IT'S ALL GROW

Malaysia 2016 | CONSTRUCTION & REAL ESTATE | REVIEW: CONSTRUCTION

The government has set up a number of initiatives to help maintain the construction sector's impressive growth, which will also benefit overall development through improved infrastructure and affordable housing.

The construction sector in Malaysia is looking strong, with 2015 set to continue the trend of expansion and growth. One of the main factors behind this trend is foreign investment and new infrastructure projects, which have stimulated further building of commercial and residential property. The government is looking to develop hubs to attract investment and businesses to the country. The infrastructure being built is what is attracting the new businesses as they look for modern and high-tech premises. In urban centers, a ground-up approach is being employed whereby developers will enhance existing areas while also emphasizing development of completely new centers for the public. Central to all of this will be the development of a modern, efficient, and integrated public transportation system. Some projects of note include the new KVMRT2 and LRT3 routes, as well as the Pan-Borneo Highway and the West Coast Expressway. A number of new transport infrastructure projects are also on the verge of getting the green light, which will further drive the sector. These projects include the Eastern Klang Valley Expressway, the Damansara-Shah Alam Highway, and the upgrading of the East Coast Railway, which in total will equate to investments of around $34 billion.

GROWTH

Construction in Malaysia is strong and shows no sign of slowing down anytime soon. In 2014, the construction sector expanded by 8.7%, while in 1Q2015 the value of construction contracts awarded rose by a staggering 250% compared to the same period the year before according to ITE Building & Interiors. The Malaysian Institute of Architects believes that the remainder of 2015 is likely to show growth figures that are just as strong. Some of the uncertainties affecting other parts of the economy appear to be having little effect in the construction sector, with the President of the Institute of Architects predicting 2015 to produce growth figures of 10.5%. One of the main reasons for this strong growth has been the way in which key sub-sectors have been performing. One of the best performers has been non-residential building activity, which held a 34.8% share of all construction activity in 1Q2015. Civil engineering represented 30.5% of all construction activity, residential building 29.9% of construction activity, and special trading 4.8%. In geographical terms, the major source of construction growth has been the province of Selangor. Between January and March of 2015, approximately 25% of the total value of all construction work was carried out in the state. Naturally, Kuala Lumpur also attracts a considerable amount of construction works and accounted for 17.9% of the total value of construction activity during 1Q2015.

There have been a number of key construction projects that have helped the country maintain its growth in the sector, and will continue to help keep the growth going for the foreseeable future. A prime example of this would be the 1Malaysia Housing Programme, or PR1MA as it is also known. The aim of the program is deliver high-quality, affordable housing across the country. PR1MA was established in 2011 and aims to build tens of thousands of houses. In addition to building homes, it will also offer mortgages of up to 110% of the value of each home so that the new housing remain affordable. PR1MA has teamed up with private developers to offer completed houses ranging from $23,600 to $94,500 depending on the size and type. The scheme is accessible by all Malaysians with a household income of between $590 and $2,300 per month. PR1MA has spawned a number of joint ventures with private contractors and backers in order to achieve its goals while also reducing the burden on the state. The private sector should also increase the efficiency of the project as well as delivery speeds. However, the government has been quick to stress that while it has teamed up with the private sector, its main goal of affordable housing will not be compromised and it maintains that the private sector will allow for cheaper, more efficient houses. PR1MA aims to build 500,000 houses in total. In March 2015, 111,933 housing units had been approved with work on 37,063 already underway.

FIVE-YEAR PLAN

In a bid to maintain a robust and strong construction sector, the government announced in September 2015 that it was planning to transform the construction sector by 2020. The main objectives of the government are to improve a number of strategic areas of the sector, including safety and professionalism, quality, environmental standards and sustainability, and productivity and internationalization. This plan is called the Construction Industry Transformation Programme (CITP) and will consist of 18 different initiatives within four key areas. Overall, the CITP will improve the global image of the construction sector in Malaysia in an effort to attract FDI and foreign companies to the country. A key initiative in the program will be the Quality Assessment System in Construction (QLASSIC), which will oversee measuring and improving quality standards in the industry. As part of CITP, QLASSIC will be a mandatory assessment for new builds by 2018. Stricter regulations will also be introduced to help boost health and safety standards to reduce accidents, injuries, and fatalities during construction projects. As part of this, new regulations will ensure that contractors bidding for projects will now have to account for the extra costs needed to meet all new health and safety standards in their initial bid. The government is hoping to make Malaysia the model for all construction industries. To help promote its new agenda, a Centre of Excellence for Sustainable Construction (CESC) will also be established. The CITP and the CESC will bring Malaysia in line with other major construction markets, such as China, Australia, and the US, which will provide more opportunities for international suppliers and contractors. On top of this, new projects will help drive the sector forward by creating new jobs and providing opportunities for investment.

One of the largest new projects announced will be the building of a new district in Kuala Lumpur. This new district is expected to boost the output of the construction industry as a whole, as many new jobs and opportunities arise. The city is already known globally for its hyper-modern architecture and large shopping and retail centers; however, the new district will also create an entertainment area. The city wants to become known for its nightlife and entertainment, as much as it is known for its modern architecture. The new district will house numerous new nightclubs and entertainment venues, with the TREC project, or the Taste, Relish, Experience, Celebrate project, being one of the first major attractions to be announced. TREC will be a large purpose-built nightlife complex designed by Veritas and Unit One. It will consist of five concept zones in the center of the city spanning seven acres, with each zone having its own mood and style. TREC will house a range of fine dining restaurants, cafes, pubs, bars, and entertainment options, as well as green spaces for relaxation. It will be built to fit in with city's modern architecture and is likely to attract tourists and locals alike.

CEMENT

Naturally, when the construction sector experiences strong growth, this in turn leads to a surge in demand for cement. This has led to one of the country's largest manufacturers to increase production. Cahya Mata Sarawak announced plans to increase its capacity by close to 60% in early 2015 with the opening of a third grinding plant, which is set to open in 1Q2016. This should raise the company's production to 2.75 million tons per year. Demand for cement in Sarawak alone has been growing by 3-4% per year, and the increased production is hoped hope to meet those needs. Currently, Cahya Mata Sarawak has a production capacity of 1.75 million tons through two plants located in Kuching and Bintulu. Between 2010 and 2014, these plants were running at an average of 85% capacity. The company is also looking to upgrade its existing facilities with an investment of $4 million throughout 2015 in an effort to bolster its cement distribution capabilities, which will include an expansion and improvement to its main jetty that will help with the handling of raw material imports as well as the export of bagged and bulk cement. The Managing Director of Cahya Mata Sarawak, Datuk Richard Curtis, believes that some of the main drivers behind the cement industry's recent growth are the number of new, large projects that are currently underway or have been announced. The amount of transport infrastructure alone, which includes 5,400km of state roads in Sarawak and 680km of federal roads, is a major factor in the sector's strong growth figures.

A healthy economy is always backed by a strong construction sector. Malaysia is currently experiencing a building boom with a number of significant projects getting off the ground. These major investments will resonate throughout the economy and help to boost the country's development.