CONSTRUCTION INDUSTRY PROSPECTS 2017

Introduction CHAPTER 4

CHAPTER 4
CONSTRUCTION INDUSTRY PROSPECTS 2017

Introduction 68
World Economy 68
Malaysian Economy Prospects 72
Malaysian Construction Demand 76
Property Market 78
Projected New Value of Construction Work 85
Estimated Value of Work Done in 2017 – 2018 90

CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 67

CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Introduction/ World Economy

Introduction
The current global economic landscape has become more
challenging, from existing political disparities especially
amongst developed countries. For instance, the G20 countries
are more inclined on trade protectionist policies to the extent of
constraining global trade and investments. Most countries are
still adjusting to the drop in consumer demand and weakened
investor confidence, following low commodity prices and trade
competition. As an open economy, Malaysia is no exception to the
challenging environment. Economic reform through the National
Transformation Programme (NTP) since 2010 has succeeded
in strengthening the resilience and competitiveness of the
Malaysian economy. Since then, Malaysia continued to record
robust annual GDP growth. In 2016, the economy registered a
4.2% growth despite global financial market uncertainties and
weak import demand.

World Economy Table 4.1 | Projected Growth for Major World Economies

In 2016, the world economy grew at 3.1%, the lowest growth since
the 2008 Global Financial Crisis. The global economy landscape
encountered low worldwide demand and weak commodity prices,
as well as uncertainties in political developments and economic
policies. The ambiguous economic environment impacted
investors, hence leading to outflows of funds from rapidly
developing countries.

There are positive indications that the global economy will

accelerate at a better rate in 2017 and 2018. It is projected to
strengthen at 3.5% and 3.6% respectively. This is based on
encouraging domestic demand, as well as consumer and
business confidence in several developed and rapidly developing
economies. Following the implementation of fiscal and monetary
policies, the global economy is forecast to grow at a better rate
than in the US, EU, Japan, China and some rapidly developing
Source: World Economic Outlook (WEO) Update April 2017,
countries. It is also expected that world major commodities International Monetary Fund (IMF)
prices for crude oil, natural gas and agricultural products will Notes: e Estimate f Forecast t Target
improve. This will assist exporter countries in recovery, which
had been previously affected by low commodity prices. Consumer Despite of the positive outlook, the global economy is still
and investor confidence will encourage consumer spending, susceptible to economic shocks. The vulnerability of slow growth
investment, production and reduce unemployment. is still imminent in developed countries. According to the 2017
World Economic Outlook (WEO), amongst the challenges to the
world economic growth are:
a) The insistence of the US in adhering to their trade
protectionist policies

68 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017


b) The uncertainty on the outcome of the UK Brexit
negotiations. This scenario is likely to adversely influence
trade sentiment, and consequently affect commercial
activities and international investments.
c) The difference in the US monetary policy with other
developed countries will be more evident in 2017. This
expectation will sway investors towards rationalisation of
the financial market, and subsequently impact the capital
flow stability.
d) The continuous geopolitical unrest relating to internal
conflicts, terrorist attacks and territorial claims.
Rapidly developing countries and Asian countries show higher
resilience with better prospects of recovery. The Asian region,
especially China, India and Japan are expected to lead the global
economic recovery. Domestic demand will likely to strengthen
following utilisation of employment and efficient financing.
Investments are estimated to strengthen with the implementation
of proposed infrastructure projects and, the recovery of external
demand. Regional trade amongst Asian countries are expected to
expand with the consolidation of domestic demand.
Table 4.2 | World Largest FDI Beneficiaries by Economic Regions
Source: World Investment Report 2017, UNCTAD
Notes: f Forecast
CONSTRUCTION INDUSTRY PROSPECTS 2017
World Economy CHAPTER 4
WORLD INVESTMENT
According to the 2017 World Investment Report, world Foreign
Direct Investment (FDI) decreased by 2% (2016: USD1.75
trillion; 2015: USD1.77 trillion) from the protective US monetary
policy (US Federal Reserve hawkish policy), weak demand,
low earnings of commodity exporting countries, fiscal policy
measures, diminished profits of Multinational Companies
(MNC) and world politics uncertainties. In 2016, the highest
recipient of FDI was the US (USD391 billion), followed by the
United Kingdom (USD254 billion), China (USD134 billion),
Hong Kong (USD108 billion) and Singapore (USD62 billion).
FDI inflows to developing Asian countries fell by 15.0% with the
exception of China, which recorded a positive growth by 2.3%.
Other regions experienced similar falls in FDI. Africa (-3.0%),
Latin America and the Caribbean (-14.0%), both experienced
declines in FDIs. On the other hand, inflows of FDIs increased
in developed economies with the exception of European region.
Overall, FDI grew by 5.0% as a consequence of increases in FDIs
in developed economies such as the US, Japan and Australia.
FDI benefited by developed economies form 59.0% of world FDI.
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 69
CHAPTER 4 CONSTRUCTION
World Economy
INDUSTRY PROSPECTS 2017

United Nations Conference on Trade and Development (UNCTAD) Table 4.3 | World Largest FDI Beneficiaries by Country
projected a moderate and better growth rates for World FDI, in
2017 and 2018 respectively. This forecast has been made on
the consideration of consumer assurance, trade sentiment and
investor confidence. FDI inflow to the US increased by 12.4%
(2016: USD391 billion; 2015: USD348 billion) following an
increase of 18.7% (2016: USD360.8 billion; 2015: USD304.0
billion) in cross border Mergers and Acquisitions (M&As). In
addition, the rising trend of commodity prices promises better
income and economic demand within developing countries. This
will spur world investment and trade activities. In 2017, World
FDI investment is projected to grow around 3.0% to USD1.8
trillion (2016: 1.75 trillion). Source: World Investment Report 2017, UNCTAD

WORLD TRADE
In 2016, world trade grew by 1.3% (2015: 2.0%; 2014: 2.7%),
which was the fifth consecutive low growth since the 2008 world
financial crisis. This has been a result of economic cyclical
factors and a sluggish world economic performance. Amongst
the economic cyclical factors are weak demand, uncertainty in
economic and geopolitical environment. Economic restructuring
measures undertaken by several developed countries have
hampered growth and world trade liberalisation. Investment
expenditure decreased in the US. Whilst in China, imports have
been affected by changes in policy, from an investment-based
to consumer-based expenditure policy. With the exception of
a few Asian countries, developing economies are expected to
experience slower growth on stagnant external demand, low
commodity prices and uncertain world financial market. Low
commodity prices and depreciation of exchange rates have
affected incomes of commodity exporting countries, especially
oil producers. Hence, impairing their capacity to import.

Table 4.4 | World Goods Export and Import

Source: Press Release No.791 and No.768, World Trade Organization (WTO)

70 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017


The world economy is expected to recover in 2017, made possible
by an increasingly robust domestic demand in developed
countries, especially in Europe and the US. The recovery in
Europe has been propelled by an accommodative monetary policy,
as well as the increase in household expenditure. Meanwhile,
the American economic recovery has been spearheaded by the
increase in household wealth and brisk investment especially in
oil rigging. Japan is expected to reap a larger economic benefit
Table 4.5 | World Goods Export and Import
Source: Press Release No.791, World Trade Organzation (WTO)
The World Trade Organisation (WTO) forecasted world trade
will increase at 2.4% and 4.0% in 2017 and 2018 respectively
(2016: 1.3%). This is supported by the economic revivals of
rapidly developing economies and emerging economies. The
forecast is based on expected world economy recovery in 2017
and 2018, with the implementation of an effective economic
policy by the government. World trade has strong growth
potential, provided goods and services trade are not hampered
by protectionist policies. WTO stated that there are evident risks
in the widespread of anti-globalisation sentiments and populism
political movements. During 2015 to 2016, more than 1,400 new
protectionist measures were reported to have been implemented
CONSTRUCTION INDUSTRY PROSPECTS 2017
World Economy CHAPTER 4
arising from a depreciating Yen against the USD, and the increase
in world demand. The surge in the Chinese property market and
the gradual recovery in world trade had intensified production and
investment in China. The Asian region also derived benefits from
the development in world trade that strengthened on increased
export. Leading Indicators showed real trade had grown since
2016 and the momentum is expected to continue into 2017.
throughout the world. G20 member countries were the quickest
in the implementation of new protectionist measures with 21 new
forms of protection introduced per month since 2008, which later
reduced to 18 protections per month for the period from May to
October 2016. Gradual inflation increased in several developed
countries resulted in protective monetary policies which, in turn,
deterred short term trade growth. UK’s decision to withdraw from
the European Union gave rise to an uncertainty in the future trade
relations between the two parties. On the other hand, the US trade
and monetary policies under the new president will create a new
arrangement in the world economic and trade environment.
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 71
CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Malaysian Economy Prospects

