51 MNCs have set up

their offices in Kuala Lumpur with a total investment of RM1.9 billion; employment of 4,700 workers; and leasing office space covering an area of 4,859 square metres. In 2015, a total of 201 international regional offices were approved by MIDA with investments of RM8.2 billion and offering a potential employment of 4,712. These investment created a demand for office space of approximately 5,000 square metres. The steady expansion of the services sector until 2017 will provide new demand to absorb the excess supply of office space in the market. Furthermore, as planned supply began to slow down, it will allow the market a chance to reduce the excess space. With an encouraging absorption rate of new space of 13.0% in 2015, the oversupply situation will not be prolonged. The sustained development of the services sector will provide positive outlook on the property market for office space in 2016 and 2017.

Hotel Property DemandThe hospitality industry prospect is very much related to the tourism industry, in the provision of adequate and quality accommodation. A total of 36.0 million tourists are targeted annually by 2020. As for 2016, the industry attempts to attract a total of 30.5 million tourists. Despite many challenges, the tourism sector is seen as resilient, as well as an important sector in contributing to major foreign exchange earnings to support economic recovery. In 2015, Malaysia received 25.7 million tourist arrivals, a decrease of 6.3% compared to 2014 (27.4 million tourists). The decline in number of tourist arrivals was due to the world economic slowdown; the occurrence of the biggest floods in 30 years which affected several states in Malaysia in early 2015; the Ranau, Sabah earthquake in June 2015; travel warnings to areas of Southeast Coast of Sabah; as well as the continual impact of the missing MH370 and MH17 flights. Despite these challenges, occupancy rate in 2015 maintained at a rate of about 61.0%.

In anticipation of more tourist arrivals by 2020, as much as 28,785 new hotel rooms will enter the market. The existing stock of hotel rooms is expected to increase by 2.3% to 208,747 rooms with the completion of 4,176 new rooms. Meanwhile, a total of 24,069 rooms will enter the market in an upcoming supply. Based on the assurance of a sustainable tourism industry, developers were ready to increase the supply by 6.9% to 16,341 rooms (2014: 15,292 rooms). However, the new supply in 2015 has declined by 30.2% (2014: 17.0%).

Government incentives and programmes such as the Investment Tax Allowance incentive will continue to play an important role in the development of the tourism industry especially in encouraging the establishment of more 4 and 5 star hotels. Various promotions, festival and campaigns were organised to attract tourists in order to achieve the target of 36 million tourists and reap the revenue of RM168.0 billion by 2020. A sharp increase in tourist arrivals will surely step up hotel occupancy rates and subsequently boost the development of the hospitality industry.

The Malaysian economy sustained an annual growth of 5.3% since the implementation of the 10MP in 2010, driven by an increase in private investment. From 2011 to 2015, every sector of the economy recorded encouraging average growth with the construction sector registered the highest growth, fuelled by the government’s socio-economic development projects and private investment, especially in Entry Point Projects (EPP). The value of construction projects awarded during the 10MP period amounted to RM680.0 billion compared to RM407.0 billion during the 9MP. In the 11MP, the government will continue to build the resilience and competitiveness of the Malaysian economy in the face of uncertain external economic landscape. Conducive business environment and the increase in household income will enhance consumer and business confidence in dynamic business activities, thereby boosting economic growth. Sustainable growth is an important prerequisite for the

nation to share benefits of the country’s wealth. The government is committed to continue building basic infrastructure and social projects to improve competitiveness in attracting and encouraging implementation of new and quality investment. The implementation of these projects will contribute towards a high demand for construction works.

Value Of Government ProjectsAs an initial step towards realising 11MP, the 2016 Budget was announced in October 2015 with an allocation of RM267.2 billion. In January 2016, the government has recalibrated 2016 Budget in alignment to current economic challenges and its diminished revenues. This has taken into account the projected weakness in the world economy, plummeting crude oil prices and low Ringgit value. Development expenditure was reduced by RM2.0 billion to RM50.0 billion and operational expenditure was kept unchanged at RM215.2 billion. Recalibration of the budget was made as a fiscal consolidation measure by monitoring expenditure so that budget deficit would not exceed 3.1% of GDP. At the same time, the government needs to ensure there are adequate public funds to promote economic growth and provide quality services for the people. As such, the government has taken measures in prudent and optimal spending to ensure that the proposals in the people’s economic programmes are not adversely affected.

