Economy Outlook. Editorial

Transcription

1 Editorial Economy Outlook According to the World Bank, the global economy is still struggling to gain momentum as many developed economies continue to grapple with legacies of the global financial crisis and emerging countries are less dynamic than in the past. Global growth in 2014 was lower than initially expected, continuing a pattern of disappointing outturns over the past few years. Growth picked up only marginally to 2.6% in 2014, from 2.5% in Overall, global growth is expected to improve moderately to 3% in 2015 and average about 3.3% through Developed countries are likely to see growth of 2.2% in , up from 1.8% in 2014, on the back of gradually recovering labour markets, ebbing fiscal consolidation and still low financing costs. In developing countries, as domestic headwinds that held back growth in 2014 ease and the recovery in high-income countries strengthens, growth is projected to accelerate gradually, rising from 4.4% in 2014 to 4.8% in 2015 and 5.4% by Lower oil prices will contribute to diverging prospects for oil exporting and importing countries, particularly in In the third quarter of 2014, the Malaysian economy registered a growth of 5.6% (against 6.5% in Q2 2014), supported by private sector demand and continued positive growth in net exports of goods and services. On the supply side, growth in the major economic sectors was sustained, supported by trade and domestic activities. Source: Department of Statistics, Ministry of Urban Wellbeing, Housing and Local Government and Bank Negara Malaysia,

2 MALAYSIA BUILDERS DIRECTORY 2015/2016 Private sector activity remained the main driver of growth, with private consumption registering a growth of 6.7% in the third quarter, supported by stable labour market conditions and continued wage growth. Private investment expanded at a slower pace of 6.8% in the quarter (compared with 12.1% in Q2 2014), attributed to a decline in spending on machinery and equipment, particularly in the transportation segment. Public consumption turned positive to 5.3%, reflecting higher Government spending on supplies and services. However, public investment declined further by 8.9%, attributed mainly to the near completion of a few projects by public enterprises and the continued contraction in the Government s development expenditure. Going forward, investment activity will be supported by continued flow of ongoing and new projects by both private and public sectors. On the supply side, positive growth was experienced across all economic sectors in the third quarter. The services and construction sectors registered sustained growth while manufacturing expanded at a moderate pace amid slower domestic-oriented activity. The agriculture sector grew slower following weaker output of palm oil and rubber, while the mining sector grew at a more moderate rate amidst lower production of natural gas and condensates. Growth in the construction sector remained sustained during the quarter at 9.6% (9.9% in the previous quarter), driven mainly by the residential and non-residential sub-sectors. The residential sub-sector continued to record firm growth, supported by the construction of high-end properties in the Klang Valley, Penang and Johor while ongoing construction of offices and retail projects and storage facilities contributed to growth in the non-residential sub-sector. Meanwhile, the civil engineering sub-sector continued to provide support owing to new and existing infrastructure projects. 3

3 Editorial Performance of the Construction Industry According to the Department of Statistics Malaysia, the total value of construction work done in Q recorded a growth of 10.7% year-on-year (YoY) to RM25.3 billion. The quarter-on-quarter (QoQ) percentage change showed a marginal increase of 0.5% as compared to the previous quarter. Source: Department of Statistics Malaysia, Source: Department of Statistics Malaysia, In the third quarter of 2014, the highest percentage share was contributed by the non-residential buildings sub-sector which recorded 34.5%. This was followed by civil engineering sub-sector (31%), residential buildings (30%) and special trades (4.5%). Selangor continued to lead with the highest value of construction work done at RM6.21 billion (24.6%) among the states. Kuala Lumpur trailed at RM4.36 billion (17.2%), Johor at RM4.09 billion (16.2%), Sarawak at RM1.9 billion (7.5%) and Pulau Pinang at RM1.62 billion (6.4%). These five states jointly accounted for 71.9% of the total value of construction work done in the third quarter. In terms of construction activity by project owner, the private sector continued to dominate with a share of 70% while the Government and public corporation each held a share of 15%. 4

