2

Editorial

THE GLOBAL ECONOMY OUTLOOK

account of the projected improvement in economic conditions in

a number of distressed economies, including Russia and some

economies in the Middle East and North Africa.

The distribution of risks to global economic activity is still tilted to

the downside. Near-term risks include increased financial market

volatility and disruptive asset price shifts, while lower potential

output growth remains an important medium-term risk in both

advanced and emerging market economies. Lower commodity

prices also pose risks to the outlook in low-income developing

economies after many years of strong growth.

The projected pickup in global growth, while still expected, has

not yet firmly materialized. According to the IMF, raising actual

and potential output through a combination of demand support

and structural reforms continues to be the economic policy priority.

Advanced economies should continue with accommodative

monetary policy to support economic activity and lift inflation back

to target while in emerging market and developing economies,

demand support should come from fiscal policy rebalancing aimed

at boosting longer-run growth, through tax reform and spending

reprioritization.

According to the World Economic Outlook Update by the

International Monetary Fund (IMF), global growth in 2015 will be

marginally weaker than 2014, with only a modest acceleration

expected in 2016. Global growth is projected at 3.3% in 2015,

with a gradual pickup in advanced economies and a slowdown

in emerging market and developing economies while growth is

expected to strengthen to 3.8% in 2016.

Growth in advanced economies is projected to increase from 1.8%

in 2014 to 2.1% in 2015 and 2.4% in 2016. Advanced economies

are expected to be driven by easy financial conditions, more

neutral fiscal policy in the euro area, lower fuel prices, improving

confidence and stronger labour market conditions.

Meanwhile, growth in emerging market and developing economies

is projected to slow from 4.6% in 2014 to 4.2% in 2015. The

continued slowdown in growth reflects several factors – the

dampening impact of lower commodity prices (particularly in oil

exporting countries), tighter external financial conditions, structural

bottlenecks, rebalancing in China and economic distress related

to geopolitical factors. In 2016, growth in emerging market and

developing economies is expected to pick up to 4.7%, largely on

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MALAYSIA BUILDERS DIRECTORY 2016/2017

THE MALAYSIAN ECONOMY

sub-sector also expanded at a slower pace, reflecting the

completion and near-completion of large transportation and utility

projects. On the other hand, growth in the special trade sub-sector

was slightly stronger, underpinned by activity for earth, land

clearing and land reclamation works.

In the second quarter of 2015, the Malaysian economy registered

a growth of 4.9%, a slowdown compared to 5.6% in the previous

quarter. Domestic demand expanded by 4.6% during the quarter,

driven mainly by private sector expenditure (which grew by 5.7%)

following continued growth in consumption and investment

activities. Although private consumption growth moderated from

8.8% in the first quarter to 6.4% in the second quarter due to

household adjustments to the implementation of goods and

services tax (GST), continued wage growth and stable labour

market conditions remained supportive of overall consumer

spending. Meanwhile, private investment grew 3.9%, supported

by continued capital expenditure in the manufacturing sector,

particularly in export-oriented industries.

Public sector expenditure expanded by 0.9% in the second

quarter, with a higher growth of 6.8% recorded for public

consumption, reflecting a stronger expansion in supplies and

services as well as sustained growth in emoluments. However,

public investment registered a negative growth of 8% due to the

decline in investments by public enterprises following the near

completion of a few large projects.

On the supply side, the major economic sectors registered more

moderate growth during the quarter. The lower growth in the

services sector was to the outcome of a slower expansion in most

sub-sectors while the moderation in manufacturing sector was

due to the performance slowdown in export-oriented industries.

Growth in the mining sector was affected mainly by the

lower production of natural gas. The construction sector also

registered lower growth, due to a moderation in real activity in the

residential, non-residential and civil engineering sub-sectors

while the agriculture sector turned around to record positive

growth amid higher production of palm oil.

Growth in the construction sector moderated to 5.6% in the second

quarter of 2015 compared with 9.7% in the previous quarter,

following slower expansion in the residential, non-residential and

civil engineering sub-sectors. The moderation in the residential

sub-sector was attributable to lower construction activity in

residential projects. Growth in the non-residential sub-sector was

also slower, but firm, supported by the construction of commercial,

education and healthcare buildings. The civil engineering

Source: Department of Statistics Malaysia, Bank Negara Malaysia andMinistry of Urban Wellbeing, Housing and Local Government, 2015.

