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Construction Projects Improve Quality of Life More than 130 projects are under construction this year at Japan which worth approximately $921 million will make the base a better place to live, work and play. (By: Stripes Okinawa Editor on Tues, 31 August 2010)

Based on article above, we can summarise that construction is performed to improve the overall quality of life and to create as many comfort zone for all of mankind. According to the Malaysian Standard Industrial Classification (MSIC) 2000 and Malaysia Industrial Classification (MIC) 1972 (revised 1979), the definition of construction is: New construction, alteration, repair and demolition. The installation of any machinery or equipment which is built-in at the time of the original construction is included, as well as installation of machinery or equipment after original construction but which requires structural alteration to install In other word, construction is the step in which the plans, specifications, materials, and equipment are transformed by constructor. Normally, the job of construction is managed by a project manager, and supervised by a construction

manager, design engineer, construction engineer or project architect. Construction industry is one of the industries listed as a major contributor to the economic development of the country. The importance of the construction industry can be seen clearly through the construction of involvement in various industries as well as covering various fields. The construction industry is one of the most booming industries in the continuation of the development process especially in the developing countries such as Malaysia since independence in the 31st August 1957. This industry is mainly an urban based one which is concerned with preparation as well as construction of real estate properties.

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2.1 OVERVIEW MALAYSIAN CONSTRUCTION INDUSTRY The Malaysian construction industry is one of the driving forces of Malaysian economic. The Malaysian construction industry plays an important role in generating wealth and improving the quality of life for Malaysians through the translation of governments socio-economic policies into social and economic infrastructure and buildings. The Malaysian construction industry also has other important role in Malaysia such as providing job opportunities for approximately 800,000 people. In construction industry it required many manpower the established the industries such as labour, design team, developer and etc. The construction industries also creating multiple affect to the other industries such as manufacturer, financial and etc. Many industries will be involving to establish a construction. Each industry has their own responsibility. The Malaysian construction industry is managing 4 type of construction classification. 1st is commercial building, this type of construction is the construction that has been constructed most to stimulate the construction industry. The example of commercial building is government building, school, private office, warehouse and hospital. Second is residential building, residential building is build base of the demand of citizen to have a residential area on a certain area. The private or public developer constructs residential area on high demand places only. This will encourage people to buy the house and the same time will increase the growth of Malaysian construction industries. Thirdly is Heavy Engineering & Infrastructure Construction, this type of construction usually takes a longer completion time compare to others type of construction. It because it involving highways, airport and bridges. The last type of construction is industrial. In Malaysia, industrial building is less been constructed compare to other types of construction. Usually private sector will involve in this type of construction. According to Mohamad S. F., commercial building is been constructed most (35%-40%). Second is residential (30%-35%). Third is infrastructure (20%-25%) and the last is industrial (5%-10%).

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Malaysia Construction industry is developing rapid in the past few years. There as some achievement in Malaysia Construction industry. The PETRONAS Twin Tower is the most successful construction in Malaysia that has been guided specially by the 4th Prime Minister Tun Dr. Mahathir bin Mohamad. The twin tower is well known by other countries as one of the tallest building in the world. By having this building, its help Malaysia economic to growth by having foreign investor invest in Malaysia. The Malaysian construction industry is being guided by The Construction Industry Board (CIDB). CIDB is a statutory body established under the Act of Parliament, viz. Act 520 Lembaga Pembanguanan Industri Pembinaan Malaysia Act in July 1994. The objective of the CIDB is to develop the construction industry as a major contributing sector to the national economic. The CIDB will ensure the construction industry will be capable of producing high quality construction works.

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According to Fadhlin et al. (2004), the growth of the industry was further pushed by the implementation of Vision 2020 in 1991. This has resulted in rapid implementation of several large scales of infrastructure projects such as housing, schools, and hospitals, commercial and industrial buildings en route to realizing the goals in the Vision 2020.

Figure 1: Construction output and GDP, 1965 2003 (Data for 1965 1991 in 1978 constant price; data for 1992 onwards in 1987 constant prices) Data source: Economic Reports-various issues The figure 1 shows that construction output grew from RM801 million in 1965 to RM 7.58 billion in 2003. The GDP grew from RM17, 582 million in 1965 to RM238.4 billion in 2003. This reflects the industrys important role in providing the infrastructure to satisfy development needs and facilitate investment in other economic sectors. The expansion in tourism and the manufacturing industry have contributed to the industry's growth momentum. The rapid industrialization programmes have intensified the urbanization process which further increased the demand for housing and related infrastructure facilities. The countrys rapid industrialization has also created a new demand for large scale, complex, alternative energy production facilities. As the country's GNP per capita increases, there is an increasing demand for leisure facilities. Between 1990 and 1996, the industry grew at an annual average rate

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of 14 percent. The growth of construction activities in the 1990s were propelled by the strong upsurge in private investment supported by large inflows of foreign investment, high domestic savings and extensive privatization of construction projects. The

slowdown of the Malaysian economic growth is following the East Asian economic crisis has impacted the growth of the construction industry. The growth of the construction industry fell from 14.2% in 1996 to 9.5% in 1997. Construction industry growth fell to -24% in 1998. As a result of the governments economic recovery measures, official government statistics show that by the end of 1999 construction growth has increased by 20 percentage points to 4.4%. The implementation of privatized projects as well as the expansion of government fiscal spending particularly on infrastructure and residential projects has further supported the growth of the construction industry. Growth of the industry expanded at a rate of 1.0% and 2.3% in 2000 and 2001 respectively. The slowdown in the civil engineering sub-sector following the completion of several major privatized projects in 2003 had sunk down the growth to a lower level. The construction industry registered of growth 2.3% and 1.9 % in 2002 and 2003 respectively. Official government statistics estimate overall GDP growth for 2004 to expand by 6.0% 6.5%. In 2004 to 2006, the construction industry is slowing down caused of many mega project or construction have completed. From 2007 to 2010, the construction industry is in a stable state caused by the Ninth Malaysian Plan. In the Ninth Malaysian Plan, the government have allocated some package for the construction industry. The package subsidise the entire building material price. Among all the industry in Malaysia, the Construction industry is one of the industries that will expend in 2012. The Malaysian Construction Industry is anticipated to record a stronger growth, driven by the civil engineering sub-sector. Growth will be contributed mainly by the launch of key infrastructure projects such as the Sungai Buloh-Kajang MRT line and the Governments Special Stimulus Package. Continued progress in existing projects such as the Second Penang Bridge, Ipoh-Padang Besar double track, KLIA 2 and the extension of the Kelana Jaya and Ampang LRT lines will
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lend further support to growth. Growth in the non-residential sub-sector is expected to be sustained, owing to public sector expenditure on hospitals and schools. In conclusion, the residential sub-sector is projected to grow at a slower pace as developers shift focus to mass market housing from the high-end segment.

