Malaysian Economy Construction & Property
Outlook
Manokaran Mottain
Chief Economist
November 2017
2
Glance at Budget 2018
Source: Ministry of Finance
2017e 2018f
RM bn % of TR RM bn
% of TR
Total Revenue (TR) 225.3 100.0 239.9 100.0
Direct Tax 119.7 53.1 127.7 53.3
Corporate 67.8 30.1 72.5 30.2
Individual 30.1 13.4 13.4 13.4
Petroleum 10.9 4.9 11.4 4.8
Indirect Tax 60.5 26.9 63.9 26.6
GST 41.5 18.4 43.8 18.3
Excise duties 11.8 5.2 12.3 5.1
Import duty 3.0 3.0 1.3 1.3
Export duty 1.2 1.4 0.5 0.6
Non-tax Revenue 45.1 20.0 48.3 20.1
Operating expenditure 219.9 97.6 234.3 97.7
Development expenditure 46.0 20.4 46.0 19.2
3
Development expenditure by sector
Source: Ministry of Finance
2017e 2018f
RM bn % of TDE RM bn % of TDE Total Development Expenditure (TDE)
45.9 100.0 46.0 100.0
Economic 25.9 56.3 26.3 57.3 Transport 10.8 23.4 10.5 22.8 Trade & Industry 4.8 10.5 4.1 9.0 Energy and Public Utilities 2.5 5.5 2.7 6.0 Agriculture & Rural development 2.4 5.3 2.5 5.5 Environment 2.2 4.8 2.0 4.4
Social 12.1 26.4 11.7 25.5 Education & Training 5.9 12.8 5.3 11.4 Housing 0.9 1.9 1.2 2.5 Health 1.5 3.3 1.9 4.2 Security 5.3 11.5 5.2 11.3
General administration 2.7 5.8 2.7 5.9
4
Comparison of expenditure – MY and SG
Source: Ministry of Finance
Malaysia Singapore
82.7%
17.3%
Operating expenditure
Development expenditure
75.0%
25.0%
Operating expenditure
Development expenditure
Limited scope for expansionary fiscal policies, as gov’t remains committed to fiscal consolidation
Target for fiscal deficit to fall to 2.8% to GDP in 2018 (2017e: -3.0%)
In 2018, gov’t revenue is expected to increase by 6.4% to RM239.9bn (2017e: RM225.3bn)
Estimated – Corporate income tax collection (30%), GST collection (18%), oil-related revenue (16%)
Gov’t proposed to allocate RM234.3bn (2017e: RM219.9bn) in operating expenditure and maintain development expenditure of RM46bn
Looking back: FG finance
Federal government’s expenditure and revenue
Source: Ministry of Finance 5
Fiscal deficit
0
50
100
150
200
250
300
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
e
20
18
f
RM bn RevenueOperating expenditureDevelopment expenditure
-3.4 -3.2 -3.1
-4.6
-6.7
-5.3-4.7
-4.3-3.8
-3.4 -3.2 -3.1 -3.0 -2.8
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
e
20
18
f
%RM bnFiscal deficit (lhs)Fiscal deficit to GDP ratio (rhs)
6
Malaysia’s economy grew 5.7% in the first half of 2017
Gov’t expects 2017 and 2018 GDP growth to expand between 5.2% - 5.7% and 5.0% - 5.5% respectively
Riding on global growth recovery
GDP growth by sector and aggregate demand (% y-o-y)
Real GDP 4.2 5.6 5.8 5.4 5.2 - 5.7 5.0 5.0 - 5.5
Agriculture -5.1 8.3 5.9 5.6 5.6 3.0 2.4
Mining 2.2 1.6 0.2 0.6 0.5 5.5 0.9
Manufacturing 4.4 5.6 6.0 5.8 5.5 8.0 5.3
Construction 7.4 6.5 8.3 7.7 7.6 5.5 7.5
Serv ices 5.6 5.8 6.3 5.8 5.9 5.3 5.8
Consumption