Malaysian Economy Prospects

The Malaysian economy grew moderately by 4.2% in 2016. The Households will continue to adjust their expenditure in response
sluggish and uncertain world economic environment had been to inflationary pressures. Inflation prospects for 2017 remain
the outcome of fiscal and monetary policies. Domestic demand, unchanged from 2016 at 2.1%. Disposable household incomes
supported by export will continue to drive economic growth. are expected to increase through cash assistance and subsidies
Domestic demand is made up of consumer spending, investment on basic necessities, extended to low and medium income
spending and export demand. The three growth components are earners. This is further boosted by an increase in the cash
expected to benefit from the recovery of world economic activities assistance Bantuan Rakyat 1Malaysia (BR1M); reduction of EPF
come 2017. Even if the global macroeconomic environment is contributions to 3.0% until December 2017; bonus and special
still shadowed by uncertainties, the Malaysian economy is festivities assistance to all civil servants (RM500) and pensioners
projected to remain stable. (RM250); special assistance to farmers, fishermen and settlers at
land development schemes; subsidies on the prices of essential
basic goods and services; whilst the higher commodity prices
CONSUMER SPENDING will boost rural household incomes. Private consumption is
National productivity is forecast to improve with the increase projected to grow by 6.0% in 2017.
in private consumption and export growth. Meanwhile, public
consumption is expected to grow moderately following the
government’s commitment towards fiscal consolidation. Private Table 4.6 | Projected Malaysian Economic Growth
consumption is projected to increase with the growth in investment
and disposable household incomes. The stable employment
market and higher wages are expected to boost consumption
expenditure. Wages are forecast to increase moderately. The
Malaysian Employers Federation (MEF) reported that employers
expect an average wage increase of around 5.4% in 2017 (2016:
5.5%). The wage increase will be supported by export driven
manufacturing sector. Meanwhile, the service sector wages will
be sustained by domestic oriented manufacturing activities.
The employment market is expected to remain low in 2017 on
the basis of a sluggish and uncertain world economy, as well
as cautious business sentiment. Despite the fact that employee
numbers will continue to grow, the employment opportunities
growth will not be able to absorb fresh market entrants, resulting
in a projected increase in unemployment rate to around 3.6% -
3.8%.
Source: BNM 2017 Annual Report
Notes: e Estimate f Forecast

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INVESTMENT
World FDI is projected to decelerate following the tightening of
the US monetary policy (US Federal Reserve hawkish policy)
and a weak world demand. This situation will create stiffer
competition amongst countries to attract FDI. However, Malaysia
has the ability to attract foreign investor with a friendly investment
eco-system. Malaysia’s FDI inflow shrunk by 5.0% to RM41.2
billion in 2016 (2015: RM43.4 billion). This drop is considered
minor in comparison to the reduction value in the developing
economies’ FDI (14.0%).
Private investments increased by 6.4% to RM211.5 billion in
2016 (2015: RM198.8 billion). In 2016, Malaysia has approved
4,972 investment proposals in the manufacturing, services and
main economic sectors to the value of RM207.9 billion, with the
potential of creating 153,060 jobs. Of the entire investment value,
RM148.9 (72.0%) is domestic investment whilst RM59.0 billion
(28.0%) is FDI (2015: 29.0%). The Malaysian investment eco-
system has been recognised as one of 17 economies that had
undergone business transformation in East Asia and the Pacific.
Malaysia is amongst the region’s member countries that recorded
the best performance in terms of efficiency and quality business
regulations. Based on the World Competitiveness Report
2015/2016, Malaysia ranked 25th amongst 138 most competitive
countries in the world, 10th place in the Asia Pacific and 2nd in
ASEAN, following Singapore in first place. The World Bank’s Ease
of Doing Business Report 2016, indicated Malaysia in position
22 ahead of the Netherlands, Japan and Thailand. Malaysia is
expected to remain the preferred investment destination based
on the country’s record in protecting minority investors and
government’s commitment to further improve and provide a
competitive business environment. Foreign investors continue
to benefit from a unique, competitive business eco-system in
Malaysia and its regional synergies.
CONSTRUCTION INDUSTRY PROSPECTS 2017
Malaysian Economy Prospects CHAPTER 4
Table 4.7 | Approved Investment Proposals
Source: Malaysia Industrial Development Authority (MIDA)
Malaysia takes a selective stance in picking investments by
placing priorities on projects that promise significant impact
on the domestic economy. The world investment is expected
to remain challenging but Malaysia is poised to attract high
quality FDIs through strategies and concerted efforts between
organisations. The government’s business friendly policy is
perceived as Malaysia’s readiness to provide a suitable platform
within the national eco-system. This is further supported by
political stability, strategic location, transparent regulations,
open financial system and, talented as well as skilled human
resources. With these advantages, Malaysia is certainly to stay
competitive and profitable investment destination.
Investment prospects in Malaysia remain bright for 2017 and
2018. This follows measures undertaken by the government to
increase income, contain expenditure and reduce fiscal deficit,
as well as ensuring sufficient liquidity through implementation
of an accommodative financial policy. Investment is expected
to increase by 4.1% in 2017, driven by private investments.
The growth is marginally lower than 2016 (4.4%), based
on cautious investor sentiments over prolonged uncertain
economic environment. A large portion of the private investment
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 73
CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Malaysian Economy Prospects
has been targeted for export oriented activities particularly in
the manufacturing and services sectors. Public investment
is forecast to increase by 1.5% (2015: -0.5%). Government
Linked Companies (GLC) are also expected to incur high capital
expenditure in major infrastructure projects, mainly in the public
transport, utilities sub-sectors as well as oil and gas downstream
sectors. Economic growth for Q1 2017 shows positive indicators
with private investments charting an increase of 12.9% and
public investments, a 3.2% growth.
EXTERNAL TRADE
World economy has been forecasted for improvement in 2017
and 2018, based on the assumption of prospective increase in
world demand that will spur world trade. Amongst countries
that are projected for better economic prospects include major
trade partners such as US, China, Japan, ASEAN countries
and a few European countries. Commodity exporter countries
adversely affected by sliding commodity prices are also
expected to contribute towards the increase in world demand
following the trend of rising prices of major commodities in
the world. As an open and liberal economy, Malaysia will reap
benefits from the prospects of an improving world trade growth.
Malaysian exports continued on positive growth (2016: 1.1%)
and is projected for better growth (2017: 5.5%; 2018: 4.3%) in
tandem with world trade recovery. The resurgence of developed
economies alongside the rising trend of world commodity prices
will further boost product demand especially for Electrical and
Electronic (E&E) goods, and resource based products that form
Malaysia’s largest export. E&E product export grew to 18.4% for
Q1 2017 (1Q2016: 3.6%; 4Q2016: 7.7%), whilst resource based
production particularly crude oil and palm oil leapt to 30.1%
(1Q2016: 1.7%; 4Q2016: 5.6%).
74 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
Imports are forecast to rise to 6.4% in 2017 (2016: 1.9%),
which is higher than exports. Intermediary goods and capital
form largest imports. This reflects a plan for the expansion of
production capacity on an assurance of a rising world demand
especially in the export oriented industry. Production capacity
increased to 86.6% in the first quarter of 2017 in comparison
to 76.4% for the same period in 2016. The year-on-year MIER
CEO Confidence Index leapt to 14.3%. Capital import increased
to 4.9% in 2016 (2015: -0.3%) and 4.2% in 1Q2017 (1Q2016:
-12.7%; 4Q2016: 6.7%), thus revealing an intention to increase
fixed capital investment in businesses. Gross imports are
projected to grow by 4.4% in 2018 as targeted under the Eleventh
Malaysia Plan (11MP).
Whist the Malaysian export trade is forecast to improve in
2017 and 2018, the consistently negative balanced services
trade can jeopardize the current trade surplus. Nautical and
air transportation, insurance and professional services are
somewhat still uncompetitive with international services. This
situation may perhaps be offset by an increase in foreign tourists
spending. Therefore, the growth of the tourism sector is vital in
counter balancing the services sector in the short term. There are
also concerns that the world trade recovery projected in 2017
and 2018 may fall short of expectations, on an environment
that remains shadowed by risks, rampant trade protectionist
sentiments, geopolitical tensions, unpredictable political
situations in developed countries and the consequences of low
foreign exchange rates to the US dollar. Any change in the world
economy landscape will affect external demand.
 CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Malaysian Construction Demand
PROJECTED ECONOMIC GROWTH
Malaysia’s economy has been forecasted to grow by 4.3% to
4.8% in 2017, almost hitting the 2018 targeted growth of 5.0%
to 6.0% projected under the 11MP. All economic sectors are
expected to show positive growth, especially in the manufacturing
sector on the assumption of a revival of external demand and
consolidation of domestic demand. There are positive indicators
towards the recovery of both domestic and external demands,
stabilising of the Ringgit against major foreign currencies,
manageable inflation as well as favourable impact derived from
prudent expenditure policy. The indications are seen in the rise
in commodity prices, wage increases, sustainable employment
of resources and the increase in disposable household incomes.
Additionally, the strategy in a multiple economy, reduction in cost
of living, the launch of high impact investments, adoption of a
pragmatic monetary policy and the broadening of external market
will further boost Malaysia’s economic potential and resilience.
Table 4.9 | Malaysia’s Projected Economic Growth
Source: Bank Negara Malaysia, Annual Report 2016 and
Quarterly Progress, First Quarter 2016
Notes: a Actual f Forecast t Target
The favourable Malaysian economy outlook is also concurred
by world economic research organisations. Malaysian economy
is projected to grow exceeding 4.0% based on expectations of
positive outcomes from the economic transformation strategies.
Prevalent resilience of Malaysia’s economy is expected to recover
in tandem with a dynamic regional economic growth. Thus
positive developments in the external economy will favourably
impact the domestic economy chain.
76 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
Table 4.10 | Projected Malaysian Economic Growth
Notes: f Forecast t Target
Malaysian Construction
Demand
Construction works are predicted to be lesser in 2017 and 2018
in comparison to 2016. This follows most large scale work
packages, such as RAPID, Pan Borneo Highway and the East
Coast Rail Link were awarded in 2016. Construction projects
implementation is expected to intensify towards 2020. As of Q2
2016, the value of construction work contracts leapt to a high
of 61.5% to RM229.0 billion in 2016 (2015: RM141.8 billlion).
However, the volume of projects saw a reduction by 9.1% to 6,855
projects (2015: 7544 projects). The government will continue to
support development programme with the implementation of
several new infrastructure projects such as the KL- Singapore
High Speed Rail, MRT3, LRT3, the extension and upgrading of
several air and sea ports. Private developers will benefit from
property developments in proposed new cities and townships
under the 11MP, alongside the implementation of public transport
infrastructure projects. Meanwhile, ongoing mega projects under
construction such as RAPID, MRT2 and the Tun Razak Exchange
will offer work opportunities for small contractors even though
the larger part of main work contracts have been awarded. The
large scale infrastructure and commercial projects implemented
will saw a wider utilisation of technology and updated practices
in their construction process. Considerable funding and more

