Infrastructure, building and construction to Malaysia
(Last updated: 2 Apr 2013)
Trends and opportunities
The market
Construction Industry
Malaysian construction activities slowed during the volatile global economy between 2008 and 2009. Social economic factors such as population growth, tourism, education and healthcare continue to drive growth in the domestic building construction market. According to the Construction and Development Board (CIDB) of Malaysia, the total value of contracts awarded in the building and construction industry (public and private) in 2012 is estimated at A$28 billion. It is estimated one million new residential units will be required by 2020.
The overall building construction market was boosted with the introduction of the 10th Malaysia Plan (2011-2015). Development expenditure by the Government is expected to exceed A$67.80 billion from 2011 to 2015 and involves the participation of the private sector and investors, particularly for public projects such as construction and management of schools, hospitals, and other community infrastructure. Other Government initiatives include the five development corridors of Malaysia as well as the Greater Kuala Lumpur development, which is spearheaded by the government delivery unit (PEMANDU).
(Sources: Business Monitor International, Malaysia Infrastructure Report, 8 January 2013 | Invest KL| The Economic Planning Unit, Tenth Malaysia Plan 2011-2015 | Ministry of Federal Territories and Urban Wellbeing, Greater Kuala Lumpur / Klang Valley)
The building and construction industry hand refers to the eco-system of construction which includes contractors, projects managers, technology providers, advisory services as well as the development of residential, commercial and industrial construction projects. Largely led by the private sector, the public sector plays a role in terms of industry development, policies and enforcement as well as incentives and promotions. The building and construction industry cuts across both the social infrastructure and government initiative markets, as the supporting pillar of such developments.
Infrastructure construction
The Malaysian infrastructure industry is typically broken down to social infrastructure and government initiatives.
Social infrastructure typically includes public purpose developments such as schools, hospitals, public libraries, stadiums and sporting facilities. Although such projects are typically government led, in recent years, private sector participation has increased through the use of public and private partnerships, privatisation and commercialisation. Certain social infrastructure facilities, such as hospital and schools have experienced increasing private sector led development in recent years.
Government initiatives on the other hand, refer to public sector led large scale projects which include industrial zones, city or township developments, the establishment of economic corridors and industry development schemes. Although the framework, policies, incentives and promotion of such initiatives are government led, both the private and public sectors are heavily involved in development. These projects typically have many stages and mature over periods of more than 10 years, and represent a prime source projects and business opportunities.
Social Infrastructure
Social infrastructure development in Malaysia in recent years has experienced a lot of interest, particularly in the healthcare and wellness markets. As the nation develops, healthcare needs have increased as has the demand for improved infrastructure.
Hospital Development
The Healthcare sector has been identified as one of Malaysia’s National Key Economic Areas (NKEA), hence a focus on the development of this industry by both the private and public sectors. The industry is expected to register a Compound Annual Growth Rate (CAGR) of 14.5 per cent from 2011 to 2020. Many private hospital development projects have been listed under the NKEA as Entry Point Projects (EPPs), which receive government assistance to hasten the process of licensing and approvals. In recent years, the private healthcare industry has expanded beyond urban areas into underserved markets.
(Source: Frost & Sullivan, Economic 360 for Malaysia: Growth Prospects and Emerging Opportunities in the Healthcare Industry, December 2012)
On the public sector side, under the 10th Malaysia Plan (2011 – 2015), the Malaysian government has set out to develop 197 new clinics: 156 of these will be in rural areas, 41 are health community clinics, four are new hospitals and four are replacement hospitals. The total expenditure, including costs of land procurement and construction for these projects is projected to cost A$6.2 billion.
(Source: The Economic Planning Unit, Tenth Malaysia Plan 2011-2015)
As the Malaysian market constructs more healthcare facilities, the differentiation between large private hospitals is becoming more evident and gradually less cost sensitive. This is where the opportunities for Australian firms will begin to emerge in terms of architectural services, provision and installation of energy efficiency systems, facility management as well as adherence to international healthcare facility and construction standards.
