1.0: INTRODUCTION OF CONSTRUCTION INDUSTRY

“Construction Projects Improve Quality of Life – More than 130 projects are under

construction this year at Japan which worth approximately $921 million will make the

base a better place to live, work and play.”

(By: Stripes Okinawa Editor on Tues, 31 August 2010)

Based on article above, we can summarise that construction is performed to

improve the overall quality of life and to create as many comfort zone for all of

mankind. According to the Malaysian Standard Industrial Classification (MSIC) 2000

and Malaysia Industrial Classification (MIC) 1972 (revised 1979), the definition of

construction is:

“New construction, alteration, repair and demolition. The installation of any

machinery or equipment which is built-in at the time of the original construction is

included, as well as installation of machinery or equipment after original construction

but which requires structural alteration to install”

In other word, construction is the step in which the plans, specifications,

materials, and equipment are transformed by constructor. Normally, the job of

construction is managed by a project manager, and supervised by a construction

manager, design engineer, construction engineer or project architect. Construction

industry is one of the industries listed as a major contributor to the economic

development of the country. The importance of the construction industry can be seen

clearly through the construction of involvement in various industries as well as covering

various fields. 

The construction industry is one of the most booming industries in the

continuation of the development process especially in the developing countries such as

Malaysia since independence in the 31st August 1957. This industry is mainly an urban

based one which is concerned with preparation as well as construction of real estate

properties.

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2.0: THE MALAYSIAN CONSTRUCTION INDUSTRY

2.1 OVERVIEW MALAYSIAN CONSTRUCTION INDUSTRY

The Malaysian construction industry is one of the driving forces of Malaysian

economic. The Malaysian construction industry plays an important role in generating

wealth and improving the quality of life for Malaysians through the translation of

government’s socio-economic policies into social and economic infrastructure and

buildings. The Malaysian construction industry also has other important role in

Malaysia such as providing job opportunities for approximately 800,000 people. In

construction industry it required many manpower the established the industries such as

labour, design team, developer and etc. The construction industries also creating

multiple affect to the other industries such as manufacturer, financial and etc. Many

industries will be involving to establish a construction. Each industry has their own

responsibility.

The Malaysian construction industry is managing 4 type of construction

classification. 1st is commercial building, this type of construction is the construction

that has been constructed most to stimulate the construction industry. The example of

commercial building is government building, school, private office, warehouse and

hospital. Second is residential building, residential building is build base of the demand

of citizen to have a residential area on a certain area. The private or public developer

constructs residential area on high demand places only. This will encourage people to

buy the house and the same time will increase the growth of Malaysian construction

industries. Thirdly is Heavy Engineering & Infrastructure Construction, this type of

construction usually takes a longer completion time compare to others type of

construction. It because it involving highways, airport and bridges.

The last type of construction is industrial. In Malaysia, industrial building is less

been constructed compare to other types of construction. Usually private sector will

involve in this type of construction. According to Mohamad S. F., commercial building

is been constructed most (35%-40%). Second is residential (30%-35%). Third is

infrastructure (20%-25%) and the last is industrial (5%-10%).

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Malaysia Construction industry is developing rapid in the past few years. There

as some achievement in Malaysia Construction industry. The PETRONAS Twin Tower

is the most successful construction in Malaysia that has been guided specially by the 4 th

Prime Minister Tun Dr. Mahathir bin Mohamad. The twin tower is well known by other

countries as one of the tallest building in the world. By having this building, its help

Malaysia economic to growth by having foreign investor invest in Malaysia.

The Malaysian construction industry is being guided by The Construction

Industry Board (CIDB). CIDB is a statutory body established under the Act of

Parliament, viz. Act 520 Lembaga Pembanguanan Industri Pembinaan Malaysia Act in

July 1994. The objective of the CIDB is to develop the construction industry as a major

contributing sector to the national economic. The CIDB will ensure the construction

industry will be capable of producing high quality construction works.

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2.2 THE UP AND DOWN OF MALAYSIAN CONSTRUCTION

INDUSTRY

According to Fadhlin et al. (2004), the growth of the industry was further pushed

by the implementation of Vision 2020 in 1991. This has resulted in rapid

implementation of several large scales of infrastructure projects such as housing,

schools, and hospitals, commercial and industrial buildings en route to realizing the

goals in the Vision 2020.

Figure 1: Construction output and GDP, 1965 – 2003 (Data for 1965 – 1991 in 1978

constant price; data for 1992 onwards in 1987 constant prices) Data source: Economic

Reports-various issues

The figure 1 shows that construction output grew from RM801 million in 1965

to RM 7.58 billion in 2003. The GDP grew from RM17, 582 million in 1965 to

RM238.4 billion in 2003. This reflects the industry’s important role in providing the

infrastructure to satisfy development needs and facilitate investment in other economic

sectors. The expansion in tourism and the manufacturing industry have contributed to

the industry's growth momentum. The rapid industrialization programmes have

intensified the urbanization process which further increased the demand for housing and

related infrastructure facilities. The country’s rapid industrialization has also created a

new demand for large scale, complex, alternative energy production facilities.

As the country's GNP per capita increases, there is an increasing demand for

leisure facilities. Between 1990 and 1996, the industry grew at an annual average rate

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of 14 percent. The growth of construction activities in the 1990s were propelled by the

strong upsurge in private investment supported by large inflows of foreign investment,

high domestic savings and extensive privatization of construction projects. The

slowdown of the Malaysian economic growth is following the East Asian economic

crisis has impacted the growth of the construction industry. The growth of the

construction industry fell from 14.2% in 1996 to 9.5% in 1997. Construction industry

growth fell to -24% in 1998. As a result of the government’s economic recovery

measures, official government statistics show that by the end of 1999 construction

growth has increased by 20 percentage points to –4.4%. The implementation of

privatized projects as well as the expansion of government fiscal spending particularly

on infrastructure and residential projects has further supported the growth of the

construction industry. Growth of the industry expanded at a rate of 1.0% and 2.3% in

2000 and 2001 respectively.

The slowdown in the civil engineering sub-sector following the completion of

several major privatized projects in 2003 had sunk down the growth to a lower level.