Chart 1: Construction and GDP in real terms. Data Source: CIE, CIDB

Chart 1 above shows that the GDP of Malaysia Construction industry is increasing between 2000 and 2011. This prove that the construction industry have the potential to growth in the upcoming years.

Table 1: The forecast of GDP for each sector between 2011 and 2012 .Data Source: department of Statistics, Malaysia and Bank Negara Malaysia The table 1 above is taken Department of Statistics, Malaysia Bank Negara Malaysia. The table show that the Malaysia Construction industry Real GDP between 2011 and 2012. It shows that the percentage of annual changes of construction industry between 2011 and 2012 is 6.6%. This proved that the construction industry is growing.

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The economy will be on course to achieve the target set out in vision 2020 since the vision is the countrys long-term goal. Hence, the future scenario of the Malaysian construction industry will be guided by the vision which aims to transform the country into a developed and industrialized nation by the year 2020.

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3.1 INTRODUCTION TO GDP Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP per capita is often considered an indicator of a country's standard of living. GDP per capita is not a measure of personal income. Under economic theory, GDP per capita exactly equals the gross domestic income (GDI) per capita. (http://en.wikipedia.org/wiki/Gross_domestic_product) Theoretical Approaches to Measuring GDP There are 3 measures of GDP.

The sum of gross value added by those who produce goods and services plus taxes and less any subsides on products gives GDP.

The sum of the uses of value added gives GDP. By measuring the distribution of this value added through wages, other compensation to employees, taxes on production, as well as imports less subsides and gross operating surplus (profit) gives GDP.

Final consumption by households, government and industry reflects the value added at all stages in the creation of goods and services, (actual final consumption and gross capital formation). Summing together all the final expenditure in the economy, add in the value of exports and subtract expenditure on imports, gives GDP.

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Graph 1.0: Gross Domestic Product Malaysia (1992 2011)

Sources: World Bank

Last updated: Oct 31, 2012

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The Percentage Growth of GDP (1992-2012) Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Growth of GDP (%) 8.89 9.89 9.21 9.83 10.00 7.32 -7.36 6.14 8.86 0.52 5.39 5.79 6.78 5.33 5.85 6.48 4.81 -1.64 7.19 5.14 5.40 (Q2)

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THE GROSS DOMESTIC PRODUCT GROWTH IN MALAYSIA In Malaysia, our economic development can be divided into three major phase

which is Phase 1 is on the early years of post-independence (1960), Phase 2 is The New Economic Policy (1970-1990) and the last is Phase 3 which is The New Development Policy and Vision 2020 (start from 1991 onwards). According to our scope of studies, we need to find the 1992-2012 economic trends which are in a neighbourhood of 20 years. During that 20 years several Malaysia Plans has been used introduce to spur the national income. Among of Malaysia Plan that has been issued are Sixth Malaysia Plan (1990-1995), Seventh Malaysia Plan (19962000), Eight Malaysia Plan (2001-2005), Ninth Malaysia Plan (2006-2010), and now is Tenth Malaysia Plan (2011-2015). Based on the Graph 1.0, started from 1992, GDP Malaysia look move forward with maintain economic situation during that years. This growth becomes more increase until 1994 which is expected increased as much as 8.5%. The sustained growth was driven by strong external demand, as the economic recovery continued to improve in most industrialized countries as well as domestic demand is higher. Malaysia's economies in 2005 are expected to remain strong due in part under the stimulus of a more comprehensive economic recovery in the industrialized countries. (Laporan Ekonomi 1994/1995) Malaysia Gross Domestic Product is expected to moderate slightly, at a rate of 8% in 1997. Moderation in output growth is partly attributable to the expected level of economic slowdown in the second half of the year. This is due to the commencement of construction activities to slower production growth and a moderation in manufactured goods and services related to the supply of materials for the construction sector. Production of consumer goods is expected to grow in more slowly, especially durable goods, due to consumer confidence will be affected by the fall in share prices. This situation is caused by Asian Economic Crisis which is start in Thailand where bring the effect on the value of Ringgit is drop. This can be seen on Malaysia GDP on 1998 in a negative growth. Malaysia being an open economy was similarly affected by the contagion impact of the financial crisis. This situation was bringing our country to Inflation economic
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situation. To overcome this crisis, many efforts by government were conducted since the end of 1997. The main objective that time is to restore the value of the currency by which has declined and want to attract the investors to come to invest in Malaysia. In year 1999, Malaysia has recovered from the severe deflationary impact of the regional financial crisis which had resulted in an assumed 7.5% contraction of the economy in 1998. Real Gross Domestic Product, which had contracted by an unprecedented 10.9% and 10.3% in the third and fourth quarters of 1998, registered a significantly milder contraction of 1.3% in the subsequent first quarter before recovering with a positive growth of 4.1% in the second quarter of 1999. Monthly analysis of a performance of the economy indicates that the downward trend reached its through in January 1999 before bottoming out beginning in February. The recovery subsequently strengthened and real GDP growth is expected to further accelerate to an average annual rate of 7.2% during the second half of 1999, against 1.4% real growth in the first half. According to the Economic Report 2001, the Malaysian economy had recovered from the 1997 Asian financial crisis and was on the path of stronger growth. Real Gross Domestic Product (GDP) growth, which turned positive since the second quarter of 1999, had continued to grow strongly for seven consecutive quarters. Against this background and premised on the assumption of an early global economic recovery, the main strategic thrusts of Budget 2001 were focussed on stimulating domestic growth and enhancing competitiveness as well as improving the quality of life of Malaysians in line with the nations agenda of a caring society. According to Economic Report 2004/2005, the Malaysian economy accelerated its growth momentum in the first half of 2004, after a strong take-off in 2003, and is expected to surpass earlier expectations with higher growth of 7% for the whole year. Positive signs of a firm economic recovery at the global front, particularly in the first six months as well as higher commodity prices, reinforced the feel-good factor that contributed to further improvement in consumer and business sentiments. Growth has become broader based with all sectors registering positive growth. Domestic demand, particularly private consumption, continued to sustain growth for five consecutive years, while private investment, which picked up in 2003, became more entrenched, resulting in a private sector led growth.
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Graph 1.1: The Growth of Construction Industry 1992-2012

