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Market Watch Malaysia 2010 Construction Industry
Market Watch Malaysia 2010 Construction Industry
Construction Industry
Overview
With an annual average of 20% export surplus, Malaysia is one of the 20 largest export
nations worldwide and is ranked 28th out of 121 countries by the “Global Enabling
Trade Report 2009”, published by the World Economic Forum. Malaysia’s total trade in
2008 amounted to RM 1,185 trillion, which depicts an increase of 6,8% compared to
2007 trade balance; exports even rose 9,6%, while total imports grew by 4.9% to RM
504.57 billion. But the weak global markets also affected Malaysian trade in 2009. In
the first 6 months of 2009, total trade accounted for RM 441.75 billions, decreasing of
about 30% in comparison to the first half of 2008. The estimated exports of
2009(January-August) are RM347.1 billion; total imports amounting RM270.5
billion.1Major export countries for Malaysian goods are Singapore, Japan, China, India,
Korea as well as the United States, Australia, the Netherlands and Germany among
others. In 2008, Malaysia’s largest export revenue contribution was made by the
electrical and electronics products sector (38%). Other crucial sectors are palm oil &
palm oil-based products, crude petroleum, liquefied natural gas and timber/timber-
based products. Major import products are electrical/ electronic products, machinery,
iron / steel products as well as chemical products.
Malaysia’s top five trading partners were the United States of America, the Republic of
Singapore, the European Union, the People’s Republic of China and Japan. Malaysian
FDI reached RM 48 billion in 2008, but in first half of 2009 the FDI has dropped to
RM4.2 billion.2 Sources of foreign investments mainly lie in Japan, Germany, the USA
and Singapore3.
1
MIDA (Malaysian Industrial Development Authority), Wed. 06/01/10
2
Aseanaffairs, Wed. 06/01/2010
3
German Trade and Investment Center
Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
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, 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.
The construction industry makes up an important part of the Malaysian economy due
to the amount of industry linked to it such as those for basic metal products and
electrical machinery. 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 a 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 that greater control can be exerted. As there seems no sign of
the dependence on foreign workers attenuating, future waves of migrant workers can
2
Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
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.
Graph (1) provides a comprehensive and estimated general overview of the output
within the construction industry facing the value of completed and started projects.
Whereas the curve of value of finished project steadily follows an upward slope within
the timeframe of 2003 until beginning 2009, the growth graph of projects start faces a
tremendous and sudden drop from RM 81.4 billion to RM 69.0 billion between June
2007 and June 2008. This decline is mainly attributed to the worldwide financial.
The economy had a set back and the flourishing construction industry had to struggle
with many delayed and stagnated projects. However, stern efforts and governmental
measurements were introduced and the construction industry responded positively
3
Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
with a remarkable upward trend. The issue of financial crisis and its implication within
the construction industry will be addressed in more detail at a later point of the
Market Watch Report.
The graphical chart above concerns the relation between the construction industry
towards the Gross Domestic Product (GDP). It displays that the Output Value for the
construction industry of GDP remained steady, albeit with some minor fluctuations. In
the past years 2007 and 2008 overall performance of the sector is growing, attributed
to higher civil engineering, special trade works and residential activities.
Graph (2): Output Value for Construction Sector of Gross Domestic Product (GDP)
According to a press statement of the finance minister of Malaysia Datuk Seri Ahmad
Husni Hanadzlah, the construction industry is expected to register 3.5% growth in
2009, despite the current global economic crisis. He mentioned that when many
sectors were facing a growth contraction, the local construction sector was still
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Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
resilient and a pillar of strength to the Malaysian economy. Graphic (2) indicates
further growth of 0.8% in the first Quarter 2009.
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. 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.
In August 2008, the Government announced several provisions to allow variation in the
contact value of government projects. This is to assist contractors to cope with
escalating prices of construction materials. For the civil engineering works, the price
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 of June 2009
5
Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
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.
The residential sub-sector grew by 3.5% (January – June 2007: 0.9%) during the first six
months of 2008. The positive performance was partly due to accelerated
implementation of Government’s low and medium housing programs. These include
the construction of 36,000 units of affordable houses by Syarikat Perumahan Negara
Berhad. 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.