The construction industry registered of growth 2.3% and 1.9 % in 2002 and 2003

respectively. Official government statistics estimate overall GDP growth for 2004 to

expand by 6.0% – 6.5%.

In 2004 to 2006, the construction industry is slowing down caused of many

mega project or construction have completed.

From 2007 to 2010, the construction industry is in a stable state caused by the

Ninth Malaysian Plan. In the Ninth Malaysian Plan, the government have allocated

some package for the construction industry. The package subsidise the entire building

material price.

Among all the industry in Malaysia, the Construction industry is one of the

industries that will expend in 2012. The Malaysian Construction Industry is anticipated

to record a stronger growth, driven by the civil engineering sub-sector. Growth will be

contributed mainly by the launch of key infrastructure projects such as the Sungai

Buloh-Kajang MRT line and the Government’s Special Stimulus Package. Continued

progress in existing projects such as the Second Penang Bridge, Ipoh-Padang Besar

double track, KLIA 2 and the extension of the Kelana Jaya and Ampang LRT lines will

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lend further support to growth. Growth in the non-residential sub-sector is expected to

be sustained, owing to public sector expenditure on hospitals and schools. In

conclusion, the residential sub-sector is projected to grow at a slower pace as developers

shift focus to mass market housing from the high-end segment.

Chart 1: Construction and GDP in real terms. Data Source: CIE, CIDB

Chart 1 above shows that the GDP of Malaysia Construction industry is

increasing between 2000 and 2011. This prove that the construction industry have the

potential to growth in the upcoming years.

Table 1: The forecast of GDP for each sector between 2011 and 2012 .Data Source:

department of Statistics, Malaysia and Bank Negara Malaysia

The table 1 above is taken Department of Statistics, Malaysia Bank Negara

Malaysia. The table show that the Malaysia Construction industry Real GDP between

2011 and 2012. It shows that the percentage of annual changes of construction industry

between 2011 and 2012 is 6.6%. This proved that the construction industry is growing.

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The economy will be on course to achieve the target set out in vision 2020 since the

vision is the country’s long-term goal. Hence, the future scenario of the Malaysian

construction industry will be guided by the vision which aims to transform the country

into a developed and industrialized nation by the year 2020.

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3.0: MALAYSIAN GROSS DOMESTIC PRODUCT

3.1 INTRODUCTION TO GDP

Gross domestic product (GDP) is the market value of all officially recognized

final goods and services produced within a country in a given period of time. GDP per

capita is often considered an indicator of a country's standard of living. GDP per capita

is not a measure of personal income. Under economic theory, GDP per capita exactly

equals the gross domestic income (GDI) per capita.

(http://en.wikipedia.org/wiki/Gross_domestic_product)

Theoretical Approaches to Measuring GDP

There are 3 measures of GDP.

The sum of gross value added by those who produce goods and services plus taxes

and less any subsides on products gives GDP.

The sum of the uses of value added gives GDP. By measuring the distribution of this

value added through wages, other compensation to employees, taxes on production,

as well as imports less subsides and gross operating surplus (profit) gives GDP.

Final consumption by households, government and industry reflects the value added

at all stages in the creation of goods and services, (actual final consumption and

gross capital formation). Summing together all the final expenditure in the economy,

add in the value of exports and subtract expenditure on imports, gives GDP.

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Graph 1.0: Gross Domestic Product Malaysia (1992 – 2011)

Sources: World Bank Last updated: Oct 31, 2012

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The Percentage Growth of GDP (1992-2012)

Year Growth of GDP (%)

1992 8.89

1993 9.89

1994 9.21

1995 9.83

1996 10.00

1997 7.32

1998 -7.36

1999 6.14

2000 8.86

2001 0.52

2002 5.39

2003 5.79

2004 6.78

2005 5.33

2006 5.85

2007 6.48

2008 4.81

2009 -1.64

2010 7.19

2011 5.14

2012 5.40 (Q2)

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3.2 THE GROSS DOMESTIC PRODUCT GROWTH IN MALAYSIA

In Malaysia, our economic development can be divided into three major phase

which is Phase 1 is on the early years of post-independence (1960), Phase 2 is The New

Economic Policy (1970-1990) and the last is Phase 3 which is The New Development

Policy and Vision 2020 (start from 1991 onwards).

According to our scope of studies, we need to find the 1992-2012 economic

trends which are in a neighbourhood of 20 years. During that 20 years several Malaysia

Plans has been used introduce to spur the national income. Among of Malaysia Plan that

has been issued are Sixth Malaysia Plan (1990-1995), Seventh Malaysia Plan (1996-

2000), Eight Malaysia Plan (2001-2005), Ninth Malaysia Plan (2006-2010), and now is

Tenth Malaysia Plan (2011-2015).

Based on the Graph 1.0, started from 1992, GDP Malaysia look move forward

with maintain economic situation during that years. This growth becomes more increase

until 1994 which is expected increased as much as 8.5%. The sustained growth was

driven by strong external demand, as the economic recovery continued to improve in

most industrialized countries as well as domestic demand is higher. Malaysia's

economies in 2005 are expected to remain strong due in part under the stimulus of a

more comprehensive economic recovery in the industrialized countries. (Laporan

Ekonomi 1994/1995)

Malaysia Gross Domestic Product is expected to moderate slightly, at a rate of

8% in 1997. Moderation in output growth is partly attributable to the expected level of

economic slowdown in the second half of the year. This is due to the commencement of

construction activities to slower production growth and a moderation in manufactured

goods and services related to the supply of materials for the construction sector.

Production of consumer goods is expected to grow in more slowly, especially durable

goods, due to consumer confidence will be affected by the fall in share prices. This

situation is caused by Asian Economic Crisis which is start in Thailand where bring the

effect on the value of Ringgit is drop. This can be seen on Malaysia GDP on 1998 in a

negative growth.

Malaysia being an open economy was similarly affected by the contagion impact

of the financial crisis. This situation was bringing our country to Inflation economic

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situation. To overcome this crisis, many efforts by government were conducted since

the end of 1997. The main objective that time is to restore the value of the currency by

which has declined and want to attract the investors to come to invest in Malaysia.

