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Editorial

THE GLOBAL ECONOMY OUTLOOK


According to the World Economic Outlook Update by the account of the projected improvement in economic conditions in
International Monetary Fund (IMF), global growth in 2015 will be a number of distressed economies, including Russia and some
marginally weaker than 2014, with only a modest acceleration economies in the Middle East and North Africa.
expected in 2016. Global growth is projected at 3.3% in 2015,
with a gradual pickup in advanced economies and a slowdown The distribution of risks to global economic activity is still tilted to
in emerging market and developing economies while growth is the downside. Near-term risks include increased financial market
expected to strengthen to 3.8% in 2016. volatility and disruptive asset price shifts, while lower potential
output growth remains an important medium-term risk in both
Growth in advanced economies is projected to increase from 1.8% advanced and emerging market economies. Lower commodity
in 2014 to 2.1% in 2015 and 2.4% in 2016. Advanced economies prices also pose risks to the outlook in low-income developing
are expected to be driven by easy financial conditions, more economies after many years of strong growth.
neutral fiscal policy in the euro area, lower fuel prices, improving
confidence and stronger labour market conditions. The projected pickup in global growth, while still expected, has
not yet firmly materialized. According to the IMF, raising actual
Meanwhile, growth in emerging market and developing economies and potential output through a combination of demand support
is projected to slow from 4.6% in 2014 to 4.2% in 2015. The and structural reforms continues to be the economic policy priority.
continued slowdown in growth reflects several factors the Advanced economies should continue with accommodative
dampening impact of lower commodity prices (particularly in oil monetary policy to support economic activity and lift inflation back
exporting countries), tighter external financial conditions, structural to target while in emerging market and developing economies,
bottlenecks, rebalancing in China and economic distress related demand support should come from fiscal policy rebalancing aimed
to geopolitical factors. In 2016, growth in emerging market and at boosting longer-run growth, through tax reform and spending
developing economies is expected to pick up to 4.7%, largely on reprioritization.

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THE MALAYSIAN ECONOMY


In the second quarter of 2015, the Malaysian economy registered sub-sector also expanded at a slower pace, reflecting the
a growth of 4.9%, a slowdown compared to 5.6% in the previous completion and near-completion of large transportation and utility
quarter. Domestic demand expanded by 4.6% during the quarter, projects. On the other hand, growth in the special trade sub-sector
driven mainly by private sector expenditure (which grew by 5.7%) was slightly stronger, underpinned by activity for earth, land
following continued growth in consumption and investment clearing and land reclamation works.
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
Source: Department of Statistics Malaysia, Bank Negara Malaysia and
registered lower growth, due to a moderation in real activity in the Ministry of Urban Wellbeing, Housing and Local Government, 2015.
residential, non-residential and civil engineering sub-sectors
while the agriculture sector turned around to record positive According to RHB Research Institute Sdn Bhd, the continued
growth amid higher production of palm oil. volatility in the financial and currency markets along with
unresolved domestic political issues suggest that the Malaysian
Growth in the construction sector moderated to 5.6% in the second economic outlook would remain challenging in 2016. In its recently
quarter of 2015 compared with 9.7% in the previous quarter, released Regional-Asean Economic Outlook report, the research
following slower expansion in the residential, non-residential and house said it expects Malaysias real gross domestic product (GDP)
civil engineering sub-sectors. The moderation in the residential to sustain at 4.9% in 2016, marginally higher than the estimate
sub-sector was attributable to lower construction activity in of 4.8% in 2015. Going forward, the Malaysian government is
residential projects. Growth in the non-residential sub-sector was expected to introduce more measures to stabilise the weakening
also slower, but firm, supported by the construction of commercial, ringgit while remaining on track to progressively reduce its
education and healthcare buildings. The civil engineering budget deficit target.

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Editorial

PERFORMANCE OF THE CONSTRUCTION SECTOR


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.

Source: Department of Statistics Malaysia, 2015.

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.

Source: Department of Statistics Malaysia, 2015.

Selangor continued to register the highest value of construction 5.4%). Together, these five states accounted for 75.5% of the total
work done of RM6.61 billion (translating to a 24.3% share) among value of construction work done. In terms of construction activity
the states. This was followed by Wilayah Persekutuan (RM5.16 by project owner, the private sector continued to dominate with
billion or 18.9%), Johor (RM5.03 billion or 18.5%), Sarawak a share of 66.9% while the public sector accounted for 33.1% of
(RM2.28 billion or 8.4%) and Pulau Pinang (RM1.47 billion or the value of construction work done in the second quarter of 2015.

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Source: Department of Statistics Malaysia, 2015.