According to RHB Research Institute Sdn Bhd, the continued

volatility in the financial and currency markets along with

unresolved domestic political issues suggest that the Malaysian

economic outlook would remain challenging in 2016. In its recently

released Regional-Asean Economic Outlook report, the research

house said it expects Malaysia’s real gross domestic product (GDP)

to sustain at 4.9% in 2016, marginally higher than the estimate

of 4.8% in 2015. Going forward, the Malaysian government is

expected to introduce more measures to stabilise the weakening

ringgit while remaining on track to progressively reduce its

budget deficit target.

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Editorial

PERFORMANCE OF THE CONSTRUCTION SECTOR

Source: Department of Statistics Malaysia, 2015.

Source: Department of Statistics Malaysia, 2015.

According to the Department of Statistics Malaysia, the total

value of construction work done in the second quarter of 2015 rose

8.2% year-on-year to RM27.24 billion. Despite the growth, annual

percentage growth for the quarter was the lowest among the

last 13 quarters. Compared to the first quarter of 2015, the value

of work done in the second quarter declined 5.2% although the

number of projects rose 2% to 10,074 jobs.

In the second quarter of 2015, the highest percentage share was

contributed by the non-residential buildings sub-sector, which

recorded 34.6% of the total value of construction work done.

This was followed by the civil engineering (30.4%), residential

buildings (30.3%) and special trade (4.7%) sub-sectors.

Selangor continued to register the highest value of construction

work done of RM6.61 billion (translating to a 24.3% share) among

the states. This was followed by Wilayah Persekutuan (RM5.16

billion or 18.9%), Johor (RM5.03 billion or 18.5%), Sarawak

(RM2.28 billion or 8.4%) and Pulau Pinang (RM1.47 billion or

5.4%). Together, these five states accounted for 75.5% of the total

value of construction work done. In terms of construction activity

by project owner, the private sector continued to dominate with

a share of 66.9% while the public sector accounted for 33.1% of

the value of construction work done in the second quarter of 2015.

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MALAYSIA BUILDERS DIRECTORY 2016/2017

CONSTRUCTION SECTOR UPDATES

CIMB Research analyst Sharizan Rosely is optimistic about

the sector’s outlook as channel checks revealed that overall job

visibility continues to look good on the back of mega public

transportation projects. He added that the sector has seen slight

recovery following the award and implementation of contracts

amounting to RM22 billion at both project delivery partner (PDP)

and turnkey levels in August and September 2015.

At the PDP level, the Penang government awarded the first

phase (estimated at RM10 billion) of the state’s RM27 billion

Penang Transport Master Plan (PTMP) to SRS Consortium led by

Gamuda Bhd. SRS Consortium is a triumvirate joint venture of

Gamuda Bhd (60%), Ideal Property Development Sdn Bhd (20%)

and Loh Phoy Yen Holdings Sdn Bhd (20%), appointed as the PDP

for PTMP projects. The PTMP is a massive effort to create new

road networks, improve present carriageways and pedestrian

ecosystem. It also includes significant upgrading of the state’s

public transport system by introducing new transport options

such as trams, a MRT system and water taxis. The first phase,

involving the construction of a 17.5km LRT line linking Komtar

to the Penang International Airport and a new highway from

The construction sector may be the only bright spot in the current

Malaysian economy as the pipeline of projects to be awarded in

the second half of 2015 and up to June 2016 is expected to hold

steady on a stream of civil infrastructure jobs. The sector would

now shift to focus on new tenders for the public transport and

highway segments with the Mass Rapid Transit 2 (MRT 2) and

Light Rail Transit 3 (LRT 3) projects entering either prequalification

or award phases with the total value of jobs amounting to RM39

billion, according to a recent Star Newspaper report.