In year 1999, Malaysia has recovered from the severe deflationary impact of the

regional financial crisis which had resulted in an assumed 7.5% contraction of the

economy in 1998. Real Gross Domestic Product, which had contracted by an

unprecedented 10.9% and 10.3% in the third and fourth quarters of 1998, registered a

significantly milder contraction of 1.3% in the subsequent first quarter before

recovering with a positive growth of 4.1% in the second quarter of 1999. Monthly

analysis of a performance of the economy indicates that the downward trend reached

it’s through in January 1999 before bottoming out beginning in February. The recovery

subsequently strengthened and real GDP growth is expected to further accelerate to an

average annual rate of 7.2% during the second half of 1999, against 1.4% real growth in

the first half.

According to the Economic Report 2001, the Malaysian economy had recovered

from the 1997 Asian financial crisis and was on the path of stronger growth. Real Gross

Domestic Product (GDP) growth, which turned positive since the second quarter of

1999, had continued to grow strongly for seven consecutive quarters. Against this

background and premised on the assumption of an early global economic recovery, the

main strategic thrusts of Budget 2001 were focussed on stimulating domestic growth

and enhancing competitiveness as well as improving the quality of life of Malaysians in

line with the nation’s agenda of a caring society.

According to Economic Report 2004/2005, the Malaysian economy accelerated

its growth momentum in the first half of 2004, after a strong take-off in 2003, and is

expected to surpass earlier expectations with higher growth of 7% for the whole year.

Positive signs of a firm economic recovery at the global front, particularly in the first

six months as well as higher commodity prices, reinforced the ‘feel-good’ factor that

contributed to further improvement in consumer and business sentiments. Growth has

become broader based with all sectors registering positive growth. Domestic demand,

particularly private consumption, continued to sustain growth for five consecutive

years, while private investment, which picked up in 2003, became more entrenched,

resulting in a private sector led growth.

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92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

-40

-30

-20

-10

0

10

20

30

Graph 1.1: The Growth of Construction Industry 1992-2012

The Growth of Construction Industry

Sources: Akaun Negara

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The Percentage Growth of Construction Industry

Year Growth of Construction Industry (%)

* 1992 10.75

1993 9.74

1994 13.15

1995 17.39

1996 13.92

1997 9.58

1998 -31.50

1999 -4.55

2000 0.55

** 2001 3.16

2002 2.27

2003 1.79

2004 -0.86

2005 -1.48

2006 -0.31

2007 6.80

2008 4.02

2009 5.56

2010 4.89

*** 2011 4.40

2012

* GDP by CI Activity at Constant Prices, (1987=100), 1992-2000

** GDP by CI Activity at Constant Prices, (2000=100), 2001-2010

*** GDP by CI Activity at Constant Prices, (2005=100), 2011

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3.3 CONSTRUCTION INDUSTRY GROWTH IN MALAYSIA

The construction in Malaysia started in the early 1990s in conjunction with the

development of mammoth projects. The Government has launched Vision 2020 to

envision that Malaysia will be a fully industrialised country by the year 2020. Towards

this goal, the government has invested heavily in modernising the infrastructure of the

Kuala Lumpur metropolitan area. The modernisation is designed to propel Malaysia

into the digital age and position it as a hub for high technology businesses in Southeast

Asia.

The construction industry reached high growth in 1995 where the GDP of

construction industry soared as much as 17.3 percent. That rate of development was

equivalent to the developed countries. During the period from 1994 to 1997, the

construction industry GDP averaged at 14 percent. Consequently, the Malaysia

Construction Industry dropped to an alarming position in 1998, when Malaysia and the

Asian region were facing the Asian Financial Crisis. During the regional economic

crisis in 1997-1998, output of the industry become in bad situation. In 1998, output of

the industry contracted by 23 percent, after a robust and double-digit growth rate (Bank

Negara Malaysia 2003).

The Malaysia Construction Industry has largely been spurred by Government

spending to build the nation's infrastructure. From 1981 to 2005, total development

expenditure by the Federal Government is in excess of RM 300 billion, mainly in

expenditure in economic sector, i.e. agriculture and rural development, transport and

commerce and industry. The demand for sports tourism in general and information

technology (IT) development has resulted in the need for some government projects as

depicted in during the period of 1998-2001.

A decline in the number of large-scale infrastructure projects is one of the major

immediate causes for the construction industry slowdown of recent years. The industry

was buoyed by major projects initiated by the Government in the early and mid-1990s

four of these projects alone contributed an estimated RM 60.0 billion in jobs (nearly ten

times 2004 industry output) to the construction industry. Since the completion of these

major projects approximately five years ago, there have been no new large-scale

projects announced by the government.

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Another reason for the slowdown of the construction industry is return of a

cyclical downturn in the business cycle that affects current performance. The

construction sector has consistently been the smallest contributing sector to the

economy. Its contribution to GDP is less than 15 times smaller than that of the services

sector and less than eight times smaller than that of the manufacturing sector.

The construction industry enables the growth of other industries through its role

as a fundamental building block of the nation's socio economics development.

Educational institutions, government offices, some tourist attractions, transportation

infrastructure (airports, seaports, roads), housing, commercial property all the essential

elements of a healthy, functioning economy, need to be built and maintained by the

construction industry. Besides, enabling socio-economic development, the construction

activities generate tremendous spill over opportunities. It contributes to the growth of

other industries in its role as a large user of manufactured goods (building materials,

iron, steel, etc.) of specialized tooling and heavy machinery and the financial services

sector.

During this period, the construction industry has carried out a huge project but

not made it value for money for client because of contingencies cost and also has gone

through an economic downturn in 1997 when whole Asia was in financial crises during

1997. As a result of the crisis, some of the investment and activity in the sector halted

because of the excess capacity and deferment of major construction projects in the

country.

In 2001, the industry continued to show a promising trend and registered a

positive growth of 2.3 percent compared with 1.0 percent in 2000. In 2003, the

construction industry registered a slow growth of 1.79 percent in GDP.