CONSTRUCTION SECTOR UPDATES


The construction sector may be the only bright spot in the current CIMB Research analyst Sharizan Rosely is optimistic about
Malaysian economy as the pipeline of projects to be awarded in the sectors outlook as channel checks revealed that overall job
the second half of 2015 and up to June 2016 is expected to hold visibility continues to look good on the back of mega public
steady on a stream of civil infrastructure jobs. The sector would transportation projects. He added that the sector has seen slight
now shift to focus on new tenders for the public transport and recovery following the award and implementation of contracts
highway segments with the Mass Rapid Transit 2 (MRT 2) and amounting to RM22 billion at both project delivery partner (PDP)
Light Rail Transit 3 (LRT 3) projects entering either prequalification and turnkey levels in August and September 2015.
or award phases with the total value of jobs amounting to RM39
billion, according to a recent Star Newspaper report. At the PDP level, the Penang government awarded the first
phase (estimated at RM10 billion) of the states RM27 billion
Construction of the 52.2km MRT Line 2 (Sungai BulohSerdang Penang Transport Master Plan (PTMP) to SRS Consortium led by
Putrajaya) was initially slated to commence in June 2016 but Gamuda Bhd. SRS Consortium is a triumvirate joint venture of
Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) expects work Gamuda Bhd (60%), Ideal Property Development Sdn Bhd (20%)
to start as early as the first quarter of 2016 with the tender for and Loh Phoy Yen Holdings Sdn Bhd (20%), appointed as the PDP
the first package to be out by end-2015. The MRT Line 2 will be for PTMP projects. The PTMP is a massive effort to create new
built in two phases Sungai Buloh to Batu with an anticipated road networks, improve present carriageways and pedestrian
completion in July 2021, and Batu to Putrajaya with completion ecosystem. It also includes significant upgrading of the states
expected in July 2022. Once completed, the line will have a total public transport system by introducing new transport options
of 36 stations. Out of the total stretch, 13.5km will run through such as trams, a MRT system and water taxis. The first phase,
an underground tunnel, while a total of 11 stations out of 36 involving the construction of a 17.5km LRT line linking Komtar
will be situated underground. to the Penang International Airport and a new highway from

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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 Highways 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 Sarawaks southern tip with Sematan, about 110km
from Kuching. Earlier in March, the earth-breaking ceremony for
the projects 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 Meanwhile, Malaysias high-speed rail (HSR) connecting Kuala
were both awarded portions of the multi-billion ringgit refinery Lumpur to Singapore is on track, with a new company known
and petrochemical integrated development (Rapid) project by as MyHSR Corp Sdn Bhd (a government-backed project delivery
Petroliam Nasional Bhd (Petronas). The packages awarded to company) expected to take the lead in making the RM38 billion
Muhibbah Engineering and Mudajaya were estimated to be project a reality. Intended to deliver a fastest journey time of 90
worth RM400 million to RM950 million each. In the next six to minutes between Kuala Lumpur and Singapore, the 330km high
nine months, more packages from the Rapid project would be speed line would serve eight stations in total through a mix
due for award and this would help to sustain momentum in the of express and stopping services. According to the Land Public
industry. As at end-September 2015, total infrastructure/civil Transport Commission (SPAD) chief development officer Dr
works-related jobs awarded in Rapid since 2012 have increased Prodyutt Dutt, the project would take about five years and the
to RM3.3 billion. 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


THE PROPERTY SECTOR sector had been effective at curbing excessive speculation in
the market and should not be lifted at the moment, some
The outlook for the Malaysian property sector has somewhat
industry observers and analysts opined that Bank Negara
softened, with cuts in sales targets, delays in new launches and
Malaysia (BNM) should look into easing the current stringent
rescission of land deals among developers becoming the order
lending policy, especially for first-time house buyers in order
of the day. Alongside the rise in living costs, the weaker stock
to reduce the rising number of unsold properties.
market and currency are factors that will continue to weigh on
buying sentiment and property demand, which may only recover
Among some of the broad cooling measures introduced by
towards the second half of 2016, according to Maybank Research. BNM were the 70% loan-to-value (LTV) cap on a borrowers
third and subsequent property-financing facility, lowering of the
The latest Property Industry Survey by the Real Estate and maximum tenure for property loans to 35 years from 45 years,
Housing Developers Association (Rehda) also revealed a less the abolition of developer interest bearing schemes, raising of
optimistic sentiment among local developers. Respondents of the the real property gains tax and increasing the cap on foreigner
survey were 125 property developers, who are Rehda members. property purchases to RM1 million from RM500,000. The
For the first half of 2015, property sales fell 9% compared with responsible lending guidelines have also made lending more
the same period last year. Out of the total 10,877 units launched stringent as more documentation is now needed for approval
during the period (of which 10,550 were residential units), only of loans and approval is now based on the borrowers net
4,373 units or around 40% were sold. The best-selling property income rather than gross income.

