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MALAYSIA REPORT CONSTRUCTION MARKET UPDATE JUNE 2016
MALAYSIA REPORTCONSTRUCTION MARKET UPDATE
JUNE 2016
MALAYSIAREPORT
MARKET TRENDS
Malaysia’s economy in 1H 2016 remained resilient even as it continues to be burdened by the persistently low oil prices, a depreciating national currency, and the slow down in exports. Consumer confidence and private consumption also declined in response to escalating prices stemming from increased taxes, rising inflation, reduced government subsidies, and softening of the labour market. In addition, the ongoing sensitive political developments and weaker domestic fundamentals are likely to further discourage foreign investor sentiments.
Gross domestic product (GDP) expanded slowly at 4.2% year-on-year (y-o-y) in 1Q 2016 as compared to 5.7% y-o-y during 1Q 2015. On a quarterly basis, it is lower than the 4.5% achieved in 4Q 2015. The preliminary GDP growth for 2Q 2016 showed the slowest growth in seven years at 4.0%. Despite so, the first two quarters’ growth this year is in line with the government’s revised projection of 4.0% to 4.5% for the rest of 2016.
Data from the Department of Statistics showed the consumer price index (CPI) rose 2.0% in May 2016 compared with the same month last year. The CPI for the first five months of the year registered an increase of 2.9% as compared to the same period last year. On a seasonally adjusted term, the CPI for May increased by 0.3% as compared to the previous month.
The ringgit surpassed its 4.00 mark against the US dollar in May 2016, resulting in its largest decline since September 2015. The Ministry of Finance reported the ringgit emerged as the weakest currency performer in the Asia Pacific region in 1H 2016 after it fell 13.0% against the US dollar in this period. Inflation is expected remain high for the rest of 2016 due to the depreciating ringgit and the impending rise in minimum wages effective from July 2016. Inflation for 2016 is revised to 2.0% to 3.0%, from an earlier projection of 2.5% to 3.5%.
The labour market reportedly suffered increased labour retrenchment on the back of a subdued global economy, particularly in the manufacturing, mining and services sectors. The government halted work permits grants to foreigners in 1Q 2016 in order to review the status of the foreign workforce employed across the country as well as to re-evaluate the tax policy for foreign employees, before lifting the suspension in 2Q 2016 for four sectors, including the construction sector. As at June 2016, the national unemployment rate stood at 3.4%, up from 3.2% a year ago.
In the World Bank’s April forecast, the Malaysian economy is projected to expand 4.4% for 2016 and 4.5% for 2017 and 2018. Malaysia also currently keeps its Fitch credit ratings of “A-” standards for 1H 2016.
MALAYSIA ECONOMY
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JUNE 2016|
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MARKET TRENDS
PROPERTY MARKET
Amidst growing economic uncertainties, Malaysia’s property market is on a prolonged slowdown from a decrease in domestic consumption and its residential housing sector remains hampered by affordability issues.
The weakend ringgit has enticed more transactions from foreign buyers but foreigners are still restricted to purchase only strata property priced above RM2million (US$0.49 million). Although such a restriction is in place, local homebuyers still face rising home prices, financial liquidity and the effects of cooling measures. In addition, the challenges of low price transparency and lack of awareness on the future developments of any particular area continue to threaten the already-weak purchasing power and investor sentiments and add more pressure to developers and property owners.
According to data from the National Property Information Centre (NAPIC), in 1Q 2016 there were a total of 18,908 units of residential and commercial properties remaining unsold out of the 81,894 launched. This total number of unsold residential and commercial properties translated to RM9.4 billion (approx. US$2.3 billion) in value, which is an increase of 16.0% in units and 15.9% in value from 4Q 2015.
NAPIC’s market report for 1Q 2016 also showed that most of the residential units (11,542) launched were priced between RM500,001 and RM1,000,000. As for commercial units, including Small Office-Home Office (SOHO) and serviced apartments, in the same period, the report showed that most of such properties (4,808) launched were priced between RM250,001 and RM500,000.
The oversupply, particularly in the residential high-rise, high-end segment, is projected to persist for the rest of 2016, with a high possibility of extending into 2017. Home and commercial property owners are also expected to compromise on lower rents to secure and retain tenants. In addition, market observers predict overall rental rates could drop as much as 30.0% over the next two years.
As there are several states with acute shortage of affordable housing, the government is expected to announce further measures in the upcoming Budget 2017 to prioritise and help middle and lower income earners secure affordable homes. Budget 2017 will be announced in Parliament on 21 October 2016.