In the 2016 Budget, the government planned to develop a number of projects that would improve the economic well-being of the people, especially that of the rural population. An estimated RM68.0 billion of Ekonomi Rakyat projects are expected to be constructed (Appendix 4.1). In general, not all projects can be implemented as planned on 2016 due to the administrative processes for site acquisition, development approvals and the tendering process. Taking into account the 2015’s unexecuted projects and the projected 40.0% of the estimated total expenditure of RM68.0 billion, it is forecasted that the government projects to be implemented in 2016 will be approximately at RM27.0 billion. The same amount is also forecasted to be implemented in 2017.


Available StockOccupancy Rate (%)CompletedConstruction StartUpcomingPlanned SupplyNew Supply

204,09162.6

6,6923,863

22,26815,292

6,219

208,74761.0

4,7164,340

24,06916,341

4,342

0.539.1

28.8-51.4

-8.9-5.817.0

2.3-1.6

-29.512.3

8.16.9

-30.2

Table 4.16 Market Performance of Hotel

Supply StageChange (%)Rooms

20152014 2015 2016

NEW CONSTRUCTION PROJECTION



96 97New Construction ProjectionNew Construction Projection

Value of Infrastructure Work Projects In 2016 Budget, several mega infrastructure projects related to transport systems and facilities, telecommunications and basic social infrastructure were announced by the government. A total of RM81.5 billion is estimated for infrastructure projects as listed in Appendix 4.2. These projects will be implemented partly by government departments or agencies, and the rest by GLCs and private companies through Public and Private Partnership (PPP). The public transport system expansion, the Pan Borneo Highway and the West Coast Expressway are expected to contribute the highest work value. It is estimated that RM33.0 billion or 40.0% of construction contracts will be commenced in 2016. From the 40.0% of the overdue projects from 2016 and new projects which will be implemented in 2017, it is estimated that the value of infrastructure projects in 2017 will remain similar at RM33.0 billion.

Value of Residential Work ProjectsIn the previous 5 years, the residential market offered a total of 1,295,700 units of residential whereby a total of 80,076 units were unsold. From these, the government had built a total of 181,636 units under various programmes of affordable housing for low-income and middle-income households (B40). The scenario provides an overview of an average market supply of 259,140 units per year. According to the Census Survey of Income, Household Expenditure and Basic Amenities Survey (HIS/ BA) 2014 conducted by the Department of Statistics Malaysia, about 1.7 million of the 7.1 million households across the country do not own a house. In 2015, the number of households has increased by 100,000 to 7.2 million.

In 2015 NAPIC report, the stock of housing units increased by 80,850 units compared to the estimated 1.8 million households that do not own a house. Population for the next 3 years to 2017 is expected to reach a total of 31.8 million people, with an estimated 7.4 million households. The number of households in need of housing increased from 1.7 million in 2014 to nearly 2.0 million whilst residential supply in the market is estimated at 777,400 units. Taking into account the requirement of one household per residential unit, the country needs an additional 1.2 million housing units. In 2010, Greater KL/KV has a population of approximately 6.0 million people or 1.4 million households which will increase to 10.0 million people or 2.3 million households in 2020. Therefore, Greater KL/KV has targeted 1.0 million housing units or 100,000 units per year.

rapidly implemented under the government’s affordable housing programme. Participation of private developers will increase due to the availability of various incentives provided by the government to reduce costs and ease the financial burden of the initial purchasers. The market will consolidate with price adjustments; and residential prices will correspond to the current income of most households. This consolidation is expected to lead to more stable prices and increased supply of affordable housing. The expected economic improvement in 2017 will renew buyers and developers’ confidence, thus drive the demand for residential property. The implementation rate will be higher approximately by 25.0% in 2017. Therefore, around

Value of Commercial Work ProjectsCommercial properties cover shops, shopping complexes, office spaces and hotels. NAPIC predicted a weak performance for this market segment except for the hospitality industry, which is supported by the tourism promotions and campaigns. Three indicators have been used in estimating the value of commercial work projects which is the starts trend recorded by

During the 10MP, the government had built a total of 277,200 housing units for low-income, middle-income and underprivileged households, which were about 55,400 units per year. Under the 11MP, the government plans to build a total of 606,000 residential units for the low and middle income earners by 2020, which are about 121,200 units a year. Under the 2016 Budget, the government and GLCs will build a total of 184,200 units of affordable houses and quarters. Meanwhile, an average of 259,100 residential units per year was constructed based on the last 5 years from the NAPIC Annual Property Market Report (1,295,700 residential units), which represents 38.0% of the implementation rate; 23.0% of planned supply; and 24.0% of start rate. In 2015, there were 642,405 units under planning stage. Based on the construction of residential units trend specified in the NAPIC Annual Property Market Report, 154,000 new units is expected to be built in 2016.