4 MALAYSIA BUILDERS DIRECTORY 2015/2016 The Property Market Findings of the Property Market Report 2013, released by the National Property Information Centre (NAPIC) in April 2014, came in within expectation with the various cooling measures put in place by the Government having their intended effect of curbing speculation and excessive price growth. According to the report, total volume shrank 10.9% in 2013 to 381,130 transactions but total value rose a marginal 6.7% to RM billion from RM billion in 2012, indicating that prices gained strength despite a raft of measures designed to rein in speculation, including a ban on developer interest-bearing schemes (DIBS) and a higher real property gains tax (RPGT). As in the past, the report showed that the residential market dominated close to two-thirds of all transactions. The report indicated solid construction activities, backed by high-rise and high-end properties in the Klang Valley, Penang and Johor. The shop and industrial segments also saw higher starts and building plan approvals in The residential property sub-sector accounted for 64.6% share in volume and 47.3% in value of all transactions recorded in A total of 246,225 residential properties were transacted in 2013, valued at RM72.06 billion. This was 9.7% lower in terms of volume although the value rose by 6.3% from the previous year. Prices of houses continued to rise, with the All House Price Index increasing to points from points in Source: The Star,

5 Editorial In terms of volume, most states posted a downturn in transactions except Johor, which expanded 16.6%. Kuala Lumpur, Penang and Selangor recorded 34.4%, 23.9% and 14.3% contraction respectively but Putrajaya topped the list, with a 41.7% decline. In value terms, all major states recorded growth except for Kuala Lumpur, which contracted by 9.7%. Johor improved the most with 63.2% growth while Selangor registered a small 2.8% growth. As at the end of 2013, there were 4.72 million existing residential units with another 696,557 units in the incoming supply and 615,851 units in the planned supply. The occupancy rate for retail and office space remained firm in 2013, buoyed by a moderate increase in new supply, as well as fewer starts and new planned supply. NAPIC said the outlook for the local shopping complex and purpose-built office segments is expected to be challenging, with increasing supply of space and slower take-up rates. The performance of shopping complex is expected to moderate in tandem with the bleak Business Condition Index (BCI) and Consumer Sentiment Index (CSI). The low indices indicated that consumers were cautious with their spending and business confidence has weakened. However, NAPIC expects occupancy and rents in the office sub-sector to sustain until the completion of mega developments. In 2013, the commercial property sub-sector was ranked the third most active after the residential and agricultural sub-sectors, recording 34,298 transactions worth RM35.56 billion. Shops were the biggest contributor at 58.9% of transacted volume and 39.7% of the value transacted. However, compared with the year before, the shop market activity moderated in The retail sub-sector saw slight improvement in 2013 as the average occupancy rate of shopping complex rose marginally to 79.5% from 78.9% in 2012, due to imbalance in completions and take-up of new space saw the completion of 20 new shopping complexes, offering a total of 362,738 sqm of space. As at the end of 2013, the country had million sqm of existing retail space, with another 1.25 million sqm in the incoming supply. The market also had 457,440 sqm of retail space in the planned supply. The volume of purpose-built offices increased 20.8% to 29 transactions in 2013 from 24 transactions in Despite the higher volume, the value of transactions fell slightly by 3.5% to RM1.27 billion from RM1.32 billion in the previous year. The majority of these transactions took place in Kuala Lumpur, which recorded a share of 37.9% of purpose-built offices in the country. The market showed signs of softening across the board. All sectors posted declines in transaction activity, led by commercial and industrial properties. Most states fared worse except for Johor and Perlis, which recorded high single-digit improvements. Five states experienced double-digit contraction in activity, with Putrajaya, Kuala Lumpur and Kelantan topping the list. Going forward, genuine demand will lead the property market as the market is expected to cool down and stabilize with prices finding a more realistic level. 6