MALAYSIAREPORT | JUNE 2016
MARKET TRENDS
CONSTRUCTION INDUSTRY
The construction industry gross domestic product (GDP) grew 7.9% year-on-year (y-o-y) and 8.8% y-o-y in 1Q 2016 and 2Q 2016 respectively. The value of work done for the first quarter expand-ed 11.1% y-o-y, reaching RM31.9 bil-lion. For 2Q 2016, the construction industry grew 11.7% y-o-y to a val-ue of RM30.4 billion (provisional). Both quarters’ expansion were supported by growth in all sub-sectors, driven mainly by the civil engineering sub-sector, according to data from the Department of Statistics.
The construction sector was the fastest-growing economic sector in 2015. Short to medium-term prospects for the overall con-struction sector remain stable in 2016. The 11th Malaysia Plan (11MP) (2016 - 2020) has allo-cated a RM260 billion develop-ment expenditure, displaying a postive growth trajectory for the construction industry. While pri-vate sector building projects re-mains affected by the slowdown in the local property market, the government continues to initiate a steady stream of domesic infra-structure projects. The total value of contracts awarded increased significantly to RM5.6 billion in May 2016 from RM906 million in the preceding month.
According to the Master Builders Association Malaysia (MBAM), the contruction industry is concerned that the manpower shortage, required for labour intensive infrastructure and building projects, would not enable the industry to meet its growth target of 8 to 10% in 2016.
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MALAYSIAREPORT | JUNE 2016
The construction industry continues its focus on heightening site safety, building quality, and labour productivity. The Department of Occupational Safety and Health (DOSH) reported a 57% increase in construction industry related fatalities nationwide in 2015 from 2014. With effect from 1 June 2016, it is mandatory for all local and foreign skilled construction workers and supervisors, excluding general construction workers, to achieve their competency certificate from the Construction Industry Development Board (CIDB) through a series of training and tests.
CIDB targets for local construction productivity levels to increase by 2.5 times to RM61,939 (US$15,268) per local worker by the end of 11MP. To accomplish this, CIDB partnered with the Real Estate and Housing Developers’ Association (REHDA) to promote low-carbon and sustainable practices for construction projects via MyCREST, the Malaysian Carbon Reduction and Environmental Sustainability Tool.
Contractor profit margins are expected to continue to face pressures from the upward revision in foreign worker levies, rise in steel bar prices and the implementation of minimum wages that comes into effect in July this year. Smaller construction firms are expected to face more pronounced cost pressures as they have less flexibility in absorbing costs. Barring any unforeseen market conditions, building tender prices in Kuala Lumpur are anticipated to increase by about 1.0% - 2.0% in 2016.
LABOUR PRICES
Data Source: London Metal Exchange (LME)
CONSTRUCTION MATERIAL
PRICES
Data Source: Market Sourcesp: preliminary
CURRENCY EXCHANGE
Data Source: IMFp: preliminary
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MALAYSIAREPORT | JUNE 2016
BUILDING MATERIALS UNITAVERAGE SUPPLY RATE (MYR)
3Q 2015 4Q 2015 1Q 2016 2Q 2016P
Concreting Sand tonne 48.00 48.00 49.00 48.70
Stone Aggregate (20mm) tonne 32.20 33.40 33.50 34.10
Ordinary Portland Cement kg 0.40 0.40 0.30 0.35
Reinforced Concrete (Grade 30 MPA) m3 239.00 240.00 228.00 229.00
Reinforced Concrete (Grade 40 MPA) m3 267.00 260.00 246.00 247.00
High Tensile Steel Bars (10 - 32mm) kg 2.40 2.30 2.25 2.25
Mild Steel round bars (10 - 25mm) kg 2.35 2.30 2.30 2.30
Structural Steelwork (200x200 U-Beam) tonne 2,755 2,750 3,285 3,285
Plywood Formwork (2438x1219x20mm) pc 55.00 55.00 59.70 59.70
Clay Bricks (100mm thick brickwall) pc 0.30 0.40 0.45 0.50
CURRENCYUNITS PER USD
3Q 2015 4Q 2015 1Q 2016 2Q 2016P
Malaysia Ringgit (MYR) 4.057 4.291 4.203 4.012
Exclusions:• Plant and Equipment • Transport • Wastage • Overheads and Profit • Import Tax • Goods and
Services Tax (GST)
Notes: All supply prices stated above are only applicable for building construction projects in Kuala Lumpur. Specific cost consultancy should be sought for your particular factual situation prior to utilising this information.