Construction of the 52.2km MRT Line 2 (Sungai Buloh–Serdang–

Putrajaya) was initially slated to commence in June 2016 but

Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) expects work

to start as early as the first quarter of 2016 with the tender for

the first package to be out by end-2015. The MRT Line 2 will be

built in two phases – Sungai Buloh to Batu with an anticipated

completion in July 2021, and Batu to Putrajaya with completion

expected in July 2022. Once completed, the line will have a total

of 36 stations. Out of the total stretch, 13.5km will run through

an underground tunnel, while a total of 11 stations out of 36

will be situated underground.

Source: Department of Statistics Malaysia, 2015.

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Editorial

Bayan Lepas to Tanjung Bungah, is scheduled to take off in

the first half of 2017.

Government-owned public transportation operator Prasarana

Malaysia Bhd recently awarded the RM9 billion LRT 3 project

to the Malaysian Resources Corporation Bhd/George Kent Bhd

joint venture. The 36km LRT line 3 connecting Bandar Utama

to Klang will have 25 stations and is expected to be completed

in 2020.

In East Malaysia, Prime Minister Datuk Seri Najib Tun Razak

launched the Pan Borneo Highway’s second package on the

eve of Malaysia Day – RM700 million Telok Melano-Sematan

stretch in Lundu district. The single-carriageway, scheduled for

completion in December 2018, will connect Telok Melano

village at Sarawak’s southern tip with Sematan, about 110km

from Kuching. Earlier in March, the earth-breaking ceremony for

the project’s first work package took place – 43km stretch linking

Nyabau in Bintulu and Bakun in Kapit in central Sarawak

(expected to be completed in 30 months).

Announced in October 2014, the Pan Borneo Highway targets

to link all major cities in Sabah and Sarawak. The highway, which

stretches 1,663km (936km in Sarawak and 727km in Sabah), is

estimated to cost some RM27 billion. The government has

appointed state-owned Lebuhraya Borneo Utara Sdn Bhd (LBU)

as the PDP to design, implement, supervise and manage the

development and upgrading of roads.

Among the sizable non-PDP awards, Sunway Construction Bhd

was awarded a project to construct government office buildings

while Muhibbah Engineering Bhd and Mudajaya Group Bhd

were both awarded portions of the multi-billion ringgit refinery

and petrochemical integrated development (Rapid) project by

Petroliam Nasional Bhd (Petronas). The packages awarded to

Muhibbah Engineering and Mudajaya were estimated to be

worth RM400 million to RM950 million each. In the next six to

nine months, more packages from the Rapid project would be

due for award and this would help to sustain momentum in the

industry. As at end-September 2015, total infrastructure/civil

works-related jobs awarded in Rapid since 2012 have increased

to RM3.3 billion.

Meanwhile, Malaysia’s high-speed rail (HSR) connecting Kuala

Lumpur to Singapore is on track, with a new company known

as MyHSR Corp Sdn Bhd (a government-backed project delivery

company) expected to take the lead in making the RM38 billion

project a reality. Intended to deliver a fastest journey time of 90

minutes between Kuala Lumpur and Singapore, the 330km high

speed line would serve eight stations in total through a mix

of express and stopping services. According to the Land Public

Transport Commission (SPAD) chief development officer Dr

Prodyutt Dutt, the project would take about five years and the

contract should be out in 2017, with expected completion by 2022.

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MALAYSIA BUILDERS DIRECTORY 2016/2017

types were the double and triple-storey units while sales of

apartments and condominiums were disappointing, with only 779

units sold out of the 4,259 units launched.

The number of unsold units for the period rose 14% to 78% in

the first half of 2015 from 64% in the previous corresponding

period. The unsold units were mostly in Kedah, Penang, Selangor

and Johor; mainly in the RM500,000 to RM1 million price range.

Unreleased bumiputra lots and loan rejections by banks were the

top reasons for the unsold units, according to the Rehda Property

Industry Survey.

Loan rejections increased to 35% compared with 29% in the

previous half, mostly involving residential property priced

between RM250,000 and RM500,000, followed by those

between RM700,000 and RM1 million. These were mostly due

to ineligibility of income, lower margin of financing offered by

banks and buyers’ credit history. Additionally, more than 70%

of respondents indicated that costs had increased by up to

11%, due to factors such as the GST, rising material prices and

weakening ringgit.