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Editorial

THE 11TH MALAYSIA PLAN (11MP)


For the 11th Malaysia Plan (11MP) running from 2016 to 2020, the inter-state tolled highway, which is expected to be completed in
government has outlined five philosophies, namely pro-growth, five years at a cost of RM7 billion.
pro-people, pro-business, environment friendly and emphasis on
nation building. Touted as the final leg in the journey towards The Gemas-Johor Bahru Electrified Double Tracking Project
realizing Vision 2020, the 11MP is deemed to be very critical. (EDTP) will see nearly 200km of parallel railway tracks, including
A total of RM260 billion worth of development expenditure will stations, depots, halts, yards, bridges and cover systems
be spent between 2016 and 2020, translating to an average of such as electrification, signalling and communications being
RM52 billion per annum, which is higher compared to an average commissioned. Construction of the 197km track started in
of RM44.7 billion during the 10th Malaysia Plan (10MP). September 2014 and is expected to be completed during the
11MP period at an estimated cost of RM8 billion.
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


THE CEMENT INDUSTRY
been buoyed by a series of large-scale transport infrastructure Despite likelihood of mega infrastructure projects, outlook for
projects rolled out by the government under the 11MP. Among the cement industry in Malaysia remains uncertain as prices
some of the projects include the Pan Borneo Highway, Central and revenues come under pressure from intense competition
Spine Road, West Coast Expressway, Electrified Double Tracking and overcapacity. Slowdown in the property sector also has a
Project between Gemas and Johor Bahru as well as road works negative bearing on cement demand. According to AllianceDBS
for the Rapid project. Research analyst Woo Kim Toh, the property development
sector makes up 50% to 60% of total cement demand in
The Central Spine Road (CSR) is a high-impact infrastructure Malaysia.
project launched in 2008 under the 10MP and comprises six
main packages, estimated to be worth RM6.6 billion. The six Demand is forecasted to increase between 3% and 4% this
year slower than last years 5% to 6% growth, according to
packages are Kuala Krai to Sungai Lakit Bridge (51km), Sungai
analysts covering the cement industry. However, lower energy
Lakit Bridge to Gua Musang (63km), Gua Musang to Kampung
costs expected this year will provide some breathing space for
Relong (107km), Kampung Relong to Raub (56km), Raub to
cement producers as energy costs make up about 30% to 40%
Bentong (60km) and Bentong to Simpang Pelangai (53km). As
of production cost.
of July 2015, four sections of the roads (about 10% of the overall
project) are open for public use.
Compounding the situation is the additional capacity expected
to come on stream in the near future. For instance, YTL Cement
Meanwhile, the West Coast Expressway (WCE) is a new Bhd (a wholly-owned subsidiary of YTL Corp Bhd) will add
expressway that will be built on the west coast of Peninsula 1.5 million tonnes or 8% capacity to the industry this year.
Malaysia connecting Taiping in Perak to Banting in Selangor. Market leader Lafarge Malaysia Bhd is in the midst of expanding
Approved in 2013, the 316km expressway is an alternative route
to the North-South Expressway and is the second longest

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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 companys production to
2.75 million tonnes per year. CMS, Sarawaks 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 industrys 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)


Malaysias construction industry will be transformed into a of Excellence (CoE) for Sustainable Construction will be
modern, highly productive and sustainable industry by 2020 established to develop, promote and implement sustainable
under the Construction Industry Transformation Programme (CITP) construction systems and practices. The blueprint also
blueprint launched in September this year. Spearheaded by the addresses the challenge of irresponsible waste generation
Ministry of Works and Construction Industry Development Board where by January 2018, it will be mandated for contractors to
(CIDB), the CITP also aims to strengthen local construction comply with waste management programmes, as part of the
companies to compete with international players. requirement in Environmental Management Systems ISO14001
certification. This will be implemented in stages, starting with
The five-year blueprint, which forms part of the 11MP, encompasses G7 category contractors.
18 initiatives under four strategic thrusts. The four thrusts
focus on ingraining quality, safety and professionalism into Meanwhile, productivity improvement will focus on three
the industry; ensuring environmental sustainability measures key drivers workforce, technology and process. To reduce
are in place at the design, construction and subsequent dependency on foreign labour, the government has proposed to
maintenance of buildings, cities and infrastructure; raising overall enhance human capital development. Proposed measures include
productivity level of the industry; and focusing on improving the streamlining construction-related courses, creating a training
competitiveness and subsequent ability of construction players map to chart progress towards a skill trade, conducting curricula
to internationalize. reviews and ensuring up-to-date industry training content.
Another aim that will help reduce dependency on foreign
To ensure quality, the CITP will push for adoption of the workers is to induce faster adoption of Industrialized Building
Quality Assessment System in Construction (QLASSIC), which Systems (IBS) by establishing economic mechanisms and
measures the quality of workmanship in building construction. modern practices.
The CITP targets to make QLASSIC a mandatory element in all
government projects by 2018. On safety and health, more stringent According to CIDB, the construction industry is expected to
requirements would also be introduced to significantly reduce maintain a double-digit growth this year and has surpassed
accidents and fatalities. the performance of other economic sectors in the country. In
2012, at the height of the 10MP, the construction industry
The CITP envisions the Malaysian construction industry as achieved its peak growth of 18.1% and from then on, the industry
a low carbon, sustainable building and infrastructure model, had maintained its double digit growth at 10.8% in 2013 and
especially to Asean member countries. Following this, a Centre 11.8% in 2014.

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