6 MALAYSIA BUILDERS DIRECTORY 2015/2016 Budget 2015 Highlights The 2015 Budget was tabled by Prime Minister Dato Sri Najib Tun Razak in Parliament October last year. The last Budget under the 10th Malaysia Plan, the 2015 Budget allocates a total of RM273.9 billion, an increase of RM9.8 billion compared with the 2014 initial allocation. Of the amount, RM223.4 billion is for operating expenditure while RM50.5 billion is for development expenditure. The 2015 Budget is formulated with focus on the people s economy and outlines seven main strategies strengthening economic growth; enhancing fiscal governance; developing human capital and entrepreneurship; advancing Bumiputera agenda; upholding the role of women; developing national youth transformation programme and prioritising well-being of the Rakyat. Infrastructure Projects Several infrastructure projects are in line for implementation in 2015, including: Under the scheme, the Government will provide monthly financial assistance of RM200 to borrowers for the first two years to reduce the burden of monthly instalments and a 50% stamp duty exemption on the instrument of transfer and loan agreements. Additionally, the Government will provide a 10% loan guarantee to enable borrowers to obtain full financing, including the cost of insurance. Borrowers can also withdraw from their EPF Account 2 to top up monthly instalment and other related costs. Based on a first-come-first-served basis, the program is offered for 20,000 units only. To address the issue of house ownership at affordable prices, 80,000 units of homes will be built under the 1Malaysia People s Housing Programme (PR1MA) with an allocation of RM1.3 billion. A Rent-to-Own scheme will also be introduced for individuals who are unable to obtain bank financing. The National Housing Department (JPN) will also build 26,000 units under the People s Housing Programme (PPR) with an allocation of RM644 million. Syarikat Perumahan Negara Berhad (SPNB) will build 12,000 units of Rumah Mesra Rakyat and 5,000 units of Rumah Idaman Rakyat. SPNB will also build 20,000 units of Rumah Aspirasi Rakyat on privately-owned lands. Housing Source: Bernama, Another positive development for the industry is the introduction of the Youth Housing Scheme, which is a smart partnership between the Government, Bank Simpanan Nasional, Employees Provident Fund (EPF) and Cagamas. The scheme offers a funding limit for a first home not exceeding RM500,000 for married youth aged between 25 and 40 years with household income not exceeding RM10,000; with a maximum loan period of 35 years. The property sector (especially the affordable segment) will likely see improvement as the Government has extended the 50% stamp duty exemption on instruments of transfer and loan agreements until 31st December 2016, with a higher purchase limit of RM500,000 (compared with RM400,000 previously). In line with the stamp duty exemption, the ceiling price for Skim Rumah Pertamaku under the purview of Cagamas is also increased to RM500,000. In addition, the age of borrowers to quality for the scheme is revised from 35 to 40 years. In terms of maintenance for low-cost housing, RM40 million will be allocated under the Public Housing Maintenance Programme while RM100 million allocated under the 1Malaysia Maintenance Fund for maintenance of private low-cost housing. 7