While the broad cooling measures imposed on the property

sector had been effective at curbing excessive speculation in

the market and should not be lifted at the moment, some

industry observers and analysts opined that Bank Negara

Malaysia (BNM) should look into easing the current stringent

lending policy, especially for first-time house buyers in order

to reduce the rising number of unsold properties.

Among some of the broad cooling measures introduced by

BNM were the 70% loan-to-value (LTV) cap on a borrower’s

third and subsequent property-financing facility, lowering of the

maximum tenure for property loans to 35 years from 45 years,

the abolition of developer interest bearing schemes, raising of

the real property gains tax and increasing the cap on foreigner

property purchases to RM1 million from RM500,000. The

responsible lending guidelines have also made lending more

stringent as more documentation is now needed for approval

of loans and approval is now based on the borrower’s net

income rather than gross income.

The outlook for the Malaysian property sector has somewhat

softened, with cuts in sales targets, delays in new launches and

rescission of land deals among developers becoming the order

of the day. Alongside the rise in living costs, the weaker stock

market and currency are factors that will continue to weigh on

buying sentiment and property demand, which may only recover

towards the second half of 2016, according to Maybank Research.

The latest Property Industry Survey by the Real Estate and

Housing Developers Association (Rehda) also revealed a less

optimistic sentiment among local developers. Respondents of the

survey were 125 property developers, who are Rehda members.

For the first half of 2015, property sales fell 9% compared with

the same period last year. Out of the total 10,877 units launched

during the period (of which 10,550 were residential units), only

4,373 units or around 40% were sold. The best-selling property

THE PROPERTY SECTOR

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Editorial

THE 11TH MALAYSIA PLAN (11MP)

inter-state tolled highway, which is expected to be completed in

five years at a cost of RM7 billion.

The Gemas-Johor Bahru Electrified Double Tracking Project

(EDTP) will see nearly 200km of parallel railway tracks, including

stations, depots, halts, yards, bridges and cover systems

such as electrification, signalling and communications being

commissioned. Construction of the 197km track started in

September 2014 and is expected to be completed during the

11MP period at an estimated cost of RM8 billion.

For the 11th Malaysia Plan (11MP) running from 2016 to 2020, the

government has outlined five philosophies, namely pro-growth,

pro-people, pro-business, environment friendly and emphasis on

nation building. Touted as the final leg in the journey towards

realizing Vision 2020, the 11MP is deemed to be very critical.

A total of RM260 billion worth of development expenditure will

be spent between 2016 and 2020, translating to an average of

RM52 billion per annum, which is higher compared to an average

of RM44.7 billion during the 10th Malaysia Plan (10MP).

Under the 11MP, the construction industry is estimated to

expand at a pace of 10.3% per annum, with a contribution of

RM327 billion to GDP by 2020. During the 10MP, the industry

has achieved an astounding average growth of 11.1% and

recorded RM157 billion worth of projects in 2014 (from RM102

billion in 2011).

Medium-term prospects for the construction industry have

been buoyed by a series of large-scale transport infrastructure

projects rolled out by the government under the 11MP. Among

some of the projects include the Pan Borneo Highway, Central

Spine Road, West Coast Expressway, Electrified Double Tracking

Project between Gemas and Johor Bahru as well as road works

for the Rapid project.

The Central Spine Road (CSR) is a high-impact infrastructure

project launched in 2008 under the 10MP and comprises six

main packages, estimated to be worth RM6.6 billion. The six

packages are Kuala Krai to Sungai Lakit Bridge (51km), Sungai

Lakit Bridge to Gua Musang (63km), Gua Musang to Kampung

Relong (107km), Kampung Relong to Raub (56km), Raub to

Bentong (60km) and Bentong to Simpang Pelangai (53km). As

of July 2015, four sections of the roads (about 10% of the overall

project) are open for public use.

Meanwhile, the West Coast Expressway (WCE) is a new

expressway that will be built on the west coast of Peninsula

Malaysia connecting Taiping in Perak to Banting in Selangor.

Approved in 2013, the 316km expressway is an alternative route

to the North-South Expressway and is the second longest

Despite likelihood of mega infrastructure projects, outlook for

the cement industry in Malaysia remains uncertain as prices

and revenues come under pressure from intense competition

and overcapacity. Slowdown in the property sector also has a

negative bearing on cement demand. According to AllianceDBS

Research analyst Woo Kim Toh, the property development

sector makes up 50% to 60% of total cement demand in

Malaysia.