efficient building process contributed to a higher quality of work.
The construction sector is projected to grow by a minimum of
8.0% in 2017 by Bank Negara Malaysia and a minimum of 10.3%
in 2018 under 11MP.
GOVERNMENT PROJECTS
The government will continue to ensure the continuity of a
resilient economic environment. This is done through the
implementation of high impact projects. Meanwhile people
economy projects are more focused on ensuring social security
net. In the people economy context, social security nets are
incorporated in projects to ascertain the people’s welfare within
the development process. This may include job opportunities,
small businesses, cost of living, family welfare and community
participation. Capital economy refers to Gross Domestic Product
(GNP) growth. The growth may be induced by intensifying
businesses and, implementation of big impact government
projects with high added value so the people can achieve:
a) Access to quality healthcare
b) Ownership or rental of affordable home
c) Safer living environment
d) Production of world class talent resource
e) Prevention and mitigation of natural disaster impacts
f) Access to basic amenities and services
g) Enhancement of innovation; and
Government spending will be moderated following a commitment
towards a fiscal deficit consolidation through public expenditure
restructuring and prudent spending policy. However,
implementation of high value added infrastructure projects will
continue to generate inclusive and sustainable growth. The
government is expected to continuously stimulate growth through
public investment in specific sectors, particularly in large scale
infrastructure projects. Large-scaled projects implemented on
private funding initiatives are categorised as private projects.
Several new government construction projects consisting of
upgrading and maintenance projects to be implemented under
2017 Budget are listed in Appendix 4.1
CONSTRUCTION INDUSTRY PROSPECTS 2017
Malaysian Construction Demand CHAPTER 4
INFRASTRUCTURE PROJECT
Infrastructure development is vital in ascertaining the people
have access to basic facilities and services such as transport,
communications, electricity, clean water, tourism infrastructure,
renewable energy projects and sewerage amenities. Priorities are
given to expansion and improvement of existing basic amenities
in ensuring effective and efficient infrastructure. The exercise will
reduce operation cost, enhance productivity and improve overall
competitiveness that contributes to economic growth.
From the Tenth Malaysia Plan (10MP), the government has
intensified the development of high value added infrastructure
projects. The transportation infrastructure saw several upgrades
in urban roads and additional construction of roads in high
traffic areas. Among the ongoing, under construction, mega
infrastructure projects are the MRT, telecommunications, River
of Life, and the Pan Borneo Highway. The Sabah Development
Corridor (SDC) has plans to increase its infrastructure investment
to enhance inter-regional and international connectivity. This
translates into an imminent land, sea port and airport network
transformation. Following suit will be the High Speed Rail
(HSR), the Klang Valley Double Tracking rail and the Penang
Public Transport Infrastructure Master Plan projects. Several
other transportation infrastructure and public infrastructure
projects will be concurrently implemented in 2017 and 2018,
to complement the development of new townships and regional
economic corridors.
Infrastructure development in rural areas will facilitate
accessibility to public amenities, thus narrowing the development
gap between the urban and rural sectors. Meanwhile, integration
of transportation services in urban areas sees the utilisation
of existing services. Beyond the enhancement in public
transportation services; quality water supply, as well as sewerage
systems have been proposed for improvement.
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 77
CHAPTER 4 CONSTRUCTION
Property Market
INDUSTRY PROSPECTS 2017

Property Market
Among others, property market depends on consumer demand. Table 4.11 | Property Market Transactions Volume
However, the obscure economic environment made consumers
to be more cautious in committing towards long term financial
burdens. The rising prices also led to financial institutions
tightening borrowing requirements to curb speculation. The
adverse impact of these conditions resulted in a downtrend
in the property market. According to the NAPIC 2016 Annual
Report, property transactions decreased by 11.5% during the
year (Q12017: 4.8%). This poses an oversupply situation in
the property market. The number of unsold properties across
all categories increased by 31.1% to 192,887 units in 2016.
However, this does not affect the supply momentum in major
cities and strategic locations.
Source : Property Market Report 2015 -2016, NAPIC
Note : *** Minimal

RESIDENTIAL from 42.1% in 2015 to 31.4% in 2016. As for new launches,

In 2016, new residential units at various stages of construction in
the market rose by 8.3% to 907,903 units (2015: 838,173 units).
Of these, unsold units increased by 33.3% to 90,491 units in 2016
(2015: 67,865 units). The number of starts suffered a decline of
15.1% to 121,326 units (2015: 142,961 units). New launches
for residential units fell by 9.8% to 52,713 units (2015: 58,411
units) following a market slowdown with lower sales performance
affordable units priced below RM300,000 consisted 36.6% (sales
performance: 35.2%), units priced between RM300,000 and
RM500,000 made up 29.5% (sales performance: 34.5%), and
luxury units priced above RM500,000 comprised 33.9% (sales
performance: 24.5%). Transaction volume for 2016 charted a
decline by 11.5% to 320,415 units (2015: 362,105 units).