7 Editorial Sabah & Sarawak For Sabah and Sarawak, a sum of RM4.5 billion is committed to providing and upgrading rural facilities and infrastructure. Among some of the planned programmes include RM943 million for construction of rural roads; RM1.1 billion to implement electricity connection for 15,000 houses; RM394 million to implement rural clean water supply for 7,500 houses; RM200 million to build and rehabilitate dilapidated houses involving 9,500 units; RM160 million to increase the quality of rural air services through maintenance and lease of new aircrafts; RM352 million to implement economic development programmes, infrastructure facilities and improve the living standard of the Orang Asli community; and RM26 million for the provision of street lighting in villages. Civil Workers For civil workers, there is an increase in the minimum eligibility for housing loans from RM80,000 to RM120,000 and the maximum eligibility limit from RM450,000 to RM600,000. The processing fee for housing loan application of RM100 is also abolished. Both proposals took effect on 1st January The Government is also committed to increase the construction of houses under 1Malaysia Civil Servants Housing (PPA1M). Currently, 10,639 PPA1M houses have been approved for construction. To enable more civil servants to buy PPA1M houses, an additional 5,380 units will be built in Putrajaya, Bukit Jalil, Papar (Sabah) and Bukit Pinang (Kedah). Besides enabling more young Malaysians to afford houses, improving quality of life and enhancing connectivity, the above-mentioned activities will inject much needed momentum into the industry, especially the property sector that has mellowed due to uncertainties associated with the impending Goods and Services Tax (GST) as well as cooling measures introduced in the previous Budget. In addition, the minimum price of houses under PPA1M will be reduced from RM150,000 to RM90,000 per unit for a minimum floor area of 850 sqft and the qualifying requirement of household income raised from RM8,000 to RM10,000 per month. A facilitation fund of up to 25% of the project cost will also encourage private developers to participate in the scheme. RM500 million is set aside for the repair and maintenance of military, police, teachers and medical staffs quarters nationwide. Additionally, RM105 million is allocated to Ministry of Urban Wellbeing, Housing and Local Government for maintenance of Government quarters under the MyBeautiful Malaysia Programme covering 126 locations. 8

8 MALAYSIA BUILDERS DIRECTORY 2015/2016 Goods & Services Tax (GST) Anchoring on the theme Strengthening Economic Resilience, Accelerating Transformation and Fulfilling Promises, the Budget 2014 tabled by Prime Minister Dato Sri Najib Tun Razak on 25th October 2013 announced the implementation of Goods and Services Tax (GST) in Malaysia which will take effect from 1st April The GST rate is fixed at 6% and would be imposed on supplies of goods and services (except those specifically exempted) as well as charged on importation of goods and services into Malaysia. GST is a consumption tax based on the value-added concept which will replace the existing sales and services tax (SST). Payment of GST is made in stages by intermediaries in the production and distribution process, but only the value-added at each stage is taxed to avoid double taxation. For businesses, the immediate challenge would be the integration of GST into their operations. Although the mechanics of GST are relatively straightforward, the challenge is in the details as businesses must also consider the capability of their systems and processes to cope with the demands of GST, the need to educate employees and customers as well as assess the impact of GST on their pricing strategies. Construction Players Activities of the construction industry include the building of new structures, modifications, maintenance, repair, alteration, renovation, dismantling, removal, demolition and improvements of these structures. It includes any works which form an integral part of, or are preparatory for the works mentioned, including site clearance, soil investigation and improvement, earth moving, excavation, setting of foundation, site restoration and landscaping. The construction industry involves main contractors and sub-contractors of the following categories: Building or general contractors who are involved in the construction of residential, commercial, industrial and other buildings; Heavy and civil engineering construction contractors who are involved in constructing roads, highways, tunnels, bridges, sewers and other projects; and Special trade contractors who perform other specialized activities related to construction such as carpentry, plumbing, electrical, painting and others. According to a guide released by the Royal Malaysian Customs Department, all contractors and sub-contractors in the construction industry (companies, partnerships and self-employed individuals) are liable to be registered if their annual turnover involving taxable supplies exceeds the prescribed GST threshold (RM500,000) in the past 12 months or within the future 12 months. Registration is voluntary for those with annual turnover of taxable supplies below the threshold (but once registered, must remain registered for a minimum of two years). All types of construction services, including construction of residential houses and agricultural buildings, are subject to GST as construction services are standard-rated and it does not matter that residential houses are exempt. Charges which are subjected to GST include the value of all works and materials permanently incorporated in or affixed on the site of the building or construction project and any other movable goods that the contractor may charge to the customer. 9