In years 2009, the growths of construction industry reach to the government

expectation caused by the Ninth Malaysia Plan (RMK-9) giving subsidies to building

material prices. This package is allocated because government need to stabilise the

building material market prices. By giving this package, the growth is stable since 2009

until now.

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92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-40

-30

-20

-10

0

10

20

30

GDPConstruction Industry

Graph 1.3: The Growth between GDP and Construction Industry

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3.4 THE IMPACT FROM POSITIVE AND NEGATIVE GROWTH OF GDP

TO CONSTRUCTION INDUSTRY

The growth of the construction industry in Malaysia traditionally follows the

growth of the national economy. As shown in the graph, the growth of construction

industry followed the growth of national GDP. Even though the contribution of

construction sector in GDP is very small, on average of 5% of GDP, it has an important

role to play in the economy.From years 1992-1995, Malaysia shows the highest

percentage of construction industry. This is because the Prime Minister that years Tun

Dr Mahathir Mohammad implement the plan and mission towards Vision 2020. During

that year, since 1990, Malaysia already plan a large scale of project such as the

construction of KLIA, Sepang International Circuit and many mammoth projects which

is framed through the Malaysia Super Corridor strategies. According to the economic

report 1994/1995, Malaysia expected will to maintain a high percentage in the

construction sector from 1990 to 1995.

However, during the year 1997-1998, Malaysia is facing with the Asian

financial crisis where our value of money (Ringgit) going down and the economic

situation is inflation. As an open economy country which is Malaysia, it will also get

influence from financial crisis which happen at Thailand. It was changed the economic

environment in Malaysia. Indirectly, this has resulted in the growth of the construction

industry stagnated. Based on the graph above, started from 1997, the growth of

construction industry only 9.58% compared to years before which is 1996 is 13.92%.

This shows the decreasing on the growth and the most notable decrease is in 1998,

where the percentage of construction industry is -31.50%. The downturn of percentage

is cause by no large scale of infrastructure and projects will be implemented by

government. It is because the income of our nation is less than before national income.

It can be say, the more the national income, the more of projects and infrastructure will

be implemented or vice-versa.

Based on the Graph 1.3, during the years 2004, 2005, and 2006 shows the

negative percentage of construction growth. This situation happen because the

government not implement more on construction project and become this three years

contribute average 2.7% to the GDP.

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4.0: MONETARY AND FISCAL POLICY

4.1 BACKGROUND OF MONETARY AND FISCAL POLICY

Fiscal policy and monetary policy are the major instruments used by the

government to improve economic performance. The main aims of the government

policies are to stabilise prices with low inflation, low level of unemployment,

reasonable of payments position, sustainable economic growth and equitable

distribution of income. These goals are not often achieve at the same time.

Monetary policy is the use of interest rate and level of money supply to manage

economy while fiscal policy is the use of government expenditure and taxation to

manage the economy. The government will employ both fiscal and monetary policies.

4.1.1 Monetary Policy

Monetary policy is the use of interest rate and level of money supply to manage

economy. In the monetary policy, the central bank plays an important role in the process

of creating and influencing the quantity of money and the interest rate. Central Bank is

responsible for controlling the nation's money supply, conducting monetary policy and

in general, supervising the nation's monetary system. In Malaysia, the nation's money

supply are controlled by the Central Bank known as Bank Negara Malaysia through

I. Statutory reserve requirement which raising or lowering reserve requirement

will may affect the ability of commercial bank to provide.

II. Discount rate/Interest rate. Raising discount/interest rate will cause higher cost

of borrowing.

III. Open market operation by buying and selling of securities in form of bonds or

treasury bills by the central Bank in the open Market. The buying of securities

increase the money supply and sale of security decrease the money supply.

Money is a primary importance in determining what happens to the economy. The main

key features of monetarist theory is the main cause of inflation is an access supply of

money and to maintain price stability, tight control of money and credit are required. A

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rapid increase in money supply leads to a rapid increase in inflation. In order to curb

inflation, money growth must fall below growth in economic output.

How do government keep inflation in check?

To do this, the Central Bank changing the interest rate and changing quantity of

money which may affect the cost of borrowing and therefore consumer spending and

company investment. When the Central's Bank interest rate rises, bank will typically

increase both the rates that they charge on loan, and the interest that they offer on

savings. This tends to discourage businesses from taking out loans to finance investment

and encourages the consumer to save rather than spend and so depresses aggregate

demand. Conversely, when the base rate falls, banks tend to cut the market rates offered

on loans and savings. This will stimulate aggregate demand.

Expansionary Monetary policy is applied either to control unemployment or during

recession. The Central Bank cuts interest rates, encourage people and firms to borrow

more money. It will also give people who take out loans more money to spend as their

loan payment fall. Both effects will increase the levels of consumption and investment.

Since consumption are the key of aggregate demand, cutting interest rates result in

economic growth and reduced unemployment.

Contractionary Monetary policy is applied in terms of controlling inflation. The

Central b Bank will increase the interest rates to increase the cost of borrowing. These

discourage people and firms from borrowing money. People who take loan also will

have less money due to the higher loans payments. These result to reduce in economic

growth and increase unemployment.

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4.1.2 Fiscal Policy

Fiscal policy refer to the way of the government varies taxation and/or public

expenditure to achieve its economics objectives. There two ways taken by the

government for purpose of controlling the aggregate demand which are by expansionary

fiscal policy and contractionary fiscal policy. Both policies are varied based on the

economic situation.

Fiscal policy also used to influence the aggregate supply. For example, changes in fiscal

policy can effect competitive conditions individual market and industries and change

the incentive for people to look for work and for companies to invest and engages in

research and development. government capital spending on transport infrastructure and

public sector investment also have direct but unpredictable effect in the long run and

costs of business in every industry.

Contractionary fiscal policy is used in times of economic is boom at this situation, the

economy is growing above its capacity. If the economy growing above its capacity this

is likely to cause inflation and balance of payments problem. To slow down the

economy down the government could either raise taxes or reduce government

expenditure. Either of these will reduce the level of demand in the economy. Therefore,

the level of economic will reduce. The government increases indirect taxes which will

raise prices and deter people and firms from spending so much, or it may increase direct

taxes which will leave people less money and so stop them from spending so much.