- Public 0.9 7.5 3.3 3.5 2.7 2.0 1.3
- Private 6.0 6.6 7.1 7.1 6.9 7.0 6.8
Investment
- Public -0.5 3.2 -5.0 2.2 3.7 1.0 -3.1
- Private 4.3 12.9 7.4 9.1 9.3 8.5 8.9
Exports 1.1 9.8 9.6 6.9 8.0 3.4 2.3
Imports 1.1 12.9 10.7 7.0 9.9 3.5 2.5
- Net exports -3.7 -14.5 1.4 5.9 7.3 3.1 2.5
Source: BNM, AllianceDBS
1Q2016
MOF2Q
2017 2017e
A llianceDBS
2018e
A llianceDBS MOF
7
Private consumption growth has recovered from its low of 4.1% in 3Q15, following GST implementation
Expanded 7.1% in 2Q17 (1Q17: 6.6%), highest since 1Q15
Despite strong private consumption growth, we remain cautious on sustainability
MIER consumer sentiments remains bearish for the 13th consecutive quarter (3Q17: 77.1 vs 2Q17: 80.7)
Unemployment rate averaged 3.4% in 1H17, higher than 2010-2015 avg of 3.1%
Subdued wage growth, annual median income has been moderating at 6.6% in 2016 (2014: +11.7%)
Household debt level at 85.6% of total GDP as at mid-2017 (end-2016: 88.4% of total GDP)
Private consumption – resilient, susceptible to downside risks
Credit card spending and retail sales growth
Source: MIER, Department of Statistics
Private consumption growth and consumer sentiments index
50
60
70
80
90
100
110
120
130
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
sa % q-o-q Private consumption growth (lhs)
Consumer sentiments index (rhs)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
% y-o-yRetail Sales growth
Credit card spending growth
Household debt to GDP ratio has been gradually decreasing to 85.6% as at mid-2017 (end-2016: 88.4%)
In fact, total household debt growth ratio continues to moderate, expanding by 5.1% in 2017 (2016: +5.8%)
Due to prudential measures by the gov’t and households reducing loan exposure in non-residential properties, vehicles and securities
Household debt to GDP ratio
Household debt in Malaysia
Source: BNM, Department of Statistics, AllianceDBS 8
80.5
86.286.8
89.188.4
85.6
76.0
78.0
80.0
82.0
84.0
86.0
88.0
90.0
0
100
200
300
400
500
600
700
800
900
1,000
2012 2013 2014 2015 2016 1H17
RM bn %Total household debt Household bebt to GDP
Elevated inflationary pressures YTD-Sep17 CPI expanded higher at 4.0% y-o-y (YTD-Sep16: +1.9%)
Lifted by higher pump prices in transport sector on the back of rising Brent crude oil prices
Nevertheless, the gov’t expects 2018 inflation to moderate between 2.5% - 3.0% as price pressures normalise
Source: Department of Statistics, AllianceDBS
Malaysia inflation rates Percentage point contribution to inflation (% y-o-y)
9
-2
-1
0
1
2
3
4
5
6
-2
-1
0
1
2
3
4
5
6
Jan
-12
Ma
y-1
2
Sep
-12
Jan
-13
Ma
y-1
3
Sep
-13
Jan
-14
Ma
y-1
4
Sep
-14
Jan
-15
Ma
y-1
5
Sep
-15
Jan
-16
Ma
y-1
6
Sep
-16
Jan
-17
Ma
y-1
7
Sep
-17
% y-o-y% y-o-yCPI (ex food)CPI (ex food & transport)CPI
0.0 0.5 1.0 1.5 2.0 2.5
Transport
Food and Beverages
Housing and utilities
Others
% pt cont.