20 10 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 -10 -20 -30 -40 The Growth of Construction Industry

Sources: Akaun Negara

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The Percentage Growth of Construction Industry Year * 1992 1993 1994 1995 1996 1997 1998 1999 2000 ** 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *** 2011 2012 * GDP by CI Activity at Constant Prices, (1987=100), 1992-2000 ** GDP by CI Activity at Constant Prices, (2000=100), 2001-2010 *** GDP by CI Activity at Constant Prices, (2005=100), 2011 Growth of Construction Industry (%) 10.75 9.74 13.15 17.39 13.92 9.58 -31.50 -4.55 0.55 3.16 2.27 1.79 -0.86 -1.48 -0.31 6.80 4.02 5.56 4.89 4.40

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CONSTRUCTION INDUSTRY GROWTH IN MALAYSIA The construction in Malaysia started in the early 1990s in conjunction with the

development of mammoth projects. The Government has launched Vision 2020 to envision that Malaysia will be a fully industrialised country by the year 2020. Towards this goal, the government has invested heavily in modernising the infrastructure of the Kuala Lumpur metropolitan area. The modernisation is designed to propel Malaysia into the digital age and position it as a hub for high technology businesses in Southeast Asia. The construction industry reached high growth in 1995 where the GDP of construction industry soared as much as 17.3 percent. That rate of development was equivalent to the developed countries. During the period from 1994 to 1997, the construction industry GDP averaged at 14 percent. Consequently, the Malaysia Construction Industry dropped to an alarming position in 1998, when Malaysia and the Asian region were facing the Asian Financial Crisis. During the regional economic crisis in 1997-1998, output of the industry become in bad situation. In 1998, output of the industry contracted by 23 percent, after a robust and double-digit growth rate (Bank Negara Malaysia 2003). The Malaysia Construction Industry has largely been spurred by Government spending to build the nation's infrastructure. From 1981 to 2005, total development expenditure by the Federal Government is in excess of RM 300 billion, mainly in expenditure in economic sector, i.e. agriculture and rural development, transport and commerce and industry. The demand for sports tourism in general and information technology (IT) development has resulted in the need for some government projects as depicted in during the period of 1998-2001. A decline in the number of large-scale infrastructure projects is one of the major immediate causes for the construction industry slowdown of recent years. The industry was buoyed by major projects initiated by the Government in the early and mid-1990s four of these projects alone contributed an estimated RM 60.0 billion in jobs (nearly ten times 2004 industry output) to the construction industry. Since the completion of these major projects approximately five years ago, there have been no new large-scale projects announced by the government.

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Another reason for the slowdown of the construction industry is return of a cyclical downturn in the business cycle that affects current performance. The construction sector has consistently been the smallest contributing sector to the economy. Its contribution to GDP is less than 15 times smaller than that of the services sector and less than eight times smaller than that of the manufacturing sector. The construction industry enables the growth of other industries through its role as a fundamental building block of the nation's socio economics development. Educational institutions, government offices, some tourist attractions, transportation infrastructure (airports, seaports, roads), housing, commercial property all the essential elements of a healthy, functioning economy, need to be built and maintained by the construction industry. Besides, enabling socio-economic development, the construction activities generate tremendous spill over opportunities. It contributes to the growth of other industries in its role as a large user of manufactured goods (building materials, iron, steel, etc.) of specialized tooling and heavy machinery and the financial services sector. During this period, the construction industry has carried out a huge project but not made it value for money for client because of contingencies cost and also has gone through an economic downturn in 1997 when whole Asia was in financial crises during 1997. As a result of the crisis, some of the investment and activity in the sector halted because of the excess capacity and deferment of major construction projects in the country. In 2001, the industry continued to show a promising trend and registered a positive growth of 2.3 percent compared with 1.0 percent in 2000. In 2003, the construction industry registered a slow growth of 1.79 percent in GDP. In years 2009, the growths of construction industry reach to the government expectation caused by the Ninth Malaysia Plan (RMK-9) giving subsidies to building material prices. This package is allocated because government need to stabilise the building material market prices. By giving this package, the growth is stable since 2009 until now.

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0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 -10 GDP Construction Industry




Graph 1.3: The Growth between GDP and Construction Industry

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TO CONSTRUCTION INDUSTRY The growth of the construction industry in Malaysia traditionally follows the growth of the national economy. As shown in the graph, the growth of construction industry followed the growth of national GDP. Even though the contribution of construction sector in GDP is very small, on average of 5% of GDP, it has an important role to play in the economy.From years 1992-1995, Malaysia shows the highest percentage of construction industry. This is because the Prime Minister that years Tun Dr Mahathir Mohammad implement the plan and mission towards Vision 2020. During that year, since 1990, Malaysia already plan a large scale of project such as the construction of KLIA, Sepang International Circuit and many mammoth projects which is framed through the Malaysia Super Corridor strategies. According to the economic report 1994/1995, Malaysia expected will to maintain a high percentage in the construction sector from 1990 to 1995. However, during the year 1997-1998, Malaysia is facing with the Asian financial crisis where our value of money (Ringgit) going down and the economic situation is inflation. As an open economy country which is Malaysia, it will also get influence from financial crisis which happen at Thailand. It was changed the economic environment in Malaysia. Indirectly, this has resulted in the growth of the construction industry stagnated. Based on the graph above, started from 1997, the growth of construction industry only 9.58% compared to years before which is 1996 is 13.92%. This shows the decreasing on the growth and the most notable decrease is in 1998, where the percentage of construction industry is -31.50%. The downturn of percentage is cause by no large scale of infrastructure and projects will be implemented by government. It is because the income of our nation is less than before national income. It can be say, the more the national income, the more of projects and infrastructure will be implemented or vice-versa. Based on the Graph 1.3, during the years 2004, 2005, and 2006 shows the negative percentage of construction growth. This situation happen because the government not implement more on construction project and become this three years contribute average 2.7% to the GDP.