9 Editorial Property Developers Real estate refers to land and everything attached to it, whether on or below the surface. Land includes buildings, trees, vegetation and other structures and objects in, under or over it. Real property is the rights to use real estate and includes activities concerned with ownership, use and transfer of immovable property. The supply of land used for agricultural, residential (link house, semi-detached house, detached house, apartments, serviced residences and condominiums) and general purposes such as burial, playground and religious is exempt from GST while the supply of land and building used for commercial, administrative and industrial purposes such as shop lots, offices, retail business, small office home office (SoHo), small office virtual office (SoVo), small office flexible office (SoFo), factories, hotels, motels, hostels and warehouses is subject to GST. Commercial properties are standard-rated, so input tax incurred by builders can be claimed back against the output tax whereas for residential properties which are exempt from GST, costs incurred (including input tax) cannot be recovered. Input tax refers to all taxes incurred in producing a product such as raw material purchases and payments of services whereas output tax refers to the tax builders charge home buyers on the final product. Property developers predict that confusion over the implementation of GST will impact the property market, leading to higher prices, panic buying and cutback in new development until the market is more familiar with the new tax system. Developers are worried that there is a general lack of information on what will happen when the new indirect tax system comes into effect. Many are still confused about what falls under standard-rated supply, zero-rated supply and exempt situations under the new tax regime and the industry might not be well prepared for the implementation. Another major impact of the GST is an expected increase in prices of properties as developers pass on the higher cost of raw materials to buyers. The perception that property prices will go up after GST implementation would trigger panic buying from buyers as well as speculators that would result in overpricing, which in turn would be bad news for genuine buyers and the industry. Although residential properties are exempt from GST, the inability to claim GST on development costs and transitional issues with contracts signed pre-april 1, 2015, with no GST provisions mean developers have to work out whether their selling prices would be inclusive or exclusive of GST incurred in the supply chain. The precise impact of GST on prices remains largely unknown as the actual outcome will depend on the operation of market forces and the extent to which sellers can influence those prices and how the Government will administer proposed anti-profiteering legislation. However, the Government is focused on minimizing the impact of the new indirect tax system on prices given that the GST rate is set at 6%, lower than the current SST at 10% and also relatively low compared with GST rates in neighbouring countries. The smooth implementation of GST is dependent on its clarity and effectiveness in addressing different aspects of the construction and property sectors and the key is for the Government to work closely with industry players to identify areas of concern and consider alternative solutions. Early implementation will also give room for players to adjust and provide valuable feedback to further improve the system. 10

10 MALAYSIA BUILDERS DIRECTORY 2015/2016 What Lies Ahead? 2015 marks the end of the 10th Malaysia Plan (10MP). Announced on 10th June 2010, the current 10MP underlines five strategic basics for Malaysia to achieve a high income nation status by 2020, including increase the value in economy, improve knowledge abilities and innovation, handle socioeconomic inequalities, improve living quality as well as strengthen the institution and country s implementation. The next comprehensive five-year planning ( ) under the 11th Malaysia Plan (11MP) will be tabled in Parliament June this year. It will be the final plan before the year 2020 when Malaysia is targeted to attain a high income advanced nation status. The 11MP will be based on six major thrusts - re-engineering economic growth, strengthening growth enablers, harnessing talents, mainstreaming environmental and natural resources management, enhancing inclusivity and improving well-being of the people. The 11MP, which will incorporate a new approach known as the Malaysian National Development Strategy (MyDNS), will emphasize the optimal use of limited resources and focus on high-impact projects at low cost as well as efficient and rapid implementation. The construction industry plays a pivotal role in contributing to economic growth and driving the country towards its aspiration to be a developed nation by Numerous studies showed that economic activities are highly dependent on a strong construction presence for the provision of infrastructure, jobs and investment opportunities. Besides emphasizing growth in GDP and income per capita, the Government is also focusing on improving the quality of life for the people by promoting better housing and public infrastructure. It is with these developments that the construction industry can expect to remain busy in the years leading up to Although the recent decline in oil prices and GST implementation may slow the industry down in the short-term, the outlook for the industry remains bright in the longer horizon. 11