Sep-17
Aug-17
10
YTD-August, unemployment rate averaged 3.4% – higher than the 2010-2015 average of 3.1%
Trend average of unemployed is around 500,000 people per month since mid-2015, up from around 420,00 per month average in 2010-2014
Manufacturing, wholesale and retail trade sector key employment sectors (cumulatively over 30% of total employment)
Unemployment rate at worrying levels
Unemployment rate Number of unemployed person
Employed labour force by sector composition (in 2016) Wholesale, retail trade; auto vehicle
repair16.8
Manufacturing16.5
Agriculture, forestry &
fishing12.5Construction
9.3
Accommodation, F&B
8.2
Others36.7
Source: Department of Statistics
0
100
200
300
400
500
600
De
c-1
1
Ap
r-1
2
Au
g-1
2
De
c-1
2
Ap
r-1
3
Au
g-1
3
De
c-1
3
Ap
r-1
4
Au
g-1
4
De
c-1
4
Ap
r-1
5
Au
g-1
5
De
c-1
5
Ap
r-1
6
Au
g-1
6
De
c-1
6
Ap
r-1
7
Au
g-1
7
'000
3.4
2.0
2.5
3.0
3.5
4.0
4.5
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
Sep
-10
Jan
-11
May
-11
Sep
-11
Jan
-12
May
-12
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
May
-17
%
11
No Overnight Policy Rate hike Bank Negara maintained a neutral tone with an upside bias, regarding the economic outlook for the year
Despite elevated YTD-September inflation of 4.0%, the underlying core inflation (excluding food and transport) has remained steady at around 1.7%
Bank Negara expects private consumption growth to expand 6.9% this year, however, consumer sentiments (as measured by MIER) has been bearish since 3Q14
Nevertheless, while the Ringgit exchange rate stabilises after heightened volatility early this year, it is not conducive for Bank Negara to deliver surprise interest rate cut/hike
Real interest rate and OPR Malaysia GDP and inflation growth
Source: Bank Negara, AllianceDBS
-5
-4
-3
-2
-1
0
1
2
3
4
5
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
Jan
-07
Jun
-07
No
v-0
7A
pr-
08
Sep
-08
Feb
-09
Jul-
09
De
c-0
9M
ay-1
0O
ct-1
0M
ar-1
1A
ug-
11
Jan
-12
Jun
-12
No
v-1
2A
pr-
13
Sep
-13
Feb
-14
Jul-
14
De
c-1
4M
ay-1
5O
ct-1
5M
ar-1
6A
ug-
16
Jan
-17
Jun
-17
%% Real interest rate Overnight Policy Rate
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan
-12
Ma
y-1
2
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
Ma
y-1
4
Sep
-14
Jan
-15
Ma
y-1
5
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
Ma
y-1
7
Sep
-17
%y-o-y%y-o-yGDP growth CPI
CONSTRUCTION SECTOR OUTLOOK
12
Budget 2018: Construction Sector Driving logistic sector
ECRL project Port Klang – Pengkalan Kubor
MRT2 project Sungai Buluh – Serdang – Putrajaya (52km: RM32bn)
MRT3 (Circle Line)
High Speed Rail Project KL – SG (350km)
Central Spine Road project (RM230m)
Upgrade of international and local airports
Schools development and improvement
14 new sports complexes nationwide: RM112m
Construction of pre-schools, PERMATA centre, primary & secondary schools and vocational colleges as well as matriculation centres (RM654m)
Rebuild and upgrade 2,000 dilapidated schools using IBS (RM2.5bn)
Providing quality infrastructure for the Rakyat
Pan-Borneo highway (RM2bn)
Development of communication infrastructure (RM1bn)
Construction of roads in rural areas (RM934m)
13
Source: Ministry of Finance
Major Project Updates
14 Source: AllianceDBS, various news sources
Projects
Est
amount
(RM bn)
Est
commencem
ent date^
Est completion date* Potential winners
MRT Line 2 and 3 60.0
Mid-2017
(Line 2); End-
2018 (Line 3)
July 2022 (Line 2); 2025/2026 (Line 3)Gamuda, MMC, IJM,
Sunway, various
Gemas-JB double tracking 8.9 Mid-2017 End-2020 Gamuda, IJM, WCT
LRT 3 10.0 Mid-2017 2020MRCB-George Kent and
other local contractors
Pan Borneo Highway 27.0 End-2017 2022CMS, Naim, HSL other
West Malaysian players
East Coast Rail Link 55.0 2018 2022 China Communication
Construction Company
Penang Integrated Transport 27.0 TBA TBAGamuda, IJM likely to
have subcon role
High Speed Rail 60.0 TBA End-2026 Gamuda, YTL, various
Jalan Tun Razak traffic dispersal 0.9 TBA TBA Various
BRT KL to Klang 4.0 TBA TBA Various
Bandar Malaysia 64.0 2018 2037 Various
Tun Razak Exchange 16.0 Started TBA Various
MRT lines
15 Source: MRT Corp
High Speed Rail
16 Source: MyHSR
Budget 2018: Construction Sector For 2011-2015, residential projects contributed 20-38% of the total construction value
2016 saw a doubling in infrastructure-related projects to RM58bn
As the Budget 2018 focuses more on transportation-led projects, the trend should continue to show positive growth moving forward
In line with a softer property market where developers have been holding back launches, construction related activities for residential and non-residential fell 45% and 40% y-o-y respectively
17 Source: CIDB
Breakdown of projects by sector
Chinese presence in infrastructure space growing
Within ASEAN, Malaysia is one of the largest beneficiary country from the One Belt, One Road initiative by China
More participation from Chinese contractors in Malaysia - Directly or through JV with local contractors
Driven by the Chinese government via G-to-G or Private Sector initiatives. Generally, the government will appoint the contractors according to the types of projects.