Aged Care Facilities
Aged Care facilities in Malaysia are still very much in the early stages of development. Private Aged care facilities in Malaysia are few and far between (fewer than five have been completed to date).
An ageing population in Malaysia is likely to create a strong demand in the market for aged care facilities, services and expertise by the general public, private and public sector. According to PEMANDU, the Aged Care market is expected to create 11,400 new jobs and A$300 million in incremental growth net income by the year 2020. The total development of the industry is expected to cost A$1.2 billion between 2010 and 2020.
Due to the strong demand for aged care facilities in Malaysia and a lack of expertise and capability in Malaysia, there are likely to be opportunities for Australian firms looking to export to both the private and public sectors.
Government Initiatives
In the administration of the current premiership of Dato’ Seri NajibTunRazak, Malaysia has launched an array of initiatives aimed at reviving and re-inventing the economy. These initiatives can be broadly placed into three key categories: the Economic Transformation Program (ETP), the Government Transformation Program (GTP) and Economic Corridors.
Government Transformation Program
One of six key initiatives of the GTP is upgrading basic rural infrastructure. Australian suppliers of modular housing units and prefabricated building systems may be competitive in the upgrading of Malaysia’s basic rural infrastructure.
Economic Transformation Program
The ETP has identified 12 National Key Economic Areas (NKEAs) that are to be prioritised including ‘Greater Kuala Lumpur’ and ‘healthcare’. Within the NKEAs are detailed projects called Entry Point Projects (EEP). Possible opportunities exist for Australian firms in the ‘Healthcare’ NKEA, ‘aged care facility’ EPP; which at this point is still in the very early stages of discussion. The ‘Greater Kuala Lumpur’ NKEA, includes a move for green townships and green buildings as well as the revitalisation and development along the Klang River in Kuala Lumpur.
National Development Corridors
The National Development Corridors mainly target the undeveloped rural areas of Malaysia, they are:
- East Coast Economic Region (ECER)
- Northern Corridor Economic Region (NCER)
- Iskandar Development Region (IRDA)
- Sarawak Corridor of Renewable Energy (SCORE)
- Sabah Development Corridor (SEDIA)
Amongst the most developed corridors at the moment are the NCIA and IRDA which are located at the North and South of Peninsular Malaysia. These areas have seen the development of infrastructure projects as well as private sector led building and construction.
Green Building and Construction
The Malaysian building construction market is highly competitive, with most of the leading contractors, architects, and building material suppliers located in and around Klang Valley. The market is led by public-listed and local contractors and developers. Foreign participation is encouraged in areas where local expertise may be scarce, such as technologies in green building, prefabrication practice, smart building and energy efficient building. In the areas of scarce expertise, the largest private developers in the country, such as YTL Development, SIME Darby Development and SP Setia Development prefer foreign contractors, are recognising the value of quality contracting as opposed to being overly price sensitive. The current preference is still towards the more established foreign companies.
There are two key trends in the market that offer potential to grow: green building technology and Industrialised Building Systems.
Green Building Technology
Since the formation of the Malaysian Green Building Confederation (MGBC) in 2008, there has been a move towards green architecture, building materials and construction sustainability. In 2009, the Green Building Index (GBI) was established, as a green building rating system similar to the Green Mark in Australia.
The government has also taken necessary measures to encourage the development and adoption of green building technology which includes the Green Technology Financing Scheme (GTFS):
- The fund was introduced in January 2010 with RM1.5 million in soft loans made available to companies that supply and use green technologies. Under Budget 2013, the GTFS fund will increase by RM2 million for another three years (to 2015).
- The fund enables companies using green technology to obtain soft loans with a two per cent government subsidy of the interest rate, with a 60 per cent guarantee on the amount of financing.
- The scheme can be applied at the National Green Technology Centre (Greentec).
Several incentives such as tax deductions and stamp duty exemptions have also been introduced by the Malaysian government. The Ministry of Energy, Water and Green Technology (KETTHA) has also spearheaded several retro-fitting projects for government buildings and townships. Since 2009, 12 buildings have been fully certified by the GBI, 54 projects provisionally certified and 256 applications have been submitted.