Expansionary fiscal policy is use in times of recession to give boost to the economy.

By lowering taxes or by increasing the level of government expenditure will encourage

people to spend more. Lower indirect taxes will lower the prices of the taxed goods

encourage more demand. Or, they could lower indirect taxes which will raise people's

disposable income and therefore encourage them to spend more.

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4.2 RELATION OF GOVERNMENT POLICIES WITH THE

CONSTRUCTION INDUSTRY

Construction industry is a sector of economic which plans, design, construct,

repair, maintenance, and eventually demolition of all kinds of building works, civil

engineering works, mechanical and electrical works and other works of similar nature.

Construction industry is a unique sector which directly contributes to the national

economy. For example, Construction Industry had played major role in providing

accommodation for services, building for production and infrastructure facilities. The

government act as the major client and has powerful influence. Change in government

policies may significant in industry positively or vice versa.

When the Central Bank reduce the interest rate through the monetary policy and

keep for a long period of time, it will result low mortgage rates. Low mortgage rates,

with law credit standards from loan originators’, resulting in an increased demand for

housing and buildings. Increased in demand for housing resulted in increasing home

prices and led to higher land costs. Builders borrowed more money to develop,

purchased more land to builds houses and buildings. This resulted trouble to the

builders when the home prices decreased. To avoid bankcruptcy, they had to lower their

prices in order to move their inventory of houses, so that they can pay down their dept.

Thankfully, we have a country that has efficient economic governance. The

monetary systems are conducting well by the Central Bank, Bank Negara Malaysia in

the few years. The banking system remained well-capitalised with risk-weighted capital

ratio (RWCR) and core capital ratio (CCR) at 14.8% and 13.0% respectively. The level

of net impaired loans remained stable at 1.5% of net loans, while the loan loss coverage

remained above 90%.

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Interbank rates were stable in September. In terms of retail lending rates, the

average base lending rate (BLR) of commercial banks remained unchanged at 6.53% as

at end of the month. Retail deposit rates were also relatively stable during the period.

The annual growth in broad money (M3) moderated to 12.5% in September. On a

monthly basis, M3 increased on account of net foreign inflows and sustained credit

extension to the private sector. The expansion, however, was partially mitigated by the

higher issuance of BNM debt securities to absorb the excess liquidity in the banking

system. Net financing to the private sector grew 12.8% in September, driven by higher

issuances of private debt securities (PDS). PDS issuances rose due to several large

issuances, mainly by the finance and government and other services sectors. While

business loans outstanding moderated due to large repayments during the month, loans

disbursed to businesses remained high. Loans to households increased, driven mainly by

loans for the purchase of residential and non-residential properties, securities and

passenger cars. Loan demand remained robust with sustained loan applications from

both business and household sectors.

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Fiscal policies include government expenditure in public and change in taxation

for mortgage interest paid by homeowners and business. When the government make

tax deductions for mortgage interest lead to overbuilding as people can afford larger,

more expensive houses since part of the interest cost is in essence subsidized by the

government (through the interest deduction). People can also better afford to buy more

than one house since the interest deduction is not limited to ownership of one house.

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Fiscal and monetary policies have resulted in an increased consumption in

housing instead of other, more beneficial areas. The fiscal policies are done through the

budget announced by the government. By lowering the taxes, it results on more

production by the constructions body. It will provide more supply of buildings, houses

and facilities to peoples.

For example, in Malaysia's 2012 budget government had budget on public expenditure.

The year 2012 is the first year for the implementation of the RP2 under the 10MP. RP2

will be allocated RM98.4 billion with RM49.2 billion each for 2012 and 2013. The RP2

will focus on high-impact development projects and contributes to economic growth.

All new projects RM50 million and above, will undergo value management appraisal to

ensure benefit to the rakyat. Under RP2, the main projects to be implemented are: 

i. Gemas-Johor Bahru double tracking rail project; 

ii. Lebuhraya Pantai Timur Jabor-Kuala Terengganu, Lebuhraya Pantai Barat

Banting-Taiping, Lebuhraya Segamat-Tangkak and Lebuhraya Central Spine

as well as the construction of Kota Marudu-Ranau road; and 

iii. Redevelopment of the Sungai Besi Kuala Lumpur Air Base.

 In 2012, the Government will allocate RM978 million to accelerate the development in

five regional corridors. Among the projects to be implemented are the construction of

Johor Bahru-Nusa Jaya coastal highway in Iskandar, Johor; heritage tourism

development in Taiping in the Northern Corridor; agropolitan scheme in Besut in the

East Coast Economic Region; palm oil industrial cluster project in Lahad Datu in Sabah

Development Corridor; and Samalaju water supply in the Sarawak Corridor of

Renewable Energy. The government expenditure had positively lead to the growth in

the construction industry therefore then to the economic growth.

In the Malaysia 2012 budget, there many taxes were reduced by the government

in many sectors that contribute to the growth of national economy. For example, to

further support the development of the local franchise industry, the Government

proposes that franchise fees borne by local franchisees be allowed tax deduction. When

other industry expands and growth, this may bring growth to the construction industry

as construction industry has relation to the other sectors.

Page | 25

5.0: CONSTRUCTION INDUSTRY GROWTH TRENDS

5.1 GROWTH TRENDS

Construction Industry Trends show a rise in its rate of growth. The Construction

Industry (CI) is composed of many components including construction of heavy and

civil engineering, building construction (residential and commercial building), and

specialized construction product such as architectural products, electrical connections,

decorative items. Etc. all these segments cannot be expected to show similar trends and

in fact are showing differential growth pattern all over the world (Economy watch,

2012). Growth trends in construction are important indicators of clients spending

patterns. The growth trends are objects of study for economists and business analysts.

These professionals use the trend information to predict future opportunities. The

economic downturn and the retiring baby boomer generation are opening the gates for

investments.