Demand is forecasted to increase between 3% and 4% this

year – slower than last year’s 5% to 6% growth, according to

analysts covering the cement industry. However, lower energy

costs expected this year will provide some breathing space for

cement producers as energy costs make up about 30% to 40%

of production cost.

Compounding the situation is the additional capacity expected

to come on stream in the near future. For instance, YTL Cement

Bhd (a wholly-owned subsidiary of YTL Corp Bhd) will add

1.5 million tonnes or 8% capacity to the industry this year.

Market leader Lafarge Malaysia Bhd is in the midst of expanding

THE CEMENT INDUSTRY

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MALAYSIA BUILDERS DIRECTORY 2016/2017

THE CEMENT INDUSTRY

the capacity of its plants in Rawang and Kanthan,

which will add 1.2 million tonnes to the industry.

Cahya Mata Sarawak (CMS) Group also announced

plans to boost capacity by nearly 60% by opening

its third grinding plant, which is due to be

commissioned in the first quarter of 2016. The move

is expected to raise the company’s production to

2.75 million tonnes per year. CMS, Sarawak’s sole

cement manufacturer, currently owns and operates

two cement plants boasting an annual combined

rated production capacity of 1.75 million tonnes.

However, there are also analysts who are

positive about the industry’s outlook due to the

ongoing infrastructure projects announced by the

government in Budget 2015. If all projects are

implemented as scheduled, the demand for cement

would continue to be sustained but at this juncture,

most players are relatively conservative in revealing

their prices and new expansion plans.

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Editorial

THE CONSTRUCTION INDUSTRY TRANSFORMATION PROGRAMME (CITP)

of Excellence (CoE) for Sustainable Construction will be

established to develop, promote and implement sustainable

construction systems and practices. The blueprint also

addresses the challenge of irresponsible waste generation

where by January 2018, it will be mandated for contractors to

comply with waste management programmes, as part of the

requirement in Environmental Management Systems ISO14001

certification. This will be implemented in stages, starting with

G7 category contractors.

Meanwhile, productivity improvement will focus on three

key drivers – workforce, technology and process. To reduce

dependency on foreign labour, the government has proposed to

enhance human capital development. Proposed measures include

streamlining construction-related courses, creating a training

map to chart progress towards a skill trade, conducting curricula

reviews and ensuring up-to-date industry training content.

Another aim that will help reduce dependency on foreign

workers is to induce faster adoption of Industrialized Building

Systems (IBS) by establishing economic mechanisms and

modern practices.

According to CIDB, the construction industry is expected to

maintain a double-digit growth this year and has surpassed

the performance of other economic sectors in the country. In

2012, at the height of the 10MP, the construction industry

achieved its peak growth of 18.1% and from then on, the industry

had maintained its double digit growth at 10.8% in 2013 and

11.8% in 2014.

Malaysia’s construction industry will be transformed into a

modern, highly productive and sustainable industry by 2020

under the Construction Industry Transformation Programme (CITP)

blueprint launched in September this year. Spearheaded by the

Ministry of Works and Construction Industry Development Board

(CIDB), the CITP also aims to strengthen local construction

companies to compete with international players.

The five-year blueprint, which forms part of the 11MP, encompasses

18 initiatives under four strategic thrusts. The four thrusts

focus on ingraining quality, safety and professionalism into

the industry; ensuring environmental sustainability measures

are in place at the design, construction and subsequent

maintenance of buildings, cities and infrastructure; raising overall

productivity level of the industry; and focusing on improving the

competitiveness and subsequent ability of construction players

to internationalize.

To ensure quality, the CITP will push for adoption of the

Quality Assessment System in Construction (QLASSIC), which

measures the quality of workmanship in building construction.

The CITP targets to make QLASSIC a mandatory element in all

government projects by 2018. On safety and health, more stringent

requirements would also be introduced to significantly reduce

accidents and fatalities.

The CITP envisions the Malaysian construction industry as

a low carbon, sustainable building and infrastructure model,

especially to Asean member countries. Following this, a Centre