Low number of starts is projected for 2016 due to the measures by financial institutions in tightening lending requirements, and also house prices that is considered beyond the reach of most people. The average price of Malaysian houses by NAPIC is about RM315,300.00 per unit. According to the World Bank and the United Nations (UN), the price of affordable housing is equivalent to 3 times the average median annual national household income (median income). According to the HIS/ BA 2014, the average household income in Malaysia is RM6,100.00 per month and the average median income is RM4,600.00 per month. Based on this assessment, reasonably affordable price would not exceed RM220,000.00 per unit, in corresponding to the average household income of RM6,100.00 per month. In 2016, the residential properties priced below RM250,000.00 per unit comprised 60.0% of market offers. Current trend shows developers are inclined to offer fully furnished residential units with club facilities as attractions. Generally, the price of a luxury residence between RM500,000.00 to RM1.0 million per unit is beyond the means of most households, especially middle-income earners.

In reality, demand is constantly increasing in tandem with the rise in population. The effectiveness of the actual demand is directly correlated to reasonable price; strategic location; and the eligibility of obtaining the loan. Stringent bank loan facility requirement and less strategic location are expected to curb the developers from offering more high-priced houses. It is expected the supply of affordable housing units will be

158,800 units will begin construction in 2017, from an estimated 635,000 units in the pipeline at the end of 2016.

Based on campaigns and sales promotions for new residential, most link houses have between 1,000. and 1,700 square feet depending on the type of residence; while multi-storey residential have between 600 and 1,200 square feet. In determining the projected value of a residential unit, 1,350 square feet. for link houses and 900 square feet for multi-storey residential are taken into account as the standard areas per unit. The supplies of link and multi-storey residential houses are balanced at 50:50, as shown on Table 4.17.

NAPIC; the average building construction cost for 2013 published by JUBM Sdn. Bhd which takes into account rising costs of up to 2017; and the average standard size of a hotel room issued by Malaysian Association of Tour and Travel Agents (MATTA). It is forecasted the projected construction value of commercial buildings is RM12.0 billion and RM13.0 billion respectively for 2016 and 2017.

Table 4.17 Projected Values for Residential Work Projects

Year Type No. of Residential Houses (units)

Estimated Average Cost of Construction per Unit (RM)

Total Construction Value(RM Million)

2016

2017

Link HouseMulti-storeyTotalLink HouseMulti-storeyTotal

77,00077,000

79,40079,400

152,500294,800

152,500294,800

11,74222,70032,44212,10823,40735,515

Table 4.18 Projected Values for Commercial Work Projects

Year Property Type Number or Size Starts Estimated Average Cost of Construction (RM) Total Value (RM)

2016

2017

ShopsCommercial ComplexOffice SpaceHotelTotalShopsCommercial ComplexOffice SpaceHotelTotal

18,208 units373,743 sq m172,998 sq m3,709 rooms

18,845 units404,017 sq m147,913 sq m3,828 rooms

498,3004,8005,500

132,000

498,3004,8005,500

132,000

9,0731,794

951490

12,3089,3901,939

813505

12,647

Source : Annual Property Market Report 2014 & 2015, NAPIC Construction Cost Handbook Malaysia 2014, JUBM Sdn. Bhd.



98 99New Construction Projection Estimated Value of Work Completed for 2016/2017 | Estimated Value of Renovation Work

Value of Industrial Work ProjectsMost economic analysts foresee both the Malaysian and world economies will face a difficult economic environment for 2016. Malaysia had managed to overcome challenges in 2015 with strong growth of 5.0%. Investments approved in the manufacturing industry by MIDA increased by 4.0% to RM74.7 billion in 2015. However, investment in the service industry diminished by 29.9% to RM108.2 billion (2014: RM153.4 billion). This decline was due to cautious sentiments on prospects of a world economic slowdown, which is likely to prolong into 2016. Nevertheless, the total value of these investments surpassed the 10MP target of RM148.0 billion a year. The value of private investments realised in 2015 amounted to RM198.7 billion (2014: RM183.9 billion). Private investment accounted for 65.0% of total investments in 2015, propelled by the implementation of the ETP and GTP mainly through participation in the EPPs. MIDA has been targeting RM121.5 billion of total investments for 2016. This target is 24.0% lower than approvals value for 2015 (RM159.8 billion).