Table 4.12 | Property Market Transactions Volume

Source: Property Market Report 2015 – 2016, NAPIC

78 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017


The high price of residential units and soaring cost of living
within an uncertain economic environment contributed to a weak
market performance in 2016. Generally, most buyers can afford
to purchase units priced lower than RM250,000. The average
market price of residential units is RM300,000. The involvement
of government agencies in supplying more affordable homes had
pushed private developers into making adjustments to match
the purchasing power of buyers. The tightening of borrowing
requirements by financial institutions helped to reduce speculative
purchases. According to Real Estate and Housing Developers
(REHDA), about half of housing loan applications submitted was
rejected. The 2016 NAPIC Malaysia House Price Index showed
that prices had fallen to 5.5%.
The residential property market is forecast to rebound following
rising consumer confidence for the local and world economy
in 2017 and 2018. REDHA’s 2H2016 Real Estate Industry
Survey showed optimism in majority developers towards the
property market prospects in mid-2017. Genuine buyers and
first time home buyers will continue to secure loans with higher
government housing loan limits ranging between RM200,000
and RM750,000. In 2016, the number of new development plan
approvals increased by 11.3% to 120,089 units (2015: 107,938
units) propelling planned supply units by 5.8% to 601,671 units
(2015: 568,937 units).
The government will continuously offer affordable housing to the
people. To facilitate home ownership, the regulatory framework
was reviewed and various modes of funding were formulated.
A people-friendly housing scheme for the underprivileged and
low income households (B40) in urban and rural areas were
implemented through such programmes as the Program Bantuan
Rumah (PBR), Program Perumahan Rakyat (PPR) and Rumah
Mesra Rakyat 1Malaysia (RMR1M). Meanwhile, the second
generation settlers’ housing programme was implemented through
the Federal Land Development Authority (FELDA) and Federal
Land Consolidation and Rehabilitation Authority (FELCRA).
Afforable housing for the middle income households (M40) were
implemented through programmes such as Perumahan Rakyat
1Malaysia (PR1MA), Perumahan Penjawat Awam 1Malaysia
CONSTRUCTION INDUSTRY PROSPECTS 2017
Property Market CHAPTER 4
(PPA1M) and Rumah Wilayah Persekutuan (RUMAWIP). To
promote the development of affordable housing programmes,
the government intends to provide several incentives alongside
the implementation of a variety of residential projects under 2017
Budget. Amongst the residential projects included are:
a) 5,000 units of MyBeautiful New Home an initiative led
by Ministry of Urban Wellbeing, Housing and Local
Government (KPKT) for the B40 group at a price range of
RM40,000 to RM50,000 per unit.
b) 9,850 new units and completion of 11,250 PPR units.
c) 30,000 housing on government land at strategic locations
at prices RM150,000 to RM300,00.
d) 10,000 urban housing for rental being offered to the young
at lower than market rates.
e) 5,000 units SPNB’s Rumah Mesra Rakyat 1Malaysia.
f) Completion of 30,000 1Malaysia Civil Servants Housing
units to be sold at RM90,000 to RM300,000.
The government announced additional PPA1M units will
be constructed, from 100,000 units to 200,000 units. The
government had provided several incentives to assist the B40
category purchase homes and encourage private developers
construct more affordable homes. Amongst the incentives
announced in 2017 Budget are the following:
a) The government will fund RM20,0000.00 towards the
purchase in a MyBeautiful New Home project whilst the
rest will be paid via instalments by the owner.
b) RM20,000 subsidies will be granted for each unit of SPNB’s
Rumah Mesra Rakyat 1Malaysia.
c) Special PR1MA homes step-up-end-financing scheme
in collaboration with the Bank Negara Malaysia (BNM),
EPF and 4 banks offering 90.0% to 100.0% housing loan
margins.
d) Provision of strategically located, un-utilised land bank for
the development of PR1MA project.
e) Stamp duty exemptions for instruments of ownership
transfer and, instruments of mortgages on purchase of first
homes during the period beginning 1 January 2017 to 31
December 2018.
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 79
CHAPTER 4 CONSTRUCTION
Property Market
INDUSTRY PROSPECTS 2017
Residential units from the 2017 Budget housing programmes will
add more to the current supply, from projects already planned
for in 2016. The presence of government agencies involved in
the development of additional people’s housing, plus incentives
available to private developers and potential buyers alike, is
expected to fuel the residential market activities in 2017 and
2018.
NON-RESIDENTIAL
Non-residential property includes industrial, commercial, retail
complexes, office space and hotels. The performance of this
market segment is highly influenced by the prevailing economic
environment. In 2016, transactions for non-residential property
fell by 24.4% which comprise 9.2% of total market transactions.
The market prospects for 2017 is expected not to change much
from 2016, a situation that will gradually improve around 2018
on better economic recovery. On a cautious note, the market may
experience challenges in an oversupply of completed units that
Table 4.13 | Shop Market Performance
Source: NAPIC Property Market Report 2015 -2016
The government is committed towards providing a conducive
environment that promotes the growth of businesses including
Small and Medium Enterprises (SME). The wholesale and retail
industries target a stable spending in Malaysia by facilitating
sector investment and helping small retailers strengthen their
80 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
will increase numbers of unsold units. In a chain reaction, there
would be a decline in occupancy and accommodation.
SHOPLOTS
In spite of general slowdown trend in 2016, the shop market saw
a reduction in the number of unsold units by 24.0% to 12,673
units (2015: 16,681 units). This was 14.2% of overall supply
that included completed units and future supply. The situation
led developers into slowing down starts and reducing new
planned supply to 4.7% and 23.6% respectively in 2016. Shoplot
development is complementary to new housing development
project localities. Most shop occupants are small businesses.
Their business survival very much depends on population
density, the standard and style of community living as well as
competition from neighbouring hypermarkets. The traditionally
inclined business behaviour hinders shop lot properties’ growth
whenever there is competition from nearby hypermarkets.
competitiveness. The wholesale and retail sector investment
recorded RM6.4 billion in 2016 and approximately 50% of which
amount were channelled to SMEs and the rest to bigger shop
outlays. Advisory assistance and easy funding programmes were
offered by relevant agencies. In an era of digital economy, shop

occupants are encouraged to capitalise on the rapidly growing
Information and Communication Technology (ICT) in adding
linkages to the international e-commerce sector. Shop operators
should accept and trust the e-commerce since it is the future
INDUSTRIAL
Industrial property refers to factory buildings and warehouses.
The industrial property market in 2016 was stagnant following
weakening economic environment and world FDI. The industrial
property market formed 1.8% of total transactions recorded
in 2016. This was a reduction by 20.4% in the number of
transactions. There are 8,744 industrial property units including
Table 4.14 | Industrial Property Market Performance
Source: NAPIC Property Market Report 2015 -2016
Industrial property demand is projected for a positive turn-
around in 2017 in line with an improved economic prospect and
export demand recovery. Stakeholders will actively continue to
attract and stimulate quality, high impact and value-added new
investments. MIDA’s records showed approved proposals for
new private investments rose to 7.7% totalling RM207.9 billion
in 2016. Proposed investments for expansion and diversification
of manufactured products also increased to 393 projects worth
RM30.7 billion (2015: 296 projects; RM14.4 billion). There are
expectations that more investment proposals will be realised in
2017 and 2018 following the gradual world economy recovery.
CONSTRUCTION INDUSTRY PROSPECTS 2017
Property Market CHAPTER 4
landscape of businesses. E-commerce procurement and market
coverage will actively speed up SME industry growth and viability
to propel shop lot unit demand.
future supply units which brings about an addition of 8.4% to
available stock compared to 2015 (103,868 units). Diminishing
business sentiment plus the risk of a sluggish economy resulted
in an increase in unsold units to 2,054 units in 2016 (2015: 2,061
units). The sentiment saw a decrease in volume of starts and new
planned supply to 53.3% and 2.2% respectively in 2016.
The expansion in current operational plants, as well as investment
proposals in 2015 are largely responsible for the demand in
factory and warehouse space. As much as RM186.2 billion and
RM214.8 billion worth of investments were realised in 2015
and 2016, which equates to 96.5% and 103.3% of proposed
investments value in the respective years.
Malaysia’s external trade is on the rise in 2017, especially for
exports of manufactured goods. Exports of manufactured goods
have been targeted to increase by 5.5% in 2017, and is expected
to continue its growth momentum into 2018. Improvements in rail
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 81
 CHAPTER 4 CONSTRUCTION
Property Market
INDUSTRY PROSPECTS 2017