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4.1 BACKGROUND OF MONETARY AND FISCAL POLICY Fiscal policy and monetary policy are the major instruments used by the government to improve economic performance. The main aims of the government policies are to stabilise prices with low inflation, low level of unemployment, reasonable of payments position, sustainable economic growth and equitable distribution of income. These goals are not often achieve at the same time. Monetary policy is the use of interest rate and level of money supply to manage economy while fiscal policy is the use of government expenditure and taxation to manage the economy. The government will employ both fiscal and monetary policies.

4.1.1 Monetary Policy Monetary policy is the use of interest rate and level of money supply to manage economy. In the monetary policy, the central bank plays an important role in the process of creating and influencing the quantity of money and the interest rate. Central Bank is responsible for controlling the nation's money supply, conducting monetary policy and in general, supervising the nation's monetary system. In Malaysia, the nation's money supply are controlled by the Central Bank known as Bank Negara Malaysia through I. Statutory reserve requirement which raising or lowering reserve requirement will may affect the ability of commercial bank to provide. II. Discount rate/Interest rate. Raising discount/interest rate will cause higher cost of borrowing. III. Open market operation by buying and selling of securities in form of bonds or treasury bills by the central Bank in the open Market. The buying of securities increase the money supply and sale of security decrease the money supply. Money is a primary importance in determining what happens to the economy. The main key features of monetarist theory is the main cause of inflation is an access supply of money and to maintain price stability, tight control of money and credit are required. A

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rapid increase in money supply leads to a rapid increase in inflation. In order to curb inflation, money growth must fall below growth in economic output. How do government keep inflation in check? To do this, the Central Bank changing the interest rate and changing quantity of money which may affect the cost of borrowing and therefore consumer spending and company investment. When the Central's Bank interest rate rises, bank will typically increase both the rates that they charge on loan, and the interest that they offer on savings. This tends to discourage businesses from taking out loans to finance investment and encourages the consumer to save rather than spend and so depresses aggregate demand. Conversely, when the base rate falls, banks tend to cut the market rates offered on loans and savings. This will stimulate aggregate demand. Expansionary Monetary policy is applied either to control unemployment or during recession. The Central Bank cuts interest rates, encourage people and firms to borrow more money. It will also give people who take out loans more money to spend as their loan payment fall. Both effects will increase the levels of consumption and investment. Since consumption are the key of aggregate demand, cutting interest rates result in economic growth and reduced unemployment. Contractionary Monetary policy is applied in terms of controlling inflation. The Central b Bank will increase the interest rates to increase the cost of borrowing. These discourage people and firms from borrowing money. People who take loan also will have less money due to the higher loans payments. These result to reduce in economic growth and increase unemployment.

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Fiscal Policy Fiscal policy refer to the way of the government varies taxation and/or public

expenditure to achieve its economics objectives. There two ways taken by the government for purpose of controlling the aggregate demand which are by expansionary fiscal policy and contractionary fiscal policy. Both policies are varied based on the economic situation. Fiscal policy also used to influence the aggregate supply. For example, changes in fiscal policy can effect competitive conditions individual market and industries and change the incentive for people to look for work and for companies to invest and engages in research and development. government capital spending on transport infrastructure and public sector investment also have direct but unpredictable effect in the long run and costs of business in every industry. Contractionary fiscal policy is used in times of economic is boom at this situation, the economy is growing above its capacity. If the economy growing above its capacity this is likely to cause inflation and balance of payments problem. To slow down the economy down the government could either raise taxes or reduce government expenditure. Either of these will reduce the level of demand in the economy. Therefore, the level of economic will reduce. The government increases indirect taxes which will raise prices and deter people and firms from spending so much, or it may increase direct taxes which will leave people less money and so stop them from spending so much. Expansionary fiscal policy is use in times of recession to give boost to the economy. By lowering taxes or by increasing the level of government expenditure will encourage people to spend more. Lower indirect taxes will lower the prices of the taxed goods encourage more demand. Or, they could lower indirect taxes which will raise people's disposable income and therefore encourage them to spend more.

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CONSTRUCTION INDUSTRY Construction industry is a sector of economic which plans, design, construct, repair, maintenance, and eventually demolition of all kinds of building works, civil engineering works, mechanical and electrical works and other works of similar nature. Construction industry is a unique sector which directly contributes to the national economy. For example, Construction Industry had played major role in providing accommodation for services, building for production and infrastructure facilities. The government act as the major client and has powerful influence. Change in government policies may significant in industry positively or vice versa. When the Central Bank reduce the interest rate through the monetary policy and keep for a long period of time, it will result low mortgage rates. Low mortgage rates, with law credit standards from loan originators, resulting in an increased demand for housing and buildings. Increased in demand for housing resulted in increasing home prices and led to higher land costs. Builders borrowed more money to develop, purchased more land to builds houses and buildings. This resulted trouble to the builders when the home prices decreased. To avoid bankcruptcy, they had to lower their prices in order to move their inventory of houses, so that they can pay down their dept. Thankfully, we have a country that has efficient economic governance. The monetary systems are conducting well by the Central Bank, Bank Negara Malaysia in the few years. The banking system remained well-capitalised with risk-weighted capital ratio (RWCR) and core capital ratio (CCR) at 14.8% and 13.0% respectively. The level of net impaired loans remained stable at 1.5% of net loans, while the loan loss coverage remained above 90%.

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Interbank rates were stable in September. In terms of retail lending rates, the average base lending rate (BLR) of commercial banks remained unchanged at 6.53% as at end of the month. Retail deposit rates were also relatively stable during the period. The annual growth in broad money (M3) moderated to 12.5% in September. On a monthly basis, M3 increased on account of net foreign inflows and sustained credit extension to the private sector. The expansion, however, was partially mitigated by the higher issuance of BNM debt securities to absorb the excess liquidity in the banking system. Net financing to the private sector grew 12.8% in September, driven by higher issuances of private debt securities (PDS). PDS issuances rose due to several large issuances, mainly by the finance and government and other services sectors. While business loans outstanding moderated due to large repayments during the month, loans disbursed to businesses remained high. Loans to households increased, driven mainly by loans for the purchase of residential and non-residential properties, securities and passenger cars. Loan demand remained robust with sustained loan applications from both business and household sectors.

