Fitch Solutions forecasts short-term dip for Malaysia’s construction sector

Azril Annuar
The Country Risk team currently forecasts the Malaysian economy to grow by 4.2 per cent in real terms in 2019 and 2020, which is slower than the 5.2 per cent average annual growth rate from 2013 to 2018. — Picture by Choo Choy May

KUALA LUMPUR, Aug 20 ― Global economic and commodities forecaster Fitch Solutions Macro Research has made a downward revision for Malaysia’s residential and non-residential buildings sector on the back of lower planned supply and short-term macroeconomic uncertainties.

In an analysis today, the intelligence solution and data provider said that based on this year's second quarter data (2Q19), the total work value done in the residential and non-residential sectors shrank by 1.1 per cent and 9.3 per cent year-on-year (y-o-y).

“In particular, the value of work done in the residential sector posted its sixth consecutive quarter of contraction, illustrating weaknesses in demand for housing in the country.

“In addition, weak supply side data point to subdued construction activity in both residential and non-residential sectors in the remaining months of 2019 and in 2020, as the number of units planned for construction continue to decrease,” said the commentary.

It added that short-term macroeconomic uncertainties are likely to have a negative impact on the commercial and industrial building sectors due to Malaysia's position as an emerging market that is vulnerable to a recession due to its high levels of trade exposure.

Its Country Risk team currently forecasts the Malaysian economy to grow by 4.2 per cent in real terms in 2019 and 2020, which is slower than the 5.2 per cent average annual growth rate from 2013 to 2018.

At the same time, housing prices have been decelerating with the first quarter of 2019 seeing housing prices posting the slowest growth pace since 2014 at 1.3 y-o-y and housing price index retreating for the first time in 20 quarters ― falling to 194.6 from 195.4.

“Given the above factors, we now expect the residential buildings sector to contract by 0.9 per cent in 2019 and post a modest recovery of 2.6 per cent in 2020.

“Similarly, our expectations of muted business activity in the short term has prompted a downward adjustment of our forecasts of growth in the non-residential buildings sector, which we now expect to contract by 0.8 per cent in 2019 and grow by 2.1 per cent in 2020.

“As a consequence of our downward adjustments to the buildings sector, we now expect Malaysia’s overall construction sector to grow at 1.1 per cent and 3.5 per cent in 2019 and 2020 respectively,” it said.

The majority of unsold properties in Malaysia consists of relatively expensive high-end housing such as condominium apartments, terraces and semi-detached houses.

Meanwhile, low cost flats and houses made up of less than 1 per cent of the total value of unsold property in the last quarter of 2018 ― creating a scenario where low income buyers who cannot afford high-end homes are chasing a limited supply of affordable housing.

Fitch Solutions predict that construction activity for high-end housing will remain weak in the short term while affordable homes will drive growth in the residential building sector.

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