transportation services and, the cargo handling and management
facilities at marine and air ports have also boosted logistics
services development. The positive development will invariably
stimulate investments leading to demand for manufacturing
plants and storage facilities or warehouses. On this note, unsold
industrial units will be reduced.
COMMERCIAL COMPLEX
Demand of commercial complexes are driven by the people’s
domestic income and foreign tourists’ spending. Commercial
complexes rely on these consumer groups to offer a wide range
of quality merchandise. Statistics showed that foreign tourists
are big spenders during their visit. In 2016, Malaysia earned an
RM82.1 billion revenue from the arrival of 26.8 million tourists.
On average, each tourist spends RM3,158.00 in Malaysia.
Income from tourism is generated via shopping activities, eco-
tourism, cruise and business events. Efforts to promote Malaysia
as a duty-free shopping destination will be further boosted
concurrently with an initiative to improve the Tourism Refund
Scheme (TRS). Kuala Lumpur was placed amongst top 5 Best
Destinations in a list of 25 world’s best shopping destinations
by Expedia UK.
to 1,819,077 square meters on account of fresh market entrance
in retail space to be completed in 2017. One of the main demand
attractions for a commercial unit is consumer spending. However,
consumers are seen to be more cautious amidst rising cost of
living and bleak prospects for employment, thus triggering a
slowdown in business activities. This sentiment has greatly
affected demand for commercial space. The market potential in
new entrants’ absorption rate fell to 3.5% (2015: 5.7%), which
incidentally led to the decline in occupancy rate to 81.4% (2015:
82.4%). Developers took to a more rational stance by reducing
starts units by 37.7% to 399,684 square meters and new plan
proposals also decreased by 63.9% to 168,930 square meter.
Due to the low volume in new planned units and starts units,
planned supply remained high at 939,057 square meters (2015:
1,029,596 square meters).
Table 4.15 | Commercial Complex Property Market Performance

The introduction of Visa-less and the e-Visa entrance for Chinese

tourists brought great relief to the Malaysian tourism industry
post flights MH370 and MH17 tragedies in 2015. Chinese tourist
arrivals increased by 26.7% to 2.1 million in 2016 (2015: 1.7
million). Malaysia has plans to offer similar facilities to tourists
with high purchasing power from other countries. Malaysia
has also been described as “the most attractive and preferred
destination” by entrepreneurs intending to conduct businesses
within the South East Asian countries. Source: NAPIC Property Market Report 2015 - 2016

The commercial complex property market is predictably slow and
challenging on the expectations of an influx of new commercial
complex entrants in 2017 and 2018. Available retail space
increased by 5.9% to 14,638,039 square meters, through an
additional 841,102 square meters was completed in 2016.
Meanwhile existing retail space is projected to increase by 20.9%
Majority property market analysts are unanimous on the adequacy
of commercial space available and rampant new entrants
can result in an oversupplied market. There are suggestions
from relevant parties to monitor and restrict approvals for new
development proposals to avoid dumping. On the one hand,
developers have their own marketing rationale and strategies

82 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017

 CONSTRUCTION INDUSTRY PROSPECTS 2017
Property Market CHAPTER 4

in continuing to build new, attractively designed, luxurious starts and proposed new supplies declined by 24.9% and 22.7%
commercial complexes in strategic locations. respectively in 2016.

These developers are optimistic in realisation of 36 million Table 4.16 | Office Building Property Market Performance
tourist arrivals by 2020 and in reaping RM168.0 billion revenue.
Business activities are greatly supported by large-scale FDI
inflows, development of new cities and increase in the numbers
of high income earners. On top of this, infrastructure development
particularly in public transportation is expected to raise property
values and the density of inhabitants along the transportation
route. This in turn activates business, and consequently the
demand for new commercial complexes.

OFFICE BUILDINGS
Property market performance for typical office buildings lack-
lustred due to a weak trend in industrial properties market
in 2016. The demand for both types of properties is closely
inter-related within the current economic conditions. The
situation curbs investor sentiment for a higher capital spending
and, weakens the professional services sector. The extensive
adaptation of advanced technology and innovations equates to a
low manpower requirement as well as working space. The rising
trend in employers engaging home-based employees has also
impeded office space demand.
The financial, as well as oil and gas industries are amongst
those that have retrenched workers. There are 2,005,349 square
meters of office space future supply in 2016. Their market
entry will potentially increase available stock by 9.7% in 2017
to 22,753,682 square meters from 20,748,333 square meters.
The current depressed economic climate saw take-up rates
diminishing from 7.5% to 6.1% in 2016.
This led to an increase in vacant units by 11.8% to 3,675,779
square meters (2015: 3,287,842 square meters). A total of
828,183 square meters in planned supply are expected for
market inclusion. In view of a lacklustre business sentiment and
the uncertainty in the world financial markets, developers have
begun to slow down new developments. New office building
Source : NAPIC Property Market Report 2015 - 2016
2017 and 2018 are opportune times for investment. In 2015, the
services sector’s approved investment proposals amounted to
RM87.6 billion (3,559 projects) as compared to RM77.1 billion
(3,518 projects) in 2016. The overall proposed investments in the
services sector stood at RM141.2 billion, which have the potential
to create 88,108 job opportunities in 2016. The development of
5 large-scaled investments, economic corridors in major as well
as new cities in the near future will provide a fresh business
landscape and potentially stimulate office space demand. This
modern and efficient infrastructure development will invigorate
the services business activities in fulfilment of demand from a
high density population. The government promotes high value
added service sectors as new sources of growth, such as financial
and insurance services, tourism, MNC regional office operations,
establishment of Research and Development (R & D), health,
education centers; and business digitalisation industries. In line
with this, the liberalisation of several domestic market sectors
such as education, healthcare, professional and ICT services,

CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 83

CHAPTER 4 CONSTRUCTION
Property Market
INDUSTRY PROSPECTS 2017
shall create a conducive and attractive business environment
for more foreign professional firms to expand their businesses
in Malaysia. This will create additional, future demand for office
space.
HOTELS
The hotel industry performance is closely linked to momentum
in the tourism industry. There were several untoward incidences
in 2015 that tarnished the hotel industry, such as street
demonstrations, haze, floods, earthquakes, the loss of MAS
flights MH307 and missile MH17, terrorist threats, and travel
caution by some developed countries. The number of tourist
arrivals declined to 25.7 million in 2015 (2014: 27.4 million),
especially so for Chinese tourists. Meanwhile, the domestic
population was faced with a rising cost of living following the
fall in value of the Ringgit, low commodity prices, imposition of
GST and the rationalisation of subsidies on a number of daily
necessities particularly fuel. This situation prompted households
to be more prudent when it comes to travel spending. The decline
in tourist arrivals clearly impacted the room stays rate, which
decrease by 61.0% (2014: 62.6%). This situation persisted into
2016. Investors resorted to delay development of new hotels,
which showed in new starts and new development proposals to
49.0% (2016: 2,212 units; 2015: 4,340 units) and 43.2% (2016:
2,465 units; 2015: 4,342 units) respectively.
Table 4.17 | Hotel Property Market Performance
Source : NAPIC Property Market Report 2015 - 2016
84 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
One of the driver of national income, the tourism sector has
a multiplier effect on economy. The tourism sector is the
second highest contributor in foreign exchange income behind
manufactured goods export. Hence, various efforts were made
by stakeholders to revive foreign tourist confidence, especially
those from China. Amongst the measures undertaken was
the visa-less entries for Chinese tourists and the e-visa for
tourists from selected countries. With the establishment of the
ASEAN Economic Community (AEC), regional tourism activity
is expected to heighten. Promotional campaigns have borne
positive returns in the surge of tourist arrivals to 26.7 million in
2016 (2015: 25.7 million). Stakeholders are actively promoting
Malaysia as the main regional tourism hub and destination.
Malaysia’s strategic location in the centre of the South East Asian
region; a harmonious multiracial population, diverse culture and
religion, enchanting natural landscape alongside infrastructure
facilities have given Malaysia an edge over other regional
destinations. Malaysia is also concentrating on health and
education tourism products, as well as world class conference,
meeting and exhibition facilities such as the Kuala Lumpur
Convention Centre, Putrajaya International Convention Centre
and Kota Kinabalu Convention Centre. In 2016, 341 business
events were conducted in Malaysia which included corporate
meetings, promotional tours, conventions and exhibitions that
attracted 127,849 international representations, generating an
approximate RM1.5 billion.
Efforts in promoting Malaysia as a main tourist destination are
effectively supported by international acknowledgements such as
Top Asian Destination by World Travel Awards 2016; The First
Muslim Friendly Destination by MasterCard-Crescent Rating
2016; One World Hotel was awarded the Asia’s Leading Meetings
& Conference Hotel; and Resorts World Genting was recognised
as Asia’s Leading Themed Resort. Additionally, Zouk KL was
awarded Nightspot of the Year by Hospitality Asia Platinum Award
(HAPA); and Ipoh was listed in the Top 10 Best Asian Cities 2016
by Lonely Planet. 2017 will attract the arrivals of athletes and
spectators through the hosting of 29th SEA Games, 9th ASEAN
Para Games, Formula 1 Finale and Visit ASEAN@50 Golden
Celebrations 2017. Tourist arrivals are expected to swell further
on a weak Ringgit. The tourism industry is on track to achieve a
 CONSTRUCTION INDUSTRY PROSPECTS 2017
Projected New Value of Construction Work CHAPTER 4