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Fiscal policies include government expenditure in public and change in taxation for mortgage interest paid by homeowners and business. When the government make tax deductions for mortgage interest lead to overbuilding as people can afford larger, more expensive houses since part of the interest cost is in essence subsidized by the government (through the interest deduction). People can also better afford to buy more than one house since the interest deduction is not limited to ownership of one house.

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Fiscal and monetary policies have resulted in an increased consumption in housing instead of other, more beneficial areas. The fiscal policies are done through the budget announced by the government. By lowering the taxes, it results on more production by the constructions body. It will provide more supply of buildings, houses and facilities to peoples. For example, in Malaysia's 2012 budget government had budget on public expenditure. The year 2012 is the first year for the implementation of the RP2 under the 10MP. RP2 will be allocated RM98.4 billion with RM49.2 billion each for 2012 and 2013. The RP2 will focus on high-impact development projects and contributes to economic growth. All new projects RM50 million and above, will undergo value management appraisal to ensure benefit to the rakyat. Under RP2, the main projects to be implemented are: i. ii. Gemas-Johor Bahru double tracking rail project; Lebuhraya Pantai Timur Jabor-Kuala Terengganu, Lebuhraya Pantai Barat Banting-Taiping, Lebuhraya Segamat-Tangkak and Lebuhraya Central Spine

as well as the construction of Kota Marudu-Ranau road; and iii. Redevelopment of the Sungai Besi Kuala Lumpur Air Base.

In 2012, the Government will allocate RM978 million to accelerate the development in five regional corridors. Among the projects to be implemented are the construction of Johor Bahru-Nusa Jaya coastal highway in Iskandar, Johor; heritage tourism development in Taiping in the Northern Corridor; agropolitan scheme in Besut in the East Coast Economic Region; palm oil industrial cluster project in Lahad Datu in Sabah Development Corridor; and Samalaju water supply in the Sarawak Corridor of Renewable Energy. The government expenditure had positively lead to the growth in the construction industry therefore then to the economic growth. In the Malaysia 2012 budget, there many taxes were reduced by the government in many sectors that contribute to the growth of national economy. For example, to further support the development of the local franchise industry, the Government proposes that franchise fees borne by local franchisees be allowed tax deduction. When other industry expands and growth, this may bring growth to the construction industry as construction industry has relation to the other sectors.

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5.1 GROWTH TRENDS Construction Industry Trends show a rise in its rate of growth. The Construction Industry (CI) is composed of many components including construction of heavy and civil engineering, building construction (residential and commercial building), and specialized construction product such as architectural products, electrical connections, decorative items. Etc. all these segments cannot be expected to show similar trends and in fact are showing differential growth pattern all over the world (Economy watch, 2012). Growth trends in construction are important indicators of clients spending patterns. The growth trends are objects of study for economists and business analysts. These professionals use the trend information to predict future opportunities. The economic downturn and the retiring baby boomer generation are opening the gates for investments.



WITH 3 OTHER SECTORS Construction industry is one of the industries that contribute to the development of a country. It plays an important role in all the major industrial sectors of a country in the form of the provision of fixed capital, services, and other residential. Physically, the construction industry output is large, heavy and expensive and cannot be transferred or moved. The construction industry in Malaysia is seen as reflecting the national economic situation and growth engine to the economic. This analysis will be on the comparison Malaysian economic growth performance. This purpose of this analysis is to identify overall impact of comparison growth gross domestic product (GDP) construction industry between agriculture, manufacturing and mining to the Malaysian economic.

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GDP (RM Million)

Gross National Income GNI (RM Million)

*(1987 = 100)

Population (*000)

Gross Domestic Product per capita (RM)

*(1987 = 100)

Gross National Income per Capita (RM)

*(1987 = 100)

Growth of GDP (%)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012p

*(1987 = 100)

*(1987= 100)

126,408 138,916 151,713 166,625 183,292 196,714 182,237 193,422 210,557

*(2000 = 100)

118,224 130,118 141,890 155,204 170,104 182,298 172,787 179,794 191,287

*(2000 = 100)

19,043 19,564 20,112 20,689 21,169 21,666 22,180 22,714 23,495 23,495 24,123 24,727 25,320 25,905 26,477 26,832 27,186 27,541 27,895 28,251 28,938 29,300

6,638 7,101 7,543 8,054 8,659 9,079 8,216 8,516 8,962

*(2000 = 100)

6,208 6,651 7,055 7,502 8,036 8,414 7,790 7,916 8,142

*(2000 = 100)

8.89 9.89 9.21 9.83 10.00 7.32 -7.36 6.14 *(2000 = 100)

356,401 358,246 377,559 399,414 426,508 449,250 475,526 506,341 530,683 522,001 559,554
*(2005 = 100)

327,492 331,740 351,671 376,809 402,838 424,261 455,784 482,819 494,323 497,436 516,833
*(2005 = 100)

15,169 14,851 15,269 15,775 16,464 16,968 17,722 18,625 19,269 18,713 19,807
*(2005 = 100)

13,939 13,752 14,222 14,882 15,551 16,024 16,987 17,760 17,949 17,832 18,295
*(2005 = 100)

8.86 0.52 5.39 5.79 6.78 5.33 5.85 6.48 4.81 -1.64 7.19
*(2005 = 100)

709,261 362,206

5.14 5.40 (q2)

= Preliminary 2nd Quarter

Table 1 : Gross Domestic Product and Gross National Income at Constant 1987 Prices (19872006), Constant 2000 Prices (2000-2006) and Constant 2005 Prices (2005-2011) Malaysia Source: Department of Statistics, Malaysia 1992-2012

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Agriculture Sector (RM Millions)


Manufacturing Sector (RM Millions)


Mining Sector (RM Millions)


Construction Indusry Sector (RM Millions)



