Since the beginning of 2021, the Bursa
Malaysia Construction Index has experienced a steep decline of 12.5% from
186.67 to 163.42, underperforming the broader FBMKLCI index which fell 2.6% for
the same period.
TA Securities Research has revealed that
due to the slower-than-expected rollout of new mega infrastructure projects
since the 14th General Election (GE14), majority of the infrastructure contractors
under its radar saw a decline in their outstanding order book. This include
major construction companies such as Gamuda Bhd, Sunway Construction Group Bhd
and WCT Holdings Bhd, according to analyst Ooi Beng Hooi.
“Besides temporary suspension of works at
sites due to presence of COVID-19, the compliance with standard operating
procedures (SOPs) and test requirement has resulted in additional costs and a
drop in operating efficiency at construction sites,” justified Ooi. “With
escalated number of daily new COVID-19 cases in Malaysia, we expect the adverse
operating environment to drag on till 2H 2021.”
Piling to the pressure is the cautious
sentiment arising partly from the recent surge in steel bar price, according to
TA Securities Research. Since late-2020, the price of steel reinforcement bars
has begun to rise due to an increased demand from China as well as a surge in
iron ore price. As of early-February 2021, the price of steel reinforcement
bars was estimated at about RM2,650/metric tonne (MT)-RM2,750/MT. The
construction margin is expected to be eroded by 1% to 2% if the price stays at
such elevated levels throughout the year.
Will property prices
fall?
On this, Rehda
Malaysia president Datuk Soam Heng Choon said the current prices have “hit rock
bottom”. He does not foresee prices dipping further. The selling price now is
the result of the input cost made up of the spiking building material price and
additional cost incurred due to the pandemic. All developers want a quick sale
so that they can pay the contractors and move on.
Nevertheless, he also highlighted that
developers have gone back to the drawing board as far as launching new projects
and pricing are concerned as they want to minimise losses or additional holding
cost at this point in time.
“With the Malaysia My Second Home (MM2H)
programme put on hold and MCO reinstated, the developers have no other choice
but to price the new projects at a very competitive price to survive the
pandemic,” he noted.
Wee stressed that
the property price may not reduce to the level which the market wishes for, as
the indirect construction input cost has increased, such as temporary shutdown
of construction sites, lack of skilled workers and higher standards of workers’
living and working facilities. Don’t expect it to be cheap during a downturn.
Who is to be
blamed when the construction progress is impeded, and the sector performance is
impacted? The MCO? Or all the SOPs?
The authorities will
disavow all knowledge of large groups of foreign workers accommodated in small dormitories
under shockingly poor conditions. They are also the ones who failed to follow
the social distancing arrangements and caused the rise of more clusters at the
sites. Enforcement is always an issue in Malaysia.
To be fair, MCO
2.0 allowed more businesses to operate including those in the construction
sector, and hence it was expected to be less damaging compared to MCO 1.0. In
2020, construction sector contracted the most at 18.7%. That’s from MoF. The
expectation for 2021 is double digit growth which suggests major projects are
implemented, affordable housing takes off and health issues are overcome. Is
that realistic now?
Reference:
1. Cheah Chor Sooi, Construction sector
expected to remain in the doldrums a while longer, Focus Malaysia, 5 Feb 2021
2. Rachel Chew & Chelsea J. Lim, Impact
of MCO 2.0 on the property market, EdgeProp, 22 Jan 2021
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