5.2 COMPARISON GROWTH TREND OF CONSTRUCTION INDUSTRY

WITH 3 OTHER SECTORS

Construction industry is one of the industries that contribute to the development

of a country. It plays an important role in all the major industrial sectors of a country in

the form of the provision of fixed capital, services, and other residential. Physically, the

construction industry output is large, heavy and expensive and cannot be transferred or

moved. The construction industry in Malaysia is seen as reflecting the national

economic situation and growth engine to the economic. This analysis will be on the

comparison Malaysian economic growth performance. This purpose of this analysis is

to identify overall impact of comparison growth gross domestic product (GDP)

construction industry between agriculture, manufacturing and mining to the Malaysian

economic.

Page | 26

Year GDP(RM Million)

Gross National

Income GNI(RM Million)

Population(*000)

Gross Domestic

Product per capita(RM)

Gross National

Income per Capita(RM)

Growth of GDP (%)

1992 *(1987 = 100)

126,408*(1987 = 100)

118,224 19,043*(1987 = 100)

6,638*(1987 = 100)

6,208*(1987= 100)

8.89

1993 138,916 130,118 19,564 7,101 6,651 9.89

1994 151,713 141,890 20,112 7,543 7,055 9.21

1995 166,625 155,204 20,689 8,054 7,502 9.83

1996 183,292 170,104 21,169 8,659 8,036 10.00

1997 196,714 182,298 21,666 9,079 8,414 7.32

1998 182,237 172,787 22,180 8,216 7,790 -7.36

1999 193,422 179,794 22,714 8,516 7,916 6.14

2000 210,557 191,287 23,495 8,962 8,142 -

2000 *(2000 = 100)

356,401*(2000 = 100)

327,49223,495 *(2000 = 100)

15,169*(2000 = 100)

13,939*(2000 = 100)

8.862001 358,246 331,740 24,123 14,851 13,752 0.52

2002 377,559 351,671 24,727 15,269 14,222 5.39

2003 399,414 376,809 25,320 15,775 14,882 5.79

2004 426,508 402,838 25,905 16,464 15,551 6.78

2005 449,250 424,261 26,477 16,968 16,024 5.33

2006 475,526 455,784 26,832 17,722 16,987 5.85

2007 506,341 482,819 27,186 18,625 17,760 6.48

2008 530,683 494,323 27,541 19,269 17,949 4.81

2009 522,001 497,436 27,895 18,713 17,832 -1.64

2010 559,554 516,833 28,251 19,807 18,295 7.19

2011 *(2005 = 100)

709,261*(2005 = 100) 28,938 *(2005 = 100) *(2005 = 100) *(2005 = 100)

5.142012p 362,206 29,300 5.40 (q2)

p = Preliminary 2nd Quarter

Table 1 : Gross Domestic Product and Gross National Income at Constant 1987 Prices (1987-

2006), Constant 2000 Prices (2000-2006) and Constant 2005 Prices (2005-2011) Malaysia

Source: Department of Statistics, Malaysia 1992-2012

Page | 27

Year Agriculture Sector

(RM Millions)

Manufacturing Sector

(RM Millions)

Mining Sector(RM Millions)

Construction Indusry Sector(RM Millions)

1992 *(1987=100)18,478

*(1987=100)31,788

*(1987=100)10,910

*(1987=100)4,799

1993 17,898 36,423 10,475 5,317

1994 17,559 40,566 11,099 6,122

1995 17,114 45,174 13,643 7,411

1996 17,890 53,387 14,040 8,610

1997 18,010 58,788 14,305 9,522

1998 17,512 50,899 14,357 7,241

1999 17,596 56,840 15,344 6,926

2000 *(2000=100)30,647

1*(2000=100)09,998

*(2000=100)37,617

*(2000=100)13,971

2001 30,594 105,301 36,980 14,427

2002 31,471 109,640 38,610 14,762

2003 33,369 119,687 40,959 15,031

2004 34,929 131,127 42,627 14,9032005 35,835 137,940 42,472 14,685

2006 37,701 147,154 42,030 14,639

2007 38,177 151,257 41,881 15,707

2008 39,825 153,078 41,831 16,365

2009 40,083 138,784 39,209 17,329

2010 40,916 154,640 39,270 18,220

2010 *(2005=100)51,263

*(2005=100)170,258

*(2005=100)66,122

*(2005=100)20,428

2011 54,299 178,333 62,334 21,370

2012p 25,183 91,759 31,901 11,912

Page | 28

p = Preliminary 2nd Quarter

Table 1 : Gross Domestic Product By Kind Of Economy Activity Constant at Constant 1987

Prices (1987-2006), Constant 2000 Prices (2000-2006) and Constant 2005 Prices (2005-2011)

Malaysia

Source: Department of Statistics, Malaysia 1992-2012

Page | 29

Year Agriculture Sector Manufacturing Sector

Mining Sector Construction IndusrySector

Growth (%)

Contribution to GDP (%)

Growth (%)

Contribution to GDP (%)

Growth (%)

Contribution to GDP (%)

Growth (%)

Contribution to GDP (%)

1992 4.86 14.61 7.00 25.15 4.58 8.63 10.75 3.80

1993 3.14 12.88 14.58 26.22 -3.99 7.54 10.79 3.83

1994 -1.89 11.57 11.37 26.74 5.96 7.31 15.14 4.04

1995 -2.53 10.27 11.36 27.11 22.92 8.19 21.06 4.45

1996 4.53 9.76 18.18 29.13 2.91 7.66 16.18 4.70

1997 0.67 9.16 10.17 29.89 1.89 7.13 10.59 4.84

1998 -2.77 9.61 -13.42 27.93 0.36 7.88 -23.96 3.97

1999 0.48 9.10 11.67 29.39 6.87 7.93 -4.35 3.58

2000 6.06 8.60 18.31 30.86 0.27 10.55 2.63 3.92

2001 -0.17 8.53 -4.27 29.39 -1.69 10.32 3.31 4.03

2002 2.87 8.34 4.12 29.04 4.41 10.23 2.32 3.91

2003 6.03 8.35 9.16 29.97 6.08 10.25 1.82 3.76

2004 4.67 8.19 9.56 30.74 4.07 9.99 -0.85 3.49

2005 2.59 7.98 5.20 30.70 -0.36 9.45 -1.46 3.26

2006 5.21 7.93 6.68 30.94 -1.04 8.84 -0.31 3.08

2007 1.26 7.54 2.79 29.87 -0.35 8.27 7.30 3.10

2008 4.32 7.50 1.20 28.84 -0.12 7.88 4.19 3.08

2009 0.65 7.84 -9.34 26.59 -6.27 7.52 5.89 3.32

2010 2.08 7.31 11.42 27.64 0.16 7.02 5.14 3.26

2011 5.92 7.64 4.74 25.14 -5.73 8.79 4.61 3.01

Table 1 : Growth Percentage and Construction Sector and Contribution of Each Sector to Gross