Backed by Chinese government – enjoy strong support from the Chinese government via cheaper source of funding (Mainland China lenders and the Export-Import Bank of China)
Construction companies which are dependent on contract awards will be directly impacted by the influx of Chinese contractors
18
19
Foreign Contractors’ Contribution Projects undertaken by foreign contractors (RMbn)
Source: CIDB
Foreign contractors contribution to total project value (%)
20
Chinese Contractors Largest Presence
Value of projects by foreign contractors (%)
Source: CIDB
Number of foreign contractors by country
CIDB statistics show that in 2016 foreign contractors clinched 37% of the total construction project value
In terms of value, the Chinese contractors lead the way with 42% of the total value comprising 25 projects
Largest amount of foreign contractors are from China with 23
21
China’s infrastructure investments
PROPERTY SECTOR OUTLOOK
22
Budget 2018: Property Sector Allocation of RM2.2bn for affordable housing schemes
Stamp duty exemption for loan agreement and letter of consent to transfer
50% tax exemption on rental income for rent up to RM2,000
Maintenance and refurbishment of houses including 1Malaysia Maintenance Fund (RM200m)
23
Source: Ministry of Finance
Projects Additional
Units Agencies
People’s Housing Programme (PPR) 17300 JPN
Rumah Mesra Rakyat 3000 SPNB
Perumahan Rakyat 1Malaysia (PR1MA) 210,000 PR1MA
PPA1M 25000 JPN
MyBeautiful New Homes (MyBNHomes) 600 NSU
MyDeposit & MyHomes 2000 JPN
FELDA Second Generation home 5000 FELDA
Malaysia Property – Looking forward to 2H18 No respite from relatively weaker property
market, but not all doom and gloom
Second-tier cities offer opportunities
Sustaining new property sales is a challenge for developers
Affordable homes to dominate in 2017/2018
Keen competition to cap price hike growth, pressuring margins
Sub-sales may gain traction; demand supported by rising affluence
24
Sentiment is recovering
Slower growth of house price index
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
60
70
80
90
100
110
120
130
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
MIER consumer sentiment (LHS)
Total approved property loan growth (RHS)
-10%
-5%
0%
5%
10%
15%
20%
25%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
2000=100
All Terraced High-rise Detached Semi-D
In the latest 3Q17 MIER survey, residential property index (RPI) rose to 107.8 moving into positive territory (2Q17: 76.6)
Residential sales were steady with new bookings picking up
Within future spending plans, housing plans were the most ambitious among consumers with 18% (2Q17: 11%) in urban areas and south
Cont – Outlook in the near term
Residential property index Consumer spending plans
Source: MIER 25
0 5 10 15 20
PC
Fridge
TV
Furniture
Car
House
%
3Q17 2Q17 3Q16
Overview of Malaysia property market
Properties priced RM250k-500k gained significant market share
Buyers increasingly upgrading properties even before 2011
Affordably-priced properties with lifestyle amenities in demand
26
Market share of property transaction volume by price range
87% 85% 83% 83% 81% 78% 75% 72%
60%53%
61%57%
9% 11% 12% 12% 14% 15% 16% 18%
27%31%
25% 28%
2% 3% 3% 4% 4% 5% 6% 7% 9% 11% 11% 11%
0%
20%
40%
60%
80%
100%
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
<250k 250-500k 500k-1m
Overview of Malaysia property market
27
Government schemes and incentives
Pol ic y De ta i l s Prope rty va lue Mora torium
Fina nc ing sche me
My First Home Scheme
up to 100% financing for young adults below 40 years old
earning <RM5k/month <500k
Private Affordable Ownership
Housing Scheme (MyHome)
developers' subsidy of up to RM30k/ low-cost house for first-
time homebuyers earning RM3k-6k/month
<45k low cost,
<170k medium
cost
Stamp duty exemption 100% stamp duty exemption for first residential property <300k
Youth Housing Scheme
Full financing for first home for married youth aged between
25 and 40 years with household income <RM10k/month.