18,478 17,898 17,559 17,114 17,890 18,010 17,512 17,596


31,788 36,423 40,566 45,174 53,387 58,788 50,899 56,840 1*(2000=100) 09,998 105,301 109,640 119,687 131,127 137,940 147,154 151,257 153,078 138,784 154,640

10,910 10,475 11,099 13,643 14,040 14,305 14,357 15,344


4,799 5,317 6,122 7,411 8,610 9,522 7,241 6,926


1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 2012p

30,647 30,594 31,471 33,369 34,929 35,835 37,701 38,177 39,825 40,083 40,916

37,617 36,980 38,610 40,959 42,627 42,472 42,030 41,881 41,831 39,209 39,270

13,971 14,427 14,762 15,031 14,903 14,685 14,639 15,707 16,365 17,329 18,220

51,263 54,299 25,183

170,258 178,333 91,759

66,122 62,334 31,901

20,428 21,370 11,912

= Preliminary 2nd Quarter

Table 1 : Gross Domestic Product By Kind Of Economy Activity Constant at Constant 1987 Prices (1987-2006), Constant 2000 Prices (2000-2006) and Constant 2005 Prices (2005-2011) Malaysia Source: Department of Statistics, Malaysia 1992-2012

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Agriculture Sector

Manufacturing Sector
Growth (%) 7.00 14.58 11.37 11.36 18.18 10.17 -13.42 11.67 18.31 -4.27 4.12 9.16 9.56 5.20 6.68 2.79 1.20 -9.34 11.42 4.74 Contribution to GDP (%) 25.15 26.22 26.74 27.11 29.13 29.89 27.93 29.39 30.86 29.39 29.04 29.97 30.74 30.70 30.94 29.87 28.84 26.59 27.64 25.14

Mining Sector

Construction Indusry Sector

Growth (%) 10.75 10.79 15.14 21.06 16.18 10.59 -23.96 -4.35 2.63 3.31 2.32 1.82 -0.85 -1.46 -0.31 7.30 4.19 5.89 5.14 4.61 Contribution to GDP (%) 3.80 3.83 4.04 4.45 4.70 4.84 3.97 3.58 3.92 4.03 3.91 3.76 3.49 3.26 3.08 3.10 3.08 3.32 3.26 3.01

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Growth (%) 4.86 3.14 -1.89 -2.53 4.53 0.67 -2.77 0.48 6.06 -0.17 2.87 6.03 4.67 2.59 5.21 1.26 4.32 0.65 2.08 5.92

Contribution to GDP (%) 14.61 12.88 11.57 10.27 9.76 9.16 9.61 9.10 8.60 8.53 8.34 8.35 8.19 7.98 7.93 7.54 7.50 7.84 7.31 7.64

Growth (%) 4.58 -3.99 5.96 22.92 2.91 1.89 0.36 6.87 0.27 -1.69 4.41 6.08 4.07 -0.36 -1.04 -0.35 -0.12 -6.27 0.16 -5.73

Contribution to GDP (%) 8.63 7.54 7.31 8.19 7.66 7.13 7.88 7.93 10.55 10.32 10.23 10.25 9.99 9.45 8.84 8.27 7.88 7.52 7.02 8.79

Table 1 : Growth Percentage and Construction Sector and Contribution of Each Sector to Gross Domestic Product Source: Department of Statistics, Malaysia 1992-2012

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0 92 -10 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12


-30 Agriculutre Manufacturing Mining Constuction Industry

Graph 1 : Growth of Gross Domestic Product Various Economic Sectors (1992-2012) Source: Department of Statistics, Malaysia 1992-2012
35 30 25 20 15 10 5 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Agriculutre Manufacturing Mining Constuction Industry

Graph 1 : Percentage Contribution To Gross Domestic Product Various Economic Sectors (1992-2012) Source: Department of Statistics, Malaysia 1992-2012

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Graph 1 indicates the growth of construction industry, agriculture, manufacturing and mining from 1992 to 2012. During this period, the average growth among this 4 sector which for duration 20 years was approximately 4%. This shows that Malaysia was still achieving high growth rates and at good track to achieved the Malaysian Vision 2020. The statistic from Table 1.1 and Graph 1.1 show that economic growth for construction industry sector reached its peak 1995 where the GDP of construction industry hit an amazing 21.06 percent. That rate of development was equivalent to the developed countries. This continuous enhancement is driven by stimulus Sixth Malaysian Plan package (1991-1995) under the era former leadership Tunku Dr. Mahathir Mohammad. Under this Malaysian Plan, the Government will continue to ensure that house prices will be affordable level purchased by people from various income levels, especially for the low income. To achieve government target the strategies and programs available in the present will continued. The private sector will continue encouraged to build more low-cost and medium low cost house while the public sector will increase the housing stock in this category. The government strategy is taken by ensure that the prices of low-cost houses are in level of RM25, 000 per unit or less so that it can be bought by those low incomes. (Sixth Malayasian Plan,1991-1995). For this purpose, a State Government is reviewing the existing formula and will take steps to build low cost housing in the price range between RM15, 000 to RM18, 000 per unit. In line with the concept of Malaysia Incorporated, the important groups in the housing industry as Housing Developers Association (HDA), the Association Construction contractors Malaysia (MBA), and material suppliers construction necessary to support the Government's efforts to ensure supply of low-cost and low-medium cost is sufficient. In addition, the MBA also can play a role in developing the technology low cost housing is more effective to complement the efforts of research conducted by the Department of Housing, Ministry of Housing and Local Government.

