Prior to the COVID-19 crisis, the Malaysian construction industry was expected to recover this year, but with the situation worsening, the industry is set to contract by 8.8% in 2020.
Post resumption of economy activity, it is expected that work on the construction sites will be ramped up quickly in the coming months, recovering some of the lost output since mid-March 2020, says GlobalData.
Owing to a halt in several mega construction projects, coupled with an increasing inventory of unsold housing stocks, the construction industry was almost stagnant in 2019. Although the government allowed construction sites in the country to resume operations in April 2020, a large number of sites remain closed.
On 5 June 2020, the Malaysian government said that of the 6,750 construction sites inspected by the Construction Industry Development Board (CIDB), as of 4 June 2020, 5,131 sites were not yet operational.
As a result of the slowdown compounded by restrictions owing to the Movement Control Order (MCO), construction value add in Q1 2020 fell sharply by 7.9% year on year. Moreover, as the MCO was enacted during the latter part of the first quarter and continued until the first week of May 2020, the second quarter performance is expected to be dismal.
Dhananjay Sharma, Construction analyst at GlobalData, commented that before the outbreak, the residential market was already struggling due to rising building costs, shortages of skilled labour and huge unsold inventories, but was showing signs of recovery. “However, the market is further facing risk as the economy is expected to enter a recession in the second quarter and people take more precautions when making decisions on house purchases,” he added.
According to Bank Negara Malaysia, the total value of loans disbursed for construction declined by 6.7% year on year in the first four months of 2020. In April alone, there was a year-on-year declined of 32.9%, with the value of loans dropping from MYR7.5bn in April 2019 to MYR5bn in April 2020.
Sharma concluded: “Infrastructure will be a key area of support when the immediate COVID-19 crisis dissipates. The country’s biggest megaproject – the MYR44bn (US$14.3bn) East Coast Rail Link (ECRL) project resumed construction activities, following the government’s approval to resume construction.”