During the 10MP, the implementation rate for manufacturing investment reached a high of 80.0% in 2013 and a low of 58.0% in 2015. Based on MIDA’s manufacturing investment data, roughly around 30.0% of the manufacturing investments were meant for construction of factories. Assuming implementation trend at an average rate of 75% from MIDA’s targeted manufacturing investments, the industrial property construction works value is projected to be RM27.0 billion for 2016. If estimates were made based Bank Negara Malaysia (BNM) forecast of 5.5% growth in private investment for 2016, it would result in a work value of RM38.0 billion for 2016. Therefore, the value of construction work for 2016 would be estimated between RM27.0 billion and RM38.0 billion. For 2017, investment is targeted to RM236.0 billion based on 9.4% increment as targeted in the 11MP, or at least by RM133.0 billion based on MIDA’s targeted amount for 2016. Therefore, the value of construction work would be between RM30.0 billion and RM53.0 billion for 2017.

Value of Projected New Construction Works The projected value for new construction works does not include projects in various stages of construction, projects at planning stages without costs, and unconfirmed projects as of May 2016. Given the growing uncertainties in the current economic

environment, the 2016 forecast has been revised from RM143.0 billion to RM131.0 billion. This value is 8.0% lower than projections made in 2015. The contribution of government projects for 2016 is forecast to be around 20.0%.

It is expected that additional new projects under the 11MP will be announced in 2017 Budget, which includes commercial; private housing; and realisation of investment committed to the economic corridors. The value of construction work for 2017 is forecast at RM138.0 billion. This projection is achievable in view of implementation of mega infrastructure projects and committed investment. The contribution of government projects for 2017 is expected to be around 18.0%, in line with the government’s aspiration to reduce the public sector’s role in the economy.

At the end of May 2016, the recorded value of awarded projects in 2015 amounted to RM128.0 billion compared to a projected RM144.0 billion, showing a difference of 11.0%. Projections are likely to match the actual value at the end of 2016 after taking into account late projects notifications to CIDB. Projects awarded in 2014 showed an actual value of RM149.5 billion in March 2016, and this has increased by 16.0% to RM173.0 billion in May 2016. It is observed that value of project in 2015 will be likely increased by 15.0% to 20.0%. Based on these trends, the value of projects in 2015 after adjustments is estimated between RM147.0 billion and RM154.0 billion.

The construction sector is forecast to grow by 7.9% for 2016 (2016 Budget) and 10.3% for 2017 (11MP). To achieve this targeted growth rate, the construction sector will require around RM166.0 billion for 2016 and RM183.0 billion for 2017 of new projects. Contribution towards the projected work value is expected to come from several mega infrastructure projects packages that are under construction; the construction of new highways; investments in RAPID’s oil and gas storage services; and realisation committed investment in the economic corridors. Residential projects proffering consistent high-value construction work would contribute towards raising demand for construction. With the existence of relief schemes and attractive incentives provided for buyers and developers, the growth of residential property market is expected to be consistent.

The value of completed work done or the construction output indicates the progress of completed construction work in any one year for a project. Using a constant output developed by CIDB, the value of work is estimated to be approximately RM149.0 billion, an increase of 3.5% compared to the value of work completed in 2015. In 2017, the value of the completed work done is estimated to decrease by 2.0% to RM146.0 billion due to slower implementation of new work in 2016 and 2017 (Figure 4.1).

It is a norm for new house owners to make modifications on their houses for the purpose of upgrading or expanding space; enhancing design according to preference; and to improve safety. The renovation work will vary depending on the category of house and social status of the owner. It is estimated that the cost of renovation can reach between 20.0% and 50.0% of the purchase price, and sometimes equalling the initial purchase price of old houses.

The above projections are restricted to estimations made on CIDB’s records and observations, based on information obtained from mainstream resources and various economic reports. Projections were based on these assumptions:

a) A stable national political landscape; b) No changes in macroeconomic and administrative policies; c) An improved world environment with continued growth momentum; d) Identified construction projects are implemented according as schedule; e) Inflation remained low; and f) Interest rates remained low.