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According to the Abdull Rahman, et al., 2005 ,Malaysia has spent well over RM15 billion on infrastructure projects such as the Kuala Lumpur International Airport (KLIA) since 1991. The KLIA that cost RM2.4 billion was built to resemble a cluster of Arabian tents. The RM2.9 billion Petronas Twin Towers in Kuala Lumpur, which consist of Islamic motifs with the soaring lines of New York's Chrysler building, are the world's tallest twin skyscrapers. The new capital, Putrajaya was built at a cost of RM5.3 billion some 30 kilometres from central Kuala Lumpur, parking lots are landscaped like golf courses, and domed government office buildings are modelled after mosques. The city was built to relieve overcrowding in Kuala Lumpur. The Multimedia Super Corridor Malaysia an intricate project that transformed a 15-by-40-kilometre area stretching south from Kuala Lumpur into Asia's version of Silicon Valley .Based on this heavily developed construction effort, the growth construction industry is continually increase the gross domestic product starting from 1992: RM 4,799 millions, 1993: RM5, 137 millions, 1994: RM 6,122 millions and 1995: RM 7,411 millions 1996 : RM8, 610 millions, 1997: RM 9, 522 millions (Table 2) (Economy Report, 1992/1995) Meanwhile, the agriculture, manufacturing and mining sector have been experiencing the period uncertainty fluctuations during 1992 until 1995. Growth in the agricultural sector is static at 0.5 percent after reaching an impressive growth in 1992 which is 4.86%. However, this situation does not continue when in years 1994 and 1995, the growth in the agricultural sector dropped to an average -1 percent. This situation is attributed to the decline in the production of commodities agricultural that comprise palm oil, timber, rubber and cocoa. Within the performance, the contribution of this sector to GDP declined steadily. In addition, in year 1994, crude oil production has been decreasing because of low extraction rate due to the loose of oil fruits not collected due to lack of labour. These negative contribution factors also due to climate change by the haze since September 1994 that brings negative production growth. A development in the agricultural sector on this period year is not keeping up compare to the construction industry. within overall average growth 14 percent.

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Malaysia has established a diverse and quickly-growing manufacturing sector that plays an increasing role in the Malaysian economy. Based on the statistics shown in table 1, it is clearly shows that the growth in the manufacturing sector is stimulating and move forward to be around years from 1992 to 1995 with positive growing 11% despite the decline in the years 1994 and 1995. The major investment projects were in the chemical, electronics, and electrical industries. The manufacturing sector is the second highest contributor after the services sector to total GDP with average output of RM38, 500 million to the national economy for the range year 1992 1995 (Bank Negara Malaysia,1995).It is continued strong growing in this sector due to the expansion of production of oriented domestic industries. Productions of export-oriented industries as a group have been increased by 16 percent within electrical machinery and electronic products as a major contributor to growth. (Economic Report, 1995). Industry output of textiles and clothing, wood and rubber also increased but modest consistent with continued demand from overseas. Investment in the manufacturing sector is the share of private investment the largest, accounting for about 40 percent of total private investment in Sixth Malaysian Plan (1991-1995) period that given the need for high investment amount .The Government will continue to ensure that there is a conducive environment for investment and reinvestment. These investments should be channelled to projects quality and valueadded chain and broad and technology industry. According to the graph 1 represent above within the years 1992 and 1995,the growing of the mining sector has been contributed as much 8% with average RM12, 300 millions to our GDP national economy compared to the construction industry just only contributed 4.45 percent to GDP,RM6, 000 millions. The mining sector reached the peak growth in 1995 by 22.92% that the highest percentage growth for 20 years analysis data from 1992 2012. Under Sixth Malaysian Plan, the mining sector is expected to continue to be affected by oil and gas. In petroleum sector, emphasis will be placed on maintaining the pace exploitation and production whereas natural gas will be a major contributor to the growth of mining in Sixth Malaysian Plan overview. In addition, a national mining policy is formulated with the aim of improving the country's potential for yield of alluvial mineral deposits and developing activitybased industries minerals
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Table 1.1 shows the percentage of GDP and the construction industry growth. The trend shows that when national economy is expanding, the growth of the construction industry is better than the national economy. However, when the national economy in unstable or decreased, the growth industry will react be lower. Economic crisis that occurred in 1998 have given the impression different to every Malaysian. They are involved in the construction sector is not able to avoid blows up when the economy changes. This is because the construction sector is one an interdependent sectors, which correlates closely with the state economy. It is the worst of growth rate construction industry in years 1998 by -23.96 percent within only RM7, 241 million collected compare to the previous year which collected RM 9,522 millions. Comparison Percentage Growth of various Sectors and Gross Domestic Product
30 20 10 0 92 -10 -20 -30 Growth of Construction Industry Growth of Agriculture Growth of Mining Growth of GDP Growth of Manufacturing 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Graph 1 : Percentage Growth of Various Economic Sectors and Gross Domestic Product (1992-2012) Source: Department of Statistics, Malaysia 1992-2012

Graph 2 indicates that growth of construction industry has been to said one of the sector which sensitive to any changes to the national economy. It is can be refer based on S. Mahbob and K. Govindan (2000) stated that Malaysias economic performance prior to the crisis was outstanding. The real GDP growth during the period

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1990 1996 averaged at 8% per annum, where as inflation and unemployment rates was less than 3% on average. Based on the above analysis it can be seen that the growth of Malaysian economy was affected by the crisis despite its strong economic fundamentals. It is means that, when the national economic is downturn, the construction industry will slow down and reduced of activities. When economic is move forward expanding, construction industry is the last sector to recover of growing compare to the other sector. Economic cycles usually understood as a mechanism in a market economy to the health of the economy naturally. Slower economic growth will lead to decreased income and production capacity cannot be used in full (Sze Seng, 1991). There is no doubt that theses negative contributor has threaten many projects at the time, but the housing still registered positive growth during the year with increasing the number of houses constructed 1996 to 1997 by 3.2 percent (the Property Market Report ,997). According to Turin (1973), there exists an important role for the construction in the development of a country based on his research the economy some countries (classified into 'development' and 'Industry') in the period 1955 to 1965. The National Economic Recovery Plan (1998) stated that the causes of the crisis were identified as: i. Successful economic performance in the region attracted large inflows of foreign portfolio funds in the mid 1990s. ii. iii. iv. Savings-Investment gap led to an increase in current account deficits Private inflows of fund through short-term inflows Changes in external environment due to loss in competitiveness. Rapid economic growth which was accompanied by rapid credit growth to the private sector and assets price inflation Within this period of Asian financial crisis, 3 others sector also involved downturn growth in years 1998. The agricultural sector is experiencing a negative growth by -2.77 percent while the manufacturing sector also suffered a loss of RM7, 889 millions with -13.42 percent from years 1997. Meanwhile, mining sector recorded a positive profit of RM52 millions but decreased percentage with 0.36% for growth rate from previous year. This is because the government has been introduced the policy of

