Market Watch Malaysia 2011 Construction Industry

General information about Malaysia

Malaysia 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 km2 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 exportdriven 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 costcompetitive location for investors intending to set up offshore operations for the

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

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: Exchange rates: GDP (billion RM): GDP - real growth rate: Inflation rate : Exports: Exports - commodities: 6.4%, 1 Ringgit (RM) = 100 Sen 1 EURO = 4.2 RM; 1 US$ = 3.1 RM (14.12.2010) 2007: 639.8; 2008; 738.7; 2009: 674.4 2009: -1.7%; 2010: 4.5 - 5.5% 2-2.4 % (2010) $157.2 billion (2009) electronic 36.5% , petroleum and products 8.3%,Chemical products 6.6%, natural gas 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%
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Source: Germany Trade & Invest

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

Imports: Imports - commodities:

$119.3 billion 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% China 14.0%, Japan 12.5%, USA 11.2%, Singapore 11.0%, Thailand 6.1%, Germany: 4.2% 3.7% (2009)

Imports - partners:

Unemployment rate: Average wage 2008:

Middle management: 6.805RM, senior clerk: 2.650RM, skilled worker: 1.845RM, consultant: 1.450RM, unskilled workers: 910RM 5.1%

Population below poverty line:

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

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.

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

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

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 December 2011

Project Category

Total Number Of Projects

Total Project Value (RM mil)

Local Contractors

Foreign Contractor

Government Projects No. Value (RM Mil)

Private Projects

Government Projects No. Value (RM mil)

Private Projects

No.

Value (RM mil)

No.

Value (RM mil)

2007

7,386

94,416.83

2,954

44,859.22

4,338

43,631.38

3,475.32

90

2,450.92

2008

6,522

85,837.07

2,702

33,964.26

3,745

44,152.99

4,851.83

70

2,867.99

2009

6,806

73,416.52

2,962

32,213.57

3,794

38,064.05

1,313.99

49

1,824.91

- Dec. 5,350 2010 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 58,346.27 1,546 16,791 3,729 38,214 1 316.22 74 3,024.72

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

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 Category 2007
Residential Non Residential Mix Development Social Amenities Infrastructure Others

Total Number of Projects

7,358 1,853 2,291 10 1,380 1,787 37 6,522 1,486 2,143 16 1,258 1,579 40 6,718 1,596 1,958 0 1,472 1,652 40 3,602

Total Project Value (RM mil)

93,294.20 16,878.46 26,422.62 97.10 12,097.57 37,611.14 187.31 85,837.07 16,933.87 23,737.75 919.22 19,114.39 24,858.70 273.13 72,862.82 13,787.41 22,004.62 0.00 15,282.00 21,635.54 153.25 38,057.80

2008
Residential Non Residential Mix Development Social Amenities Infrastructure Others

2009
Residential Non Residential Mix Development Social Amenities Infrastructure Others

December 2010

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

Residential Non Residential Mix Development Social Amenities Infrastructure Others

996 1,222 0 440 923 21

10,988.62 11,462.78 0.00 4,382.17 11,124.42 99.81

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

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

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
2006 Country
No . Value (RM m)

2007
No . Value (RM m)

2008
No . Value (RM m)

2009
No . Value (RM m)

2010
No . Value (RM m)

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

ASEAN Brunei Indonesia Philippines Singapore Thailand Vietnam India Middle East Iran Jordan Bahrain Libya Qatar Saudi Arabia Syria United Arab Emirates/Dubai Africa Sudan South Africa Algeria Papua New Guinea Morocco Others Bangladesh Cambodia China Maldives Mongolia Pakistan Sri Lanka Trinidad+Tobago Turkmenistan Yemen United Kingdom Australia Ireland Hong Kong Seychelles Grand Total

13 1 2 10 10 23 1 6 2 6 ` 7 2 1 1 10 1 3 2 1 2 1 55 8

2,179.74 524.40 522.06 1,133.28 1,149.92 4,622.39 450.00 1,368.33 63.13 161.52 90.00 2489.41 839.00 39.00 800.00 1,398.83 1.45 623.92 171.91 1.58 18.97 581.00 10,189.88

20 2 3 2 12 1 7 25 1 2 4 2 2 14 0 17 5 4 1 2 1 1 2 1 69

2,582.92 33.58 1,862.69 60.00 547.84 78.81 4,653.00 11,308.63 233.88 5,130.62 1,751.67 314.82 482.84 3,394.80 0.00 1,006,76 382.93 111.16 185.06 136.47 51.95 2.05 16.74 120.40 19,551.31

7 2 3 2 1 24 2 1 3 2 16 3 1 2 20 2 3 9 2 1 1 1 1 55

1,473.94 20.20 139.52 1,314.22 899.50 5,609.65 268.42 84.00 581.20 1,822.24 2,853.79 924.67 854.00 70.76 559.61 52.22 36.74 308.27 72.98 4.50 77.93 1.30 5.67 9,467.37

2 1 1 2 18 1 2 5 10 0 4 2 1 1 26

887.44 693.00 194.44 383.65 12,593.31 2,000.00 281.72 9,407.84 903.75 146.17 84.01 14.47 47.69 3,666.77

5 1 2 2 4 0 0 2 2 11

1,030.31 932.10 90.24 7.97 404.00 0 0.00 56.72 56.72 1,491.03

Note: 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

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

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

In promoting economic growth through Private Sector participation, 52 high-impact projects worth RM63 billion have been identified for implementation under the PublicPrivate 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 Chambe of Commerce, Market Watch 2011 The Construction Sector German Chamber

Important Malaysian Construction Trade Fairs 2011 20

ARCHIDEX 2011 12 Malaysia Architecture, Interior Design & Building Exhibit Exhibition
th

Date: 30 June 3 July 2011 Venue: Kuala Lumpur Convention Centre (KLCC)

HOMEDEC 2011 Home Decoration Exhibition

Date: 29 Apr 2 May 2011

Venue: Kuala Lumpur Convention Centre (KLCC)

Date: 22 24 Jul 2011

Venue: Persada Johor International Convention Centre, Johor Bahru BUILDTECH 2011 Malaysia International Building Thomas Brandt: Mr. Materials & Construction Technology Exhibition Date: 22-25 Sept 2011 Venue: PWTC, Kuala Lumpur
Contact:

Mr. Thomas Brandt: thomas.brandt@malaysia.ahk.de Ms. Judih Yong: judih.yong@malaysia.ahk.de

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

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