Government Development ProjectHousing Project Commercial Project Industrial Project Infrastructure ProjectTotal

201020112012201320142015

27.032.012.027.033.0

131.0

72.085.0

120.0110.0120.0144.0

27.035.013.030.033.0

138.0

91.0102.0131.0137.0173.0128.0

Table 4.19 Projected Values for New Construction Work Projects

Table 4.20 Comparison of the Projected and Actual Value of Awarded Work

Figure 4.1 Projected Completed Work Value until 2017

Construction Category

Year

(RM billion)

New Work Value (RM billion)

2017

Actual*

2016

Projected

Note : *Data as at May 2016

ESTIMATED VALUE OF RENOVATION WORK

Note : New Works data for 2010 to 2015 is until May 2016

ESTIMATED VALUE OF WORK COMPLETED FOR 2016/2017



100 101Estimated Value of Renovation WorkEstimated Value of Renovation Work

For the purpose of this report, the value of new houses renovation is fixed at a minimum cost of 20.0%. Based on NAPIC Property Market Report 2015, renovation expenditure for new houses is estimated to be around RM4.6 billion in 2016 and RM6.0 billion in 2017 (Table

4.21). Estimates on renovation works for old housing units with transferred ownerships, shops, shopping complexes, industrial units and office space could not be made due to lack of data and information.

The government has allocated RM18.0 million to Bank Rakyat as credit fund for Small Retailer Transformation Programme (TUKAR) and Automotive Workshop Modernisation Programme (ATOM). This fund is allocated for the renovation of premises to upgrade and modernise business of retail outlets and small automobile workshops. Bank Rakyat offers loans between RM20,000.00 and RM80,000.00 with an annual interest rate of 3.0%. In 2015, a total of 302 retail stores and 188 automotive workshops were renovated. This programmes targets 300 retail stores and 180 workshops to be renovated each year for 2016 and 2017. Assuming a retail store spends RM30,000.00 and automobile workshop spends RM50,000.00 on renovation works, total expenditure for renovation of the premises is estimated to be RM18.0 million each year for 2016 and 2017.

In 2016 Budget, the government made allocations of RM500.0 million for the development and preservation of educational facilities; RM155.0 million for maintenance of public low-cost housing; and RM333.3

million for maintenance of ministries and government departments buildings. Projected expenditure for maintenance is estimated at RM988.3 million for 2016 and approximately the same amount for 2017. This amount does not include repair and maintenance expenses of federal, state and municipal roads. Overall, the renovation, maintenance and repairs segment are estimated to be between RM7.0 billion and RM8.0 billion per year.

ConclusionThe world economic outlook is expected to be sluggish in 2016 with risks from the Russia-Ukraine geopolitical tensions; Islamic State (IS) crisis in the Middle East; the North Korean nuclear threat; Turkish-Russian political tensions; and the market as a whole being increasingly challenged by other external factors. The world and regional factors including the slowdown in the Chinese economy; oil prices; consistently low world commodity prices; and the uncertainty of the USD interest rate will together contribute towards a challenging world environment. The world economy

is forecast to experience a gradual recovery in 2017, driven by improvements in developed, developing and rapidly growing economies. World oil prices and other commodities are forecast to increase and improve balance of payments. Fiscal consolidation measures through structural adjustments and institutional changes by developed countries will also contribute to strengthening the growth process of the world economy.

Malaysian economy will also benefit from the developing economic environment. Economic growth will continue to be promoted by strong domestic demand and recovery in external demand. Business-friendly policies and environment, implemented under the ETP and GTP, will offset probable shocks from uncertainties within the world economy. Inflation is very much under control following the provision of government assistance, as well as households

making adjustments on their expenditures to meet the rising cost of living. The involvements of government agencies in supplying affordable housing, and strict mortgage requirements by financial institutions have been able to mitigate the increasing house prices.

Malaysia’s economic fundamentals will always be on a firm footing. The economy is forecast to grow strongly at least by 4.0% for 2016 and 2017. All economic sectors are projected to grow positively, except for agriculture sector. The construction sector will continue to benefit from the implementation of mega infrastructure projects; the rapid development of townships; and increase in investment. The construction sector is expected to have a sustainable demand of approximately RM131.0 billion for 2016 and RM138.0 billion for 2017.


Table 4.21 Estimated Value of House Renovation Works

HousingNo. *No. of Units *Value(RM million)

2017

Estimated 20.0% of Value (RM million)

2016

50% units sold of unsold, project units completed under 2015 projects50% units sold of under-construction units under 2014 projects50% units sold of units not constructed under 2013 projects50% units sold for unsold units completed under 2015 projects50% units sold of units under construction under 2015 projects50% units sold of units not constructed under 2014 projectsProjected Renovation Works Value

5,658

47,592

4,722

5,658

49,956

4,358

1

2

3

4

5

6

2,900

18,500

1,700

2,900

26,100

1,700

600

3,700

340

-

-

-

4,640

-

-

-

600

5,200

300

6,100

CHAPTER 4 CONSTRUCTION INDUSTRY … 4 CONSTRUCTION INDUSTRY PROSPECTS 2017 World Economy World FDI...

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