target of 36 million tourist arrivals and revenue of RM168 billion
by 2020. In 2020, the hotel industry is expected to require 37,000
additional rooms in the 4 and 5 stars categories.
to public development projects. These particular bodies are
classified as private entities since they were incorporated under the
Companies Act. Government investment is focused on providing
for people’s welfare especially in rural areas, and priority has been
placed on accessibility to amenities. Besides this, other physical

Projected New Value Of projects to support economic opportunities are implemented by

Construction Work
Prospects for construction sector remains firm for 2017
and 2018. This follows the implementations of several new
infrastructure projects and yet-to-award project packages from
ongoing construction projects. Project values continue to rise
with the implementation of National Key Economic Area (NKEA)
programmes and Entry Point Projects (EPP) investments. As of
quarter 2 of 2017, a total of RM229.0 billion has been recorded
in 2016, an increase of 61.5% (2015: RM142.0 billion). While
the number of projects decline by 9.1% to 6,855 projects (2015:
7,544 projects). From this amount, 22.2% or RM50.9 billion
came from government projects, a two-fold increase from 2015
(RM24.7 billion) with 1,764 projects (2015: 1,901 projects). The
rise in these construction projects were driven by infrastructure
projects with a contribution of 60.0% (RM137.0 billion).
constructing and restoring basic infrastructure in rural areas via
Desa Abad ke-21 Programme. Construction of main roads and
housing programmes for rural poor will continue with higher
allocations for Sabah and Sarawak. A total of 85% have been set
aside for the implementation of projects under the rural housing
aid programme, that will see construction of new houses and the
restoration of houses for underprivileged families.
The government announced several construction projects in
2017 Budget. Amongst those mentioned are listed in Appendix
4.1. Government projects are forecasted to contribute RM24.0
billion in 2017. In 2018, government projects are expected to
slightly moderated to RM23.0 billion; with the assumption that
80.0% will be utilised as construction costs.
Table 4.18 | Estimated Government Projects for 2017

The government is expected to continue with its capital and

people centric economic programmes in the development of
infrastructure and public amenities. The rise in external demand
through FDI inflows will stimulate domestic trade and boost
property sector demand. The impact from public transportation
infrastructure and economic corridors development will encourage
developers to explore development potentials in the surrounding
locality. Given that properties are fixed assets that take time to
construct, developers will continue to make new investments to
meet expectations of a higher future demand. Developers will
carry on developing properties in more strategic locations. The
pro-business policy that provide various investment incentives
and funding facilities by the government will fuel implementation
of approved investments proposals.

Government projects for 2017 and 2018 is expected to remain

unchanged. Large scale investments are executed under Public Source: 2017 Budget
Private Partnership (PPP) and partly managed by bodies dedicated

CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 85

CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Projected New Value of Construction Work
Infrastructure projects form a government’s long term investment.
Developments in infrastructure contribute towards Malaysia’s
economic wealth. Requirement for infrastructure system is
fundamental within new cities development plans and regional
economic corridors. It is also vital in narrowing the development
gap between urban and rural areas, especially in the improvement
of basic amenities in Sabah and Sarawak. A total of three
construction projects were awarded in 2016, namely the Sarawak
Pan Borneo Highway, the Gemas-Johor Bahru Electrified Double
Tracking Rail and the East Coast Expressway (ECRL) projects.
Amongst the high impact projects soon to be implemented is the
Kuala Lumpur-Singapore High Speed Rail (HSR), and possibly
the Penang Transportation System Master Plan and, Phase II of
the Pan Borneo Highway. There are still leftover work packages
from projects MRT2, LRT3, Pan Borneo Highway and RoL that
are under construction. Over that, there are new infrastructure
projects in the pipeline that will be implemented in the near
future. Infrastructure projects are projected to contribute RM90.0
billion for 2017 which will step up to around RM100.0 billion in
2018.
RESIDENTIAL PROPERTY
Residential property market has always maintained high demand
with the increase of residents, income and financing facilities. A
major challenge for developers is ascertaining affordable pricing.
In the case of affordable houses, government determined the price
of not more than RM300,000; however private developers fixed
prices at not exceeding RM500,000 for these houses. According
to NAPIC 2016 Property Market Report, transactions involving
houses priced lower than RM300,000 declined to 217,556 units
or 67.9% (2015: 247,639 units; 68.4%). Transactions for houses
priced between RM300,001 and RM500,000 decreased to 51,676
units or 16.1% (2015: 54,127 units; 14.9%). Meanwhile the
number of transactions for houses priced above RM500,000 also
decreased to 51,192 units (16.0%) compared to 60,339 units
(16.7%).
86 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
According to Bank Negara Malaysia, there was a shortage by
about 960,000 affordable houses in 2014. From 2015 to 2016,
the population multiplied by 600,000 to 31.2 million (2014: 30.6
million) or an increase in households to 139,534. Assuming that
these additional households comprise of middle and low income
earners, then the number of affordable houses would be around
90,700 units. By derivation, the number of affordable houses
required in 2016 would be approximately 1.05 million units. The
number of affordable houses supply in the market for the same
period was 275,055 units. This indicates a supply shortfall by
774,900 units in 2016. In 2017 and 2018, there will be an increase
in households to 186,000 thus boosting demand for affordable
houses to 895,800 units. The aim of the 11MP is to provide
adequate, quality affordable housing for the underprivileged, low
and middle income households. Therefore, there are 1.02 million
units required by the year 2020. This translates into a market
need for the construction of 255,000 affordable housing units per
annum beginning 2017.
The government announced the construction of 184,200 and
189,850 units of affordable houses each during 2016 and 2017
Budgets. This adds up the number of affordable housing units
to a cumulative 374,050 units for 2016 and 2017. The amount
includes the additional 100,000 units in the 1Malaysia Civil
Servants Project (PPA1M) which had been announced outside
of 2017 Budget in Putrajaya. The 2016 NAPIC Report recorded
121,326 units in various pricing level that had begun construction
in the market. The figure does not include completed units nor
under construction units as these were assumed to be for 2015
and 2016. This meant that a total of 252,724 units of affordable
houses need be built to comply with the housing programme
announced in the 2016 and 2017 Budgets. A minimum of 126,362
and 219,400 units of affordable houses must be built in 2017 and
2018 respectively. PR1MA reported 1.42 million candidates have
registered to purchase a PR1MA home and there were 166,972
applicants for the purchase of a PR1MA home. PR1MA aims to
construct 500,000 houses and have approved a total of 267,902
houses for construction, whilst aiming to complete 17,000 units
in year 2017.