Domestic Product

Source: Department of Statistics, Malaysia 1992-2012

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-30

-20

-10

0

10

20

30

Agriculutre Manufacturing Mining Constuction Industry

Graph 1 : Growth of Gross Domestic Product Various Economic Sectors (1992-2012)

Source: Department of Statistics, Malaysia 1992-2012

Page | 30

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 120

5

10

15

20

25

30

35

Agriculutre Manufacturing Mining Constuction Industry

Graph 1 : Percentage Contribution To Gross Domestic Product Various Economic Sectors (1992-2012)

Source: Department of Statistics, Malaysia 1992-2012

Graph 1 indicates the growth of construction industry, agriculture,

manufacturing and mining from 1992 to 2012. During this period, the average growth

among this 4 sector which for duration 20 years was approximately 4%. This shows that

Malaysia was still achieving high growth rates and at good track to achieved the

Malaysian Vision 2020.

The statistic from Table 1.1 and Graph 1.1 show that economic growth for

construction industry sector reached its peak 1995 where the GDP of construction

industry hit an amazing 21.06 percent. That rate of development was equivalent to the

developed countries. This continuous enhancement is driven by stimulus Sixth

Malaysian Plan package (1991-1995) under the era former leadership Tunku Dr.

Mahathir Mohammad. Under this Malaysian Plan, the Government will continue to

ensure that house prices will be affordable level purchased by people from various

income levels, especially for the low income. To achieve government target the

strategies and programs available in the present will continued. The private sector will

continue encouraged to build more low-cost and medium low cost house while the

public sector will increase the housing stock in this category.

Page | 31

The government strategy is taken by ensure that the prices of low-cost houses

are in level of RM25, 000 per unit or less so that it can be bought by those low incomes.

(Sixth Malayasian Plan,1991-1995). For this purpose, a State Government is

reviewing the existing formula and will take steps to build low cost housing in the price

range between RM15, 000 to RM18, 000 per unit. In line with the concept of Malaysia

Incorporated, the important groups in the housing industry as Housing Developers’

Association (HDA), the Association Construction contractors Malaysia (MBA), and

material suppliers’ construction necessary to support the Government's efforts to

ensure supply of low-cost and low-medium cost is sufficient. In addition, the MBA also

can play a role in developing the technology low cost housing is more effective to

complement the efforts of research conducted by the Department of Housing, Ministry

of Housing and Local Government.

According to the Abdull Rahman, et al., 2005 ,Malaysia has spent well over

RM15 billion on infrastructure projects such as the Kuala Lumpur International Airport

(KLIA) since 1991. The KLIA that cost RM2.4 billion was built to resemble a cluster of

Arabian tents. The RM2.9 billion Petronas Twin Towers in Kuala Lumpur, which

consist of Islamic motifs with the soaring lines of New York's Chrysler building, are the

world's tallest twin skyscrapers.

The new capital, Putrajaya was built at a cost of RM5.3 billion some 30

kilometres from central Kuala Lumpur, parking lots are landscaped like golf courses,

and domed government office buildings are modelled after mosques. The city was built

to relieve overcrowding in Kuala Lumpur. The Multimedia Super Corridor Malaysia an

intricate project that transformed a 15-by-40-kilometre area stretching south from Kuala

Lumpur into Asia's version of Silicon Valley .Based on this heavily developed

construction effort, the growth construction industry is continually increase the gross

domestic product starting from 1992: RM 4,799 millions, 1993: RM5, 137 millions,

1994: RM 6,122 millions and 1995: RM 7,411 millions 1996 : RM8, 610 millions,

1997: RM 9, 522 millions (Table 2) within overall average growth 14 percent.

(Economy Report, 1992/1995)

Page | 32

Meanwhile, the agriculture, manufacturing and mining sector have been

experiencing the period uncertainty fluctuations during 1992 until 1995. Growth in the

agricultural sector is static at 0.5 percent after reaching an impressive growth in 1992

which is 4.86%. However, this situation does not continue when in years 1994 and

1995, the growth in the agricultural sector dropped to an average -1 percent. This

situation is attributed to the decline in the production of commodities agricultural that

comprise palm oil, timber, rubber and cocoa. Within the performance, the contribution

of this sector to GDP declined steadily. In addition, in year 1994, crude oil production

has been decreasing because of low extraction rate due to the loose of oil fruits not

collected due to lack of labour. These negative contribution factors also due to climate

change by the haze since September 1994 that brings negative production growth. A

development in the agricultural sector on this period year is not keeping up compare to

the construction industry.

Malaysia has established a diverse and quickly-growing manufacturing sector

that plays an increasing role in the Malaysian economy. Based on the statistics shown in

table 1, it is clearly shows that the growth in the manufacturing sector is stimulating and

move forward to be around years from 1992 to 1995 with positive growing 11% despite

the decline in the years 1994 and 1995.  The major investment projects were in the

chemical, electronics, and electrical industries.  The manufacturing sector is the second

highest contributor after the services sector to total GDP with average output of RM38,

500 million to the national economy for the range year 1992 – 1995 (Bank Negara

Malaysia,1995).It is continued strong growing in this sector due to the expansion of

production of oriented domestic industries. 

Productions of export-oriented industries as a group have been increased by 16

percent within electrical machinery and electronic products as a major contributor to

growth. (Economic Report, 1995). Industry output of textiles and clothing, wood and

rubber also increased but modest consistent with continued demand from overseas. 