Industrialised Building Systems
Industrialised Building Systems (IBS), are pre-fabricated constructions such as standardised walls, roofing, doors and window frames that are built off-site. IBS is still very much in its infancy in Malaysia and there has been a lack of demand for such products.
The initiative to move towards IBS, and away from manual on-site labour is mainly government driven and has received some resistance from industry, as in the initial phase of implementation, IBS will increase the costs of construction in a very cost sensitive market. However, the push from the public sector has increased and it is only a matter of time before IBS becomes mandatory in all construction projects.
Since 2008, all new government development projects have had to be 70 per cent pre-fabricated. There have been more than 350 government projects using at least 70 per cent IBS to date, with more than 130 IBS manufacturers in Malaysia producing approximately 300 types of IBS products. As the market begins to realise the need to move to IBS, foreign firms that have tried and tested technology and production systems are expected to be well received in the Malaysian market.
(Sources: Construction Industry Development Board (CIDB) Malaysia, Industrialised Building Systems (IBS) Roadmap 2003-2010 | Construction Industry Development Board (CIDB) Malaysia, The adoption of Industrialised Building System (IBS) construction in Malaysia: The history, policies, experiences and lesson learned)
Opportunities
The scope of opportunities for Australian products and services is broad, responding to market demand, government initiatives and incentives, and where there is a lack of expertise in certain areas in the market. Australian companies can take advantage of the many gaps between supply and demand in the Malaysian market, as well as Malaysia’s increasing appreciation for high quality services and products, as developers gradually becomes less cost sensitive in certain niche areas. The following are areas where there is demand and potential for Australian organisations in the Malaysian market.
General opportunities
- facilities management services
- architectural services (integrated developments)
- interior design services
- construction project management services
- engineering consulting services (energy efficiency, green design)
Hospital development
- architectural services
- project financing services
- professional services for PPP projects (legal, advisory and financial structuring)
- hospital facility management
Aged care facilities
- care giver training and outsourcing
- aged care facility operations and maintenance
- aged care facility architecture
Government initiatives
- township master planning
- PPP models, funding and commercialisation models
- integrated development management
Green building technology
- engineering consulting services (energy efficiency, green design)
- energy efficient cooling indoor systems
- heat and noise insulation
- rainwater harvesting
- green building architecture
Industrialised Building Systems
- modular housing architecture
- rural housing architecture and construction
- precast machinery and equipment
Competitive environment
The Malaysian construction market is highly protected by laws and policies, and the largest developers in the market are mostly entirely Malaysian owned organisations. The market is largely led by developers, and banks typically act as lenders and not project owners. Two of the most prominent developers in the market are YTL Corporation and Sime Darby, both multinational conglomerates with their bases in Malaysia, with a reported revenue in 2011 of A$8 billion and A$13.7 billion respectively.
(Sources: YTL Corporation, Annual Report 2011 | Sime Darby, Annual Report 2011)
Foreign firms have done relatively well in certain industries. Australian Engineering Consulting firms such as Worley Parsons and SKM, and Project Management firms such as LendLease and Leightons are well established in Malaysia.
Tariffs, regulations and customs
The Malaysian market is highly regulated and protected by laws and policies, which can make market entry difficult for foreign firms. Several areas have been liberalised in recent years to promote regional or global competition, as well as meeting free trade agreement commitments. The following are areas that have restrictions for foreign firms.
Setting up business in Malaysia:
Architectural Services
Non-Malaysian based architectural certification is generally not recognised in Malaysia. A common practice for foreign firms is to set up a Malaysian office with a Malaysian based, locally certified architect, or engage a Malaysian architectural firm in a strategic partnership.
Accreditation can be obtained and those interested are advised to refer to the Board of Architects Malaysia.
Engineering Consultancy Services
Certain foreign engineering certifications are recognised in Malaysia, although it is best to refer to the Board of Engineers Malaysia for details. A common practice is for foreign firms to set up a Malaysian office with Malaysian-based, locally certified engineers. In this arrangement, the foreign firm provides support and expertise as well as project based placement of engineers on site.