There were 601,671 units under planned supply proposal and
120,089 new planned units in 2016. Based on a construction trend
for residential units, approximately 129,400 new units will begin
construction in 2017, followed by 128,400 new units in 2018. The
residential property market indicated 65% of total transactions in
2016 will involve affordable units. The average price of a PR1MA
house is between RM241,000 and RM257,100; and the average
price for a luxury house is RM669,300. The construction cost for
a PPR home in Kelantan is around RM188,600 per unit and this
cost has been assumed as the construction cost of an affordable
unit. In contrast, the cost of a PPR unit in Kampong Takek, Pulau
Tioman has been quoted as RM403,000 per unit. Meanwhile the
construction cost of a luxury house is estimated at 50.0% of its
average price (RM335,000). Using conventional approach, it
is estimated that residential projects would contribute RM30.0
billion in 2017 and remained unchanged at RM30.0 billion in
2018.
Table 4.19 | Projected Construction Value of Residential Projects
SHOP PROJECTS
Shop units with heights no higher than 2½ and 3½ storeys formed
53.0% and 27.0% of total market transactions respectively. Most
of the shop units in these categories had been built alongside
new residential projects as complementary amenities for the
local community. Most unsold units are located at un-strategic
locations with low density population. The shop property market
is projected to be sluggish in 2017 as a consequence of the
increase in numbers of unsold units in 2016, which will gradually
CONSTRUCTION INDUSTRY PROSPECTS 2017
Projected New Value of Construction Work CHAPTER 4
recover in 2018. Unsold units for 2016 stood at 12,673 units
(14.2%) across all construction stages and un-built condition.
In 2016, there were 419,975 new company registrations at the
Registrar of Companies Malaysia (ROC), and 236,952 new
companies were registered by June 2017. There are currently
7,815,322 companies in Malaysia. Of this count, 97.0% are SME
companies and 88.0% are involved in services. A large portion
of SME companies are involved in services activities within the
retail industry. Shop units’ supply is currently facing competition
from supermarkets. A total of 4,168 shop units were completed
in 2016 whilst it is expected that 21,323 SOHO units will be
supplied in 2017. This volume is unlikely to affect demand for
shop units as demand for both types of properties are targeted to
different market segments. SOHO units are more directed at small
scale businesses than the shop unit market segment.
The retail business landscape has evolved into a more
modernised and efficient system that had benefitted from an
ICT progression. The government is making efforts to develop a
Digitalised Free Trade Zone to encourage SMEs participation in
e-commerce businesses with an international market outreach.
Direct benefits would be the access to a larger customer base that
enhance sales potential. The e-commerce benefits are expected
to boost business resilience and expansion.
It is expected that there would be a small decline in new supply
of shop units, based on supply trend and proposed planned new
units from 2011 to 2016. This follows an assumption that there
is adequate supply to meet current market demand for shop units.
However, new supply of shop units is projected to increase to
14,400 and 14,000 units in 2017 and 2018 respectively. The
anticipated increase is driven by the prospects of an economic
recovery and intensification of residential development projects
in the Klang Valley suburbs, particularly in areas along MRT and
LRT routes; and in major cities such as Johor Bahru, Melaka and
Penang. SOHO unit supply is projected at 3,000 units and 3,300
units for 2017 and 2018 respectively.
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 87
 CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Projected New Value of Construction Work
INDUSTRIAL PROJECTS
A total of RM207.9 billion for 4,972 proposed investment
projects were approved in 2016 (2015: RM186.7 billion; 4,887
projects). A large portion (68.0%) were from the services sector
(2016: RM141.2 billion; 2015: RM114.5 billion), and 28.0%
were from the manufacturing sector (2016: RM RM58.5 billion,
2015: RM74.7 billion). Actual investments value for 2015 and
2016 were RM198.8 billion and RM211.5 billion respectively.
There are positive vibes in the domestic and world economies in
2017, with more improvements in 2018. Malaysia are expected
to maintain its position on attracting larger FDI inflows on the
existing advantages in location, world class infrastructure, human
resource talents, pro-business policies, political stability, friendly
people and clear laws and regulations. The increase in external
demand and rising consumer sentiment will stimulate business
activities to propel the expansion in the employment market,
and income. There is a certainty that this momentum will spur
investors and businesses to realise their planned investments
and expand their existing operations.
MIDA aims to attract RM130.0 billion in investment proposals
in 2017, of which RM55.0 billion is intended to come from the
manufacturing sector. Most of the current investments being
realised are in the form investment proposals that had been
approved in previous years. According to MIDA, the average
implementation rate for approved manufacturing projects in 2012
to 2016 is 82.0%. Based on this information, a sum of RM48.0
billion of investments will soon be realised in 2017 through
the proposed investment of RM58.0 billion in 2016. A further
RM45.0 billion is anticipated to be realised in 2018.
A total of RM225.0 billion in private investments had been
recorded in 2016, of which approximately 35.0% or RM79.0
billion were manufacturing sector investments. This investment
is projected to grow at 4.0% and 9.4% respectively in 2017 and
2018. Consequently, manufacturing sector has the potential to
attract RM82.0 billion and RM89.0 billion in investments for
2017 and 2018, as targeted in the 11MP. Based on observations
made on proposed investments submitted to MIDA, the cost of
88 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
production space or plant is estimated to be 30.0% of the proposed
investment value. Using this as a yardstick, the construction
value of industrial projects is approximately between RM14.0
billion and RM25.0 billion in 2017, and between RM13.0 billion
and RM27.0 billion in 2018. Conservatively, industrial projects
are projected to contribute RM14.0 and RM13.0 in construction
work for 2017 and 2018 respectively.
COMMERCIAL COMPLEX
The Commercial property market is projected to be more robust
in 2017 and 2018, with concentration on public transportation
projects within the Greater KL/KV. Property prices along the
MRT, LRT and vicinity of RoL projects are expected to increase.
Since the liberalisation of several domestic industries, foreign
investments have begun to make a presence in the wholesale and
retail industries as well as in commercial property development.
World economy have been forecasted to recover for 2017 and
2018.
Commercial complexes developers will concentrate their
development on new towns and residential projects in major
cities in the Klang Valley, Johor Bahru, Melaka, Penang, and
Port Dickson which will be developed as Malaysia’s Vision City.
A total of 14 MoUs for property development valued at RM143.0
billion had been recently sealed with Chinese entrepreneurs,
whilst 31 MoUs worth RM158.0 billion were jointly signed with
India to develop Carey Island Maritime City and seaport. MIDA
received 680 property development proposals worth RM26.9
billion in 2015. Overall, this increased to 911 project proposals
at a value of RM64.1 billion in 2016. The growth in commercial
space supply in 2017 and 2018 is anticipated to be stable in view
of a high FDI inflow into the trade and infrastructure sectors.
Based on supply trend and proposed new planned supply retail
space units from 2011 to 2016, new retail units are projected
to increase by 5.3% to 939,057 square metres in 2017 (2016:
420,700 square metres). Retail space unit supply is projected
for a slowdown in 2018, after taking into account the numbers of

