Construction Draws Interest from Private Investors in Malaysia

Construction Draws Interest from Private Investors in Malaysia

High levels of private sector investment are expected to drive growth in Malaysia’s construction industry this year, with investors seeking opportunities in the regions of Johor, Sabah and Sarawak.

The Construction Industry Development Board (CIDB) recently forecast growth of 8% for the construction sector on the back of 7.4% expansion last year and 8.2% in 2015.

In terms of value, the CIDB expects the industry to see RM170bn ($38.5bn) in investment this year, up from RM166bn ($37.6bn) in 2016.

Much of this improvement is expected to be led by private sector investment in mega projects, continuing a trend set last year when more than 70% of 6035 projects were backed by private players.

Pan Borneo development

One of the most significant projects is the Pan Borneo Highway, connecting the states of Sarawak and Sabah on the island of Borneo with Brunei Darussalam.

The government is currently finalising technical and financial aspects of route’s phase two construction which is expected to begin in 2018 and will run from the towns of Limbang and Lawas in Sabah through Brunei to Sarawak in west Borneo.

All 11 works packages having been awarded for the Sarawak section and five of the 35 contracts for the Sabah stretch are expected to be handed out later this year.

Of the 11 main Sarawak contractors, some 35 sub-contractors will participate in the project. The most recent of these tenders was awarded to a joint venture (JV) between domestic companies Eastbourne Corporation and Naim Gamuda earlier this month. The JV will undertake work on an 89.4-km stretch between Pantu Junction and Batang Skrang.

Bolstering international linkages

Another major transport link between Malaysia and one of its neighbours is a Mass Rapid Transit (MRT) system connecting Johor and Singapore.

The project made ground at the end of last year as the two countries revealed they were close to agreeing on the construction of a high bridge as a way of joining Johor’s Bukit Chagar terminus station to the prospective Woodlands North MRT station in Singapore.

While progress has continued on the MRT since it was announced in 2010, a decision had not been made on how the RTS would connect the two terminuses.

“This was a major point: how are we going to cross the Straits of Johor – high bridge, low bridge or tunnel?” Singaporean Prime Minister Lee Hsien Loong told the media at the announcement. The deal and the decision is expected to be finalised by the end of this year.

Diversified property interests

While infrastructure projects accounted for close to 50%, or RM82.7bn ($18.7bn), of construction work in 2016 and look set to dominate the sector again this year, residential property development was the second-highest contributor, making up 23% of the total with a value of RM38.3bn ($8.7bn). A close third was non-residential projects, contributing 22.5%, or RM37.4bn ($8.5bn).

Property development could see another strong year in 2017, benefitting from the broadening of investor portfolios, as highlighted by Knight Frank’s third “Malaysia Commercial Real Estate Investment Sentiment Survey 2017”.

The report noted that respondents showed increased levels of interest in the states of Sabah and Penang for hotel and leisure development, with the two regions voted the most attractive for the segment. Johor, meanwhile, was seen as being the top region for its logistics and industrial development prospects, as well as health care.

Although Kuala Lumpur remained the preferred choice for commercial property projects, Sabah, Johor and Penang all took advantage of waning interest in the capital city this year by registering increases in positive responses of six, three and five percentage points, respectively, on last year’s survey.

The survey also pointed to the ongoing MRT and other infrastructure developments as being factors that will drive property development further.

Major sports development adds to project pipeline

Although Johor did not register highly for its leisure prospects in the recent Knight Frank survey, the announcement in December that a new Formula One-grade racecourse will be built in the state could help develop its image in this regard.

The 4.45-km circuit will be part of the Fastrack Iskandar fully integrated motorsports hub currently in development and scheduled for completion in 2019. The track has received a Grade 1 rating from motorsport’s world governing body, the Federation Internationale Automobile, meaning it has the potential to host Formula One races.

A JV between Fastrack Autosports – majority-owned by a Singaporean company with the Johor royal family as partner – and Malaysia’s UEM Land, the motorsports city is expected to cost RM3.5bn ($794m).

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