SELECTED OCCUPATIONS UNITKL AVERAGE LABOUR RATE (MYR)
2013 2014 2015 2016f
General Worker (Foreign) day 53.00 49.75 57.80 57.40
Concretor (Skilled - Local) day 88.75 95.80 103.30 102.40
Brick Layer (Skilled - Local) day 90.25 98.75 106.95 106.60
Plasterer (Skilled - Local) day 102.25 106.05 112.95 111.75
Tiler (Skilled - Local) day 106.45 112.35 105.90 105.20
Steel Bar Worker (Skilled - Local) day 95.35 94.50 106.8 104.50
Carpenter (Formwork) (Skilled - Local) day 98.90 99.30 111.25 106.70
Carpenter (Joinery) (Skilled - Local) day 107.75 115.35 118.6 114.90
Roofer (Skilled - Local) day 103.50 105.45 103.70 100.85
Structural Steel Worker (Skilled - Local) day 121.00 126.95 133.55 132.00
General Welder (Skilled - Local) day 114.50 111.40 120.00 128.10
Plumber (Skilled - Local) day 105.00 116.90 116.45 115.20
Painter (Skilled - Local) day 93.25 99.30 105.15 104.70
Scaffolder (Skilled - Local) day 109.00 108.25 115.80 102.50
Electrician (Semi-Skilled - Local) day 87.00 88.55 106.00 93.85
Data Sources: Construction Industry Development Board (CIDB) Malaysia; Market sources f: forecast
KUALA LUMPURCONSTRUCTION
PRICES
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Notes:Construction Floor Area (CFA) - The area of all building enclosed covered spaces measured to the outside face of external walls including covered basement and above ground car park areas.
The Cost per CFA refers to the cost of construction of the building per se. All Kuala Lumpur construction prices stated herein are as at 1st Quarter 2016, and include a general allowance for foundation, external works and 7% of preliminaries based on competent local contractors submissions. The price ranges herein are indicative and due consideration should be given to the different specification, size, location and nature of each project when utilising this information. The prices here may not fully reflect the extent of current market forces and tendering conditions.
Exchange Rate Used: USD 1.00 = MYR 4.203
Exclusions:• Land cost • Legal and professional fees • Development charges • Authority fees • Finance costs • Future cost escalation • Models and prototypes • Diversion of existing services • Resident site staff cost • Service Provider Fees• External Works within project development • Site infrastructure work in master development • Tenancy work• Loose furniture, fittings and works of art • Goods and Services Tax (GST)
Disclaimer: While RL Bersepadu Sdn Bhd (“RLB”) has endeavoured to ensure the accuracy of the information and materials in this report (the “Materials”), it does not warrant its accuracy, adequacy, completeness or reasonableness and expressly disclaims liability for any errors in, or omissions therefrom. RLB shall not be liable for any damage, loss or expense whatsoever arising out of or in connection with the use or reliance on the Materials. The Materials are provided for general information only. Professional advice should be obtained for your particular factual situation before making any decision. The Materials may not, in any medium, be reproduced, published, adapted, altered or otherwise used in whole or in part in any manner without the prior written consent of RLB.
MALAYSIAREPORT | JUNE 2016
DEVELOPMENT TYPE COST PER CFA MYR / m2
COST PER CFA USD / m2
OFFICE
Good Quality 1,700 - 3,000 400 - 710
Prestige 2,600 - 4,300 620 - 1,020
HOTEL (Including FF&E)
Three Star 2,700 - 4,100 640 - 980
Four Star 3,900 - 5,100 930 - 1,210
Five Star 5,100 - 7,000 1,210 - 1,670
COMMERCIAL
Retail 2,200 - 3,700 520 - 880
RESIDENTIAL
Good Quality Condominium 1,800 - 3,200 430 - 760
Luxury Condominium 3,000 - 4,400 710 - 1,050
INDUSTRIAL
Warehouse 1,100 - 1,800 260 - 430
Factory 1,100 - 2,000 260 - 480
CAR PARK
Multi Storey 900 - 1,300 210 - 310
Basement, outside CBD 1,300 - 2,500 310 - 590
Basement, CBD 1,500 - 3,400 360 - 810
DEVELOPMENT TYPE COST PER ACRE MYR / ac
COST PER ACRE USD / ac
EXTERNAL WORKS
External Works 350,000 - 500,000 83,270 - 118,950
PROFESSIONAL SERVICES
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