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Implementation the National Mineral Policy 1992. It is expected to increase exploration and mining in the country by proposing use of technologies such as GIS and remote sensing will maximized for effective planning, management and

promotion investment in the mining sector. Local mineral resource information center will established to provide information to investors (Seven Malaysian Plan, 1996-2000) Because of the economic slowdown of the past several years, the Government focused on providing infrastructures and a better investment environment. The Government reformed the banking system and improved the delivery of the Government services by reducing red tape and lowering the cost of doing business in Malaysia. The government moved from supporting large prestige projects to funding smaller ones that have a higher multiplier effect and has put greater emphasis on diversifying sources of growth into sectors such as services and agriculture (Bank Negara Malaysia, 2005). Referring to the statistic from Table 1, 2 & 3 and graph 1 & 2 represent shows that the flows of line GDP national economy will reacts the activities up and down of construction industry, agriculture, manufacturing and mining sector. In addition, the graph 1 and 2 also shows a decrease for all sectors in years 2001, 2005 and 2011, whereas in that time the government state saving financial problems crisis. Financial problems downturn the national economy country that causes decreased percentage of growth rate in all sectors, including construction. However, graph 1 show the interest part when the decreasing indicator levels of growth rate in the sector agriculture, manufacturing, and mining in years 2007 and 2009 but did not force decreased levels of growth rate in the construction sector. It is shows that the GDP national economy on that years 2007; RM506, 341 millions and 2009; RM 522,001 millions where almost average 3.2 percent of growth rate recorded. This applies because the government have been given guidelines and suppressions in the Ninth and Ten Malaysian Plan.

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In conclusion, manufacturing sector is one the key monopolized the gross domestic product despite services sector of our country with average about 53% of the total GDP. Secondly is Agriculture sector which is average percentage of GDP is 27.5%. Then followed by Mining Sector which is contributes average 9.6% of total GDP. Instead, the Construction Industry only contributes 3.5% which is the CI sector is the lowest compare with the other 3 sectors above. Even though the statistic represent lower than 3 sectors, the construction industry is still important in terms of driven vast contribution facilities and infrastructures. The construction industry is expected to grow further at the average rate of 8% till the year 2020 as compared to the average rate of 6.4 percent for the past 20 years. Under Vision 2020, Malaysia is targeted to be developed nation where the GDP is projected to reach RM920 millions (at 1990 price) (Salih, 1992)

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Comparison Contribution TO GDP of Various Economic Sectors

Agriculutre Manufacturing Mining Construction Industry Services






Pie Chart 1 : Average Division Contribution To GDP of Various Economic Sectors

The Pie chart 1 shows that the monopolized of contribution of GDP is service sector and followed by agriculture, manufacturing and mining sectors. However, the construction industry sector is the lower contribution to GDP due to the following reasons:

a) High Cost Construction projects represent a unique set of activities that must take place to produce a unique product. The success of a project is judged by meeting the criteria of cost, time, safety, resource allocation, and quality as determined by the owner. The cost of construction is depends on the client income. Demand for the construction industry is somewhat less than other sectors due to the cost factor.

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To fullfill the rakyats need, the government has established various initiatives such as house schemed subsides. Being too expensive is the cost of the product, the rate of growth of the sector has been slow or less compare to the other sector products which is more expensive and people are able to possess or use the services provided.

b) Time consuming Time is money to owners, builders, and users of the constructed facility. From the owners perspective there is lost revenue by not receiving return on investment, cash flow crunch, potential alienation and loss of clients/tenants, extended interest payments, and negative marketing impacts. From the users perspective, there are financial implications similar to owners. Delays in upgrading facilities translate into operating at below optimum efficiency resulting in higher user cost. Generally, a project will take many years to complete. The most long use time is during the construction process. While other sectors, it took several days to complete and sometimes only takes a few minutes to become products. for this reason the growth rate of the construction industry to be the least that only averaged 4% based on the percentage growth of the economy in the last year.(khairani haji ahamad,2012)

c) Parties involved In order to become successful execution of a project, effective planning is essential within parties involved. The parties involved in construction are clients, consultants and contractors. To handle a project is not an easy one; it requires considerable care and thorough planning by both sides to avoid any problems from occurring. When compared with other sectors, they only involve a few parties over the construction industry. Therefore, the cost of the product will be less expensive and preferred by people less able to get it.

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d) Malaysian Plan (RMK) As we all know, The Malaysia Plan is a 5-year Malaysian government national development initiative. For example, Construction Sector was the only sector that recorded a positive growth during every quarter of 2009. It is can attribute this trend to the proactive implementation agenda of the 9th Malaysia Plan, the two Stimulus Packages amounting to RM67 billion as well as the relative stability of building material prices. It was within this scenario that the Construction Sector registered a strong growth of 5.89% in 2009. The construction sector will need to gear itself in preparing for the abundant opportunities laid out under the Plan. These opportunities will drive, strengthen and generate a multiplier effect in stimulating and enhancing demand and domestic growth for the entire economy and in particular, the Construction Sector. Thus, the allowance will affect the percentage growth of the construction industry in the country which will be reduced or increased.

e) Physical Nature Of The Product The construction industry products is required large size and take a long time to complete that involved long years to complete. For example, a building made in 2010 will take 2 years to finish. Thus, in 2010, this building does not contribute to GDP in 2010. In addition are not portable which cannot move. Every buyer should choose strategic locations caused troublesome in terms of location is what makes people less interested in engaging in this sector. As result, it will reduced the rate of growth of the construction industry in our country.

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6.0: CONCLUSION The construction industry contributes significantly to an economy. Typically construction employs large amounts of resources including financial, labour, material, plant and equipment. It contributes significantly to the domestic produce (GDP) of the economy.Construction industry has traditionally been recognised as one of the major economic forces that has contributed vastly in developing Malaysia on becoming adeveloped nation by the year 2020. The GDP in the recent years are growth smoothly,and sometimes fall under control. Compare to the other sectors, Construction industry plays an major role to the development of other sectors therefore to the economic growth. The mechanism of the government to control and moniter the economy through Fiscal policy and Monetary policy have bring the construction industry positively sustain. Effective monitery policy and fiscal policy balance the aggegate demand and supply in the Malaysia's economy. The economic growth cannot be achieved without the effectiveness of Central Bank system in conducting the economy.

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