RM200 monthly assistance for first 2 years <500k
First House Deposit Financing
Scheme (MyDeposit)
RM10k deposit contribution (max RM30k) for first homebuyers
with household income <RM10k/month <500k
Hous ing sche me
1Malaysia People's Housing
Programme (PR1MA)
Malaysians above 21 years old with individual/household
income <RM10k and own no more than 1 property 100k-400k 10 years
1Malaysia Civil Servants Housing
Programme (PPA1M)
Affordable homes for civil servants with individual income
<RM10k/month 90k-300k 10 years
Rumah Selangorku
Affordable homes for Selangor first-time homebuyers with
household income <RM8k/month 42k-250k 5 years
RUMAWIP
Affordable homes for KL/Putrajaya/Labuan first-time
homebuyers with household income <RM15k/month 52k-300k 10 years
Challenging market in 2017
Property prices remain stubbornly high
Strict bank lending policies lead to high loan rejection rates
Macro-prudential measures over the years:
2010: 70% loan-to-value cap for 3rd property onwards
2013: Mortgage financing tenure reduced to a maximum of 35 years
2014: Removal of DIBS incentive, higher threshold for foreigners to buy property at RM1m from RM500k
28
Real Property Gains Tax (RPGT) rates in Malaysia
Holding
period (yr) 2014 2013 2012 2011 2010
2008-
09
1995-
2007
1 30% 15% 10% 10% 5% - 30%
2 30% 15% 10% 10% 5% - 30%
3 30% 10% 5% 5% 5% - 20%
4 20% 10% 5% 5% 5% - 15%
5 15% 10% 5% 5% 5% - 5%
>5 0% 0% 0% 0% 0% - 0%
Cautious outlook
Lowest take-up in 2016 over the past 10 years
Property buyers turn cautious; no more sold-out-upon-launch
Key-events
Property market remains strong till 2012, as macro-prudential measures introduced negatively impacted the market
Developer Interest Bearing Scheme (DIBS) was banned in 2014
GST introduced in 2015, while the Ringgit weakened against the USD in 2016
29
Property sales suffer in 2016
20%
25%
30%
35%
40%
45%
50%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
New launch (LHS) Sales (LHS) Take up (RHS)
Too much supply?
Incoming supply is the largest in recent years
2017-2018 should see higher completions especially high-rises
Large incoming supply to cap house price growth
30
New residential supply to accelerate in 2017-2018
Comple tions
% of
s tock
Incoming
supply
% of
s tock Exis ting s tock HPI
HPI
growth
2002 156,042 5.1% 605,566 19.9% 3,050,421 104
2003 192,490 5.9% 627,028 19.1% 3,287,733 108 4.0%
2004 165,964 4.8% 641,771 18.5% 3,467,812 113 4.8%
2005 180,600 4.9% 637,208 17.3% 3,680,462 116 2.4%
2006 171,448 4.4% 619,583 16.0% 3,864,432 118 1.9%
2007 181,123 4.5% 573,716 14.1% 4,063,167 124 5.3%
2008 136,881 3.2% 557,502 13.2% 4,220,510 130 4.7%
2009 103,335 2.4% 538,894 12.4% 4,338,609 132 1.5%
2010 99,866 2.2% 533,605 12.0% 4,446,085 141 6.8%
2011 65,866 1.4% 533,844 11.7% 4,547,971 155 9.9%
2012 72,247 1.6% 628,655 13.5% 4,640,269 173 11.8%
2013 78,265 1.7% 696,557 14.8% 4,718,534 193 11.6%
2014 107,747 2.2% 769,788 15.9% 4,848,030 211 9.4%
2015 71,591 1.5% 766,582 15.8% 4,852,986 227 7.4%
2016 78,216 1.6% 829,687 16.8% 4,945,140 242 6.9%
1Q17* 20,325 0.4% 494,319 9.3% 5,300,429 n.a. n.a.
* Adjustment made for completed projects issued with CCC for incoming suply and existing stock
Game changer is needed..
Introduction of a single entity governing matters relating to affordable housing, consolidating all current affordable housing agencies – Malaysian Affordable Housing Agency
Negotiation with state governments to fully-utilise parcels of undeveloped government lands
Enforce a higher percentage of total developments by developers – reserving for affordable housing projects while offering tax reductions as incentives
Transit rental homes with rent-to-own clause – support lower income or fresh graduates while easing their burden of rising cost of living
31
THANK YOU
32