completed units in the previous 3 years. Thus, the amount of new
retail space supply bound for market entry in 2018 is projected at
343,700 square metres.
OFFICE BUILDING
The existing office space surplus offers an advantage to prospective
tenants in securing more attractive rental rates. The decline in the
value of Ringgit makes the cost of running businesses here more
competitive than in other neighbouring countries. This aspect is
expected to draw foreign businesses to Malaysia as aimed under
liberalisation of selective services. There are currently several
hospitals, institutions of higher education, financial services and
insurance firms that are run by foreign professionals in Malaysia.
According to MIDA, there are 211 regional offices or MNCs with
approvals to establish their representative offices in Malaysia at
an investment value of RM14.1 billion and a workforce of 2,611
in 2016. It is estimated 26,000 square metres of work space
will be needed to accommodate the number of employees. This
excludes the 475,200 square metres forecasted requirement for
the Kuala Lumpur Internet City (KLIC), proposed in the Digital
Free Trade zone.
In 2016, there was 3.7 million square metres of vacant office
space already in the market, with an additional supply of 2.0
million square metres about to be completed, plus 0.83 million
square metres in proposed planned supply. With low take-up
and absorption rates, vacant office space supply is bound to
increase. Foreign businesses’ interests are specially inclined
towards office buildings that are user and environmental friendly;
characterised by iconic designs; and situated in strategic
locations. The prospect for office buildings market is seen as
positive with recovery in the domestic and world economies. FDI
inflows will propel office space demand and consequently reduce
vacant office space surplus, and induce the construction of more
office buildings.
Based on the supply trend and new planned units supply for
retail space from 2011 to 2016, a projection for 284,100 square
CONSTRUCTION INDUSTRY PROSPECTS 2017
Projected New Value of Construction Work CHAPTER 4
metres of new retail space was made in 2017. A further 284,600
square metres of retail space supply is projected for 2018
based on the prospects of a vigorous economic growth and; the
commencement and functioning of a hive of urban development
activities.
HOTEL PROJECTS
The hotel industry’s growth will escalate, spurred by the arrival
of foreign tourists. As a supporting component of economic
growth, the industry will launch more promotional activities
and campaigns to attract tourist arrivals. Incentives granted to
tour operators for tourist entries from selected countries will
encourage the arrival of more foreign tourists. Several tourism
awards have given Malaysia an edge as the preferred tourist
destination for countries in West Asia, China, India and Europe.
It has been estimated that Malaysia will need 37,000 hotel
rooms with 3 and 4 stars rating to accommodate the targeted
36.0 million tourists in 2020. The increase in business tourism,
transformation of main cities into world class metropolis, new
and modern urban development as well as FDI inflows will
encourage the development of new 5 and 6 starred hotels.
The hotel industry currently faces competition from serviced
apartments and rural home-stays. There were about 92,797
serviced apartment units nationwide in 2016, with the impending
market entry of a further 150,751 units, whilst 106,834 new units
have been planned for future supply. Concurrently, available
hotel rooms stood at 212,437 units with an additional 24,443
units about to make a market entry and a proposed 18,521 rooms
are planned for future development. However, the competition
does not affect the hotel industry because serviced apartments
are normally patronised by budget tourists in family groups or,
long-termed-stay tourists. On the other hand, hotel customers
consist of a diversity of tourists from all walks of life and
packaged tour groups. Hotel accommodation provides meals
service, conference and meeting facilities, entertainment facilities
and other hospitality-related services. According to a May 2017
HVS.com Report, the hotel industry is capable of maintaining an
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 89
CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Estimated Value of Work Done in 2017 – 2018
occupancy rate of around 62.0 % to 65.0% annually despite the
entry of numerous new hotels and the competition from serviced
apartment and home-stay services. Based on hotel construction
trend for the recent 6 years and the favourable forecast on the
prospects for a domestic and world economies recovery, it is
expected that new hotel room growth will stabilise in 2017 and
2018. A total of 3,400 and 3,200 new rooms are forecasted each
for 2017 and 2018; whilst 37,400 and 31,800 serviced apartment
units are projected for 2017 and 2018 respectively.
Table 4.20 | Construction Value of Non-Residential Units
Construction project is expected to be at RM170.0 billion in 2017,
and RM180.0 billion in 2018. Government projects’ contribution
is estimated at 14.0% (RM24.0 billion) and 13.0% (RM23.0
billion) in 2017 and 2018 respectively. This is achievable with
several infrastructure projects and committed investments to be
implemented, in tandem with a more favourable world economic
forecast.
90 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
Table 4.21 | Construction Value of Non-Residential Units
The above projection is based on gross estimation derived from
CIDB’s observations and experience, as well as information
acquired from mainstream sources and economic reports
by various sources. The projection is made on the following
assumptions:
• A stable national political landscape
• No change in macroeconomic and administrative policies
• An improving world environment with continuous growth
momentum
• Identified projects are implemented according to schedule;
and
• Inflation and interest rates remain low
Estimated Value Of Work
Done In 2017 – 2018
Construction sector growth has been projected at 8.0%
and 10.3% for 2017 and 2018. To achieve this growth, the
construction sector will require approximately RM153.0
billion in new projects for 2017 and another RM169.0 billion
in for 2018. Projected work done value is expected to derive
from several infrastructure work packages, residential and
commercial project developments.
Work done or construction output value is equivalent to the value
of work done on a project during the year. From output constants
by CIDB, work done value for projects under construction rise
by 7.6% to RM169 billion (2016: RM157 billion). The increase is

the result of the implementation of large scale projects, and the
utilisation of advanced technology that promotes productivity.
Work done for 2018 is expected to be at RM197 billion following
the implementation of more new works in 2017 and 2018.
(Figure 4.1)
Figure 4.1 | Estimated Completed Work Value Until 2018
Notes: New Work Value Data for 2016 until June 2017
* Forecasted
Table 4.22 | Estimated Residential Renovation Work Value
Source: NAPIC Property Market Report 2015-2016
Notes1 : Values are based on the average transacted value for residential units from developer to individuals in 2016 (RM398,800.00)
and additional 5.0% increase in value for 2018 (RM418,700.0).
CONSTRUCTION INDUSTRY PROSPECTS 2017
Estimated Value of Work Done in 2017 – 2018 CHAPTER 4
ESTIMATED RENOVATION WORK VALUE
It is customary for new home owners to make renovations
after purchasing a property from developers or individuals.
This includes upgrading or extensions of space, improvement
of features according to personal preference, as well as safety
purposes. The value of renovation works depends on the residential
and its owner’s social status. Gross estimates of renovation works
can reach 20.0% to 50.0% of purchase price and, occasionally
match the original purchase price if the property has been owned
over a long period. Based on the reported number of completed
residential units and those projected for completion in the 2016
NAPIC Property Market Report, expenditure on renovation works
for newly purchased units is expected to be around RM24.0
billion in 2017 and, RM25.0 billion in 2018 (Table 4.22). These
renovation costs have been calculated on the minimum rate of
20.0% of purchase price. Estimated renovation works cost for
old residential units with ownership transferred titles, shop units,
commercial complexes, industrial units and office space could
not be made due to a lack of statistical data and information.
CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017 91
CHAPTER 4 CONSTRUCTION INDUSTRY PROSPECTS 2017
Estimated Value of Work Done in 2017 – 2018
ESTIMATED MAINTENANCE WORKS
At 2017 Budget presentation, the government granted allocations
for upgrading and maintenance works on government buildings.
This includes civil servants’ quarters, PPR units and roads. The
estimated total expenditure on repairs and maintenance for 2017
is RM5.9 billion. The amount is projected for an 8.0% increase
in 2018, considering the numbers and depreciation stages of old
buildings. The estimation is based on available information in
government expenditure. If the estimate is to include the private
sector, the value would be definitely higher since there are
much more privately owned buildings with higher frequency of
maintenance works. Among others, maintenance on commercial
buildings notably retail space, complexes, hotels, convention
centres and highways. Overall, the renovation works and
maintenance value is forecast to reach RM30.0 billion for 2017.
Table 4.23 | Estimated Maintenance Expenditure for 2017
Source : 2017 Budget
92 CONSTRUCTION INDUSTRY REVIEW & PROSPECT 2016/2017
CONCLUSION
The National Transformation Programme agenda has provided
enablers and drivers for a national economic growth by combining
the roles of public and private sectors. The accommodative
monetary policy and government business-friendly policy
has spurred the growth of new investments, particularly in
manufacturing, services as well as construction sectors. The
modernisation and upgrading of public transportation has
generated a high demand in construction sector, based on the
record high value of awarded contracts in 2016. The construction
sector outlook for 2017 and 2018 remains positive. There is a
high potential for large scale property construction in tandem
with new transportation infrastructure development to support
the regional economic corridors’ growth. Rapid progress in
Greater KL/KV and Iskandar Malaysia will instigate growth in
other economic corridors. Efforts to attract FDIs, as well as boost
external demand and arrival of foreign tourists are projected to
accelerate at indications of a world economic recovery that is
expected during 2017. When this happens, growth will spread
across all economic sectors to culminate in an overall robust
economic growth for the nation.