This was reflected in the higher construction activities for high-end condominium
mainly in Selangor and Kuala Lumpur. However, in 2009 the residential sub-sector is
expected to moderate as weakening consumer sentiments lead developers to reduce
launches of new housing developments, thereby keeping the overhang at manageable
levels. Nevertheless, the measure to provide tax relief on interest paid for housing
loans will provide some support to demand for houses.
6
Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
Table (2): Number and Value of Projects Awarded by Category as of June 2009
Consequently, units of new launches were lower at 9,442 units (January-June 2007:
35,492 units). With the contraction in housing starts during the same period, the
incoming supply of residential units under construction registered a total of 568,348
units (end-June 2007: 595,115 units). Completed units stood at 69,051, resulting in
total existing stock increasing 4.0% as at end-June 2008 (end June 2007: 5.3%), with
Selangor continuing to lead at 28.6% followed by Johor (15.6%), Kuala Lumpur (9.0%)
and Perak (8.8%).
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Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
Construction starts for shops increased in 2008 to 5,594 units, compared to previous
year figures of 4,379 units in addition to 42,097 units of shops currently under
construction. Meanwhile, 17 shopping complexes, which started construction in 2007,
are expected to contribute additional 302,566 m² of retail space once completed. In
addition, a total of 39,594 m² of retail space starts were recorded during the first six
months of 2008. With the completion of new shopping complexes such as Pavilion and
The Gardens Galleria in Kuala Lumpur as well as The Spring and Boulevard Shopping
Complex in Sarawak, existing stock of retail space increased to 8,818,780 m² by the
end of June 2008, compared to 8,201.000 by the end of June 2007..The overall
occupancy rate of retail space remained high at 80.9% (end-June 2007: 79.8%),
reflecting retailers’ confidence in consumer spending. The construction of industrial
property was also active with the increase in construction starts to 406 units (January
– June 2007: 303 units). Total industrial units currently under construction increased to
6,865 units compared to 6,013 units as at end of June 2007.
Table (3): Number and Value of Projects Undertaken by Malaysian Contractors in Global
Market by Year of Project Awarded
2005 2006 2007 2008 2009
Country Value Value Value Value Value
No. No. No. No. No.
(RM m) (RM m) (RM m) (RM m) (RM m)
ASEAN 7 263.56 12 2,286.00 17 2,425.79 5 1,434.62 1 693.00
Brunei - - - - 2 33.58 - - 1 693.00
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Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
9
Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
In addition, the Certificate of Fitness for Occupation was replaced with the Certificate
of Completion and Competence. With this, the project engineer, architect or
registered draftsman can certify the fitness of the building, thereby enabling faster
handling over of the completed properties.
The ministry is also formulating the National Housing Policy. One of the objectives of
the policy is to ensure that the property sector continues to be a prime mover of the
country’s economy. For the past 27 years, private developers have built 2.7 million
houses over 27 years, representing an average of 100,000 homes a year.
Outlook
The construction sector is expected to expand by 3% at the end of 2009, 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
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Malaysian-German Chamber of Commerce, Market Watch 2010 – The Construction Sector
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. However,
little work in this has been done on Malaysian firms. So far, there have been regional
studies in over 200 business organizations, mainly in Malaysia, revealing that IT use
conferred a competitive advantage. A survey was conducted of construction companies
in Selangor and Kuala Lumpur registered with the Construction Industry Development
Board (CIDB) of Malaysia on the parameters which contributed to their IT use. The
response rate was 62%. The findings indicated that firm performance was related to
the level of investment in information technology. General and Technical Software Use
would have to increase greatly if the firm performance is to be substantially improved.
11
Important Malaysian Construction Trade Fairs 2010
MALBEX 2010
The 26th International Building Exposition
Date: MALBEX 2009 has been postponed until further notice
Venue: Kuala Lumpur Convention Centre
ARCHIDEX 2010
Malaysia Architecture, Interior Design & Building Exhibit
Date: 1-4 July 2010
Venue: Kuala Lumpur Convention Centre (KLCC)
HOMEDEC 2010
Home Decoration Exhibition
Contact:
Date: 29 Apr – 2 May 2010
&
Mr. Thomas Brandt:
23 – 26 Sept 2010
Venue: Kuala Lumpur Convention Centre (KLCC)
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