Project Management Services and Contractors
Contractors have to be locally registered and a number of foreign firms are registered in Malaysia to be qualified to tender for Malaysian based projects.
Facilities Management Services
While there is demand in the market, this industry is new in Malaysia and the legal framework is still being set. At the moment, the market is open to foreign firms setting up and bidding for Malaysian projects. Although, you will need to set up an office in Malaysia to facilitate business.
Manufacturing Facilities in Malaysia
There are many incentives for setting up a manufacturing facility in Malaysia however the market remains protected in terms of equity of ownership. While certain sectors have been fully liberalised, many areas still maintain a maximum percentage for foreign equity. The best authority to approach for this matter is the Malaysian Industrial Development Authority (MIDA).
Malaysia Australia Free Trade Agreement (MAFTA)
The Malaysia-Australia Free Trade Agreement (MAFTA) came into force on 1 January 2013 and may offer benefits to Australian businesses operating in the infrastructure building and construction industry. Some tariff changes under MAFTA are:
Iron and steel
Tariffs on 96.4 per cent of iron and steel imported from Australia eliminated by 2016 and will rise to 99.9 per cent by 2017 and 100 per cent by 2020.
Services incidental to mining
51 per cent shareholdings in site investigation work or construction project, site preparation for mining, construction for mining and manufacturing engineering works and water well drilling. 100 per cent ownership in services incidental to manufacturing.
Scientific and technical consulting services
51 per cent ownership in scientific services. 70 per cent shareholdings in convention and exhibition management services.
Chemical and plastics
All tariffs eliminated on entry into force except for sulphuric acid and oleum, which will be eliminated in 2016.
Glass and glassware
All tariffs eliminated by 2014.
Environmental services
51 per cent ownerships in services including wastewater management, cleaning services of exhaust gases, noise abatement services and nature and landscape protection services.
Healthcare Services
100 per cent ownership in medical specialty services. 70 per cent ownership in management consulting services of pharmacy. 49 per cent aggregate foreign shareholdings in private hospital services with a minimum of 100 beds.
Other Business Services
51 per cent shareholdings in advertising services. 70 per cent ownership in market research and public opinion polling services. 70 per cent ownership in management consulting services in non-conventional energy, agriculture and fishing as well as environmental management.
Transport Services
51 per cent ownership in international maritime transportation services. 100 per cent shareholdings in maritime agency services.
For products and services not affected by MAFTA, please refer to the following:
ASEAN Tariff Finder - http://aseantariffs.austrade.gov.au/tariff-finder/
Malaysian Customs Tariff Finder - http://tariff.customs.gov.my/
Marketing your products and services
Market entry
Companies thinking of exporting to Malaysia need to be highly competitive in the domestic market and able to articulate what differentiates their product from others. As the Malaysian market can be highly price sensitive, more often than not, business opportunities come in the form of joint ventures, strategic partnerships and consortia. An example would include the joint venture between Ranhill Berhad, a Malaysian construction firm and Worley Parsons, an Australian based engineering consulting firm. Ranhill Worley Parsons is very active across Malaysia.
In other areas such as green building technology, aged care operations and facility management, the Malaysian market is very much in its infancy and there are not many local providers of such services in the market. The laws allow for foreign firms to invest wholly or partially owned subsidiaries in these areas, while market demand for such services gradually picks up.
Links and industry contacts
Infrastructure, building and construction-related resources
Master Builders Association Malaysia – www.mbam.org.my/mbam/
Real Estate and Housing Developer’ Association Malaysia – www.rehda.com/
Malaysian Institute of Architects – www.pam.org.my
Malaysian Green Building Confederation – http://mgbc.org.my
Malaysian Construction Industry Development Board – www.cidb.gov.my
Government, business and trade resources for Malaysia
Royal Malaysian Customs Department – www.customs.gov.my/index.php/en
Australia Malaysia Business Council – www.ambc.org.au
Malaysia Australia Business Council – www.mabc.org.my
The World Bank – www.worldbank.org/en/country/malaysia
The International Monetary Fund – www.imf.org/external/country/MYS/index.htm
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
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