Investment in the manufacturing sector is the share of private investment  the largest,

accounting for about 40 percent of total private investment in  Sixth Malaysian Plan

(1991-1995) period that given the need for high investment amount .The Government

will continue to ensure that there is a conducive environment for investment and

Page | 33

reinvestment. These investments should be channelled to projects quality and value-

added chain and broad and technology industry.

According to the graph 1 represent above within the years 1992 and 1995,the

growing of the mining sector has been contributed as much 8% with average RM12,

300 millions to our GDP national economy compared to the construction industry just

only contributed 4.45 percent to GDP,RM6, 000 millions. The mining sector reached

the peak growth in 1995 by 22.92% that the highest percentage growth for 20 years

analysis data from 1992 – 2012. Under Sixth Malaysian Plan, the mining sector is

expected to continue to be affected by oil and gas. In petroleum sector, emphasis will be

placed on maintaining the pace exploitation and production whereas natural gas will be

a major contributor to the growth of mining in Sixth Malaysian Plan overview.

 In addition, a national mining policy is formulated with the aim of improving

the country's potential for yield of alluvial mineral deposits and developing activity-

based industries minerals

Table 1.1 shows the percentage of GDP and the construction industry growth.

The trend shows that when national economy is expanding, the growth of the

construction industry is better than the national economy. However, when the national

economy in unstable or decreased, the growth industry will react be lower. Economic

crisis that occurred in 1998 have given the impression different to every

Malaysian. They are involved in the construction sector is not able to avoid blows up

when the economy changes. This is because the construction sector is one an

interdependent sectors, which correlates closely with the state economy. It is the worst

of growth rate construction industry in years 1998 by -23.96 percent within only RM7,

241 million collected compare to the previous year which collected RM 9,522 millions.

Page | 34

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-30

-20

-10

0

10

20

30

Comparison Percentage Growth of various Sectors and Gross Domestic Product

Growth of Construction Industry Growth of GDP Growth of AgricultureGrowth of Manufacturing Growth of Mining

Graph 1 : Percentage Growth of Various Economic Sectors and Gross Domestic Product (1992-2012)

Source: Department of Statistics, Malaysia 1992-2012

Graph 2 indicates that growth of construction industry has been to said one of

the sector which sensitive to any changes to the national economy. It is can be refer

based on S. Mahbob and K. Govindan (2000) stated that Malaysia’s economic

performance prior to the crisis was outstanding. The real GDP growth during the period

1990 – 1996 averaged at 8% per annum, where as inflation and unemployment rates

was less than 3% on average. Based on the above analysis it can be seen that the growth

of Malaysian economy was affected by the crisis despite its strong economic

fundamentals. It is means that, when the national economic is downturn, the

construction industry will slow down and reduced of activities. When economic is move

forward expanding, construction industry is the last sector to recover of growing

compare to the other sector.

Economic cycles usually understood as a mechanism in a market economy to the

health of the economy naturally.  Slower economic growth will lead to decreased

income and production capacity cannot be used in full (Sze Seng, 1991). There is no

Page | 35

doubt that theses negative contributor has threaten many projects at the time, but the

housing still registered positive growth during the year with increasing the number of

houses constructed 1996 to 1997 by 3.2 percent (the Property Market Report ,997).

According to Turin (1973), there exists an important role for the construction in the

development of a country based on his research  the economy some countries (classified

into 'development' and  'Industry') in the period 1955 to 1965.

The National Economic Recovery Plan (1998) stated that the causes of the crisis were

identified as:

i. Successful economic performance in the region attracted large inflows of

foreign portfolio funds in the mid – 1990s.

ii. Savings-Investment gap led to an increase in current account deficits

iii. Private inflows of fund through short-term inflows

iv. Changes in external environment due to loss in competitiveness. Rapid

economic growth which was accompanied by rapid credit growth to the private

sector and assets price inflation

Within this period of Asian financial crisis, 3 others sector also involved

downturn growth in years 1998. The agricultural sector is experiencing a negative

growth by -2.77 percent while the manufacturing sector also suffered a loss of RM7,

889 millions with -13.42 percent from years 1997. Meanwhile, mining sector recorded a

positive profit of RM52 millions but decreased percentage with 0.36% for growth rate

from previous year.  This is because the government has been introduced the policy of

Implementation the National Mineral Policy 1992. It is expected to increase

exploration and mining in the country by proposing use of technologies such as GIS and

remote sensing will maximized for effective planning, management and

promotion investment in the mining sector. Local mineral resource information center

will established to provide information to investors (Seven Malaysian Plan, 1996-2000)

Because of the economic slowdown of the past several years, the Government

focused on providing infrastructures and a better investment environment. The

Government reformed the banking system and improved the delivery of the

Government services by reducing red tape and lowering the cost of doing business in

Malaysia. The government moved from supporting large prestige projects to funding

Page | 36

smaller ones that have a higher multiplier effect and has put greater emphasis on

diversifying sources of growth into sectors such as services and agriculture (Bank

Negara Malaysia, 2005).

Referring to the statistic from Table 1, 2 & 3 and graph 1 & 2 represent shows

that the flows of line GDP national economy will reacts the activities up and down of

construction industry, agriculture, manufacturing and mining sector. In addition, the

graph 1 and 2 also shows a decrease for all sectors in years 2001, 2005 and 2011,

whereas in that time the government state saving financial problems crisis. Financial

problems downturn the national economy country that causes decreased percentage of

growth rate in all sectors, including construction. However, graph 1 show the interest

part when the decreasing indicator levels of growth rate in the sector agriculture,

manufacturing, and mining in years 2007 and 2009 but did not force decreased levels of

growth rate in the construction sector.

It is shows that the GDP national economy on that years 2007; RM506, 341

millions and 2009; RM 522,001 millions where almost average 3.2 percent of growth

rate recorded. This applies because the government have been given guidelines and

suppressions in the Ninth and Ten Malaysian Plan.

In conclusion, manufacturing sector is one the key monopolized the gross

domestic product despite services sector of our country with average about 53% of the

total GDP. Secondly is Agriculture sector which is average percentage of GDP is

27.5%. Then followed by Mining Sector which is contributes average 9.6% of total

GDP.

Instead, the Construction Industry only contributes 3.5% which is the CI sector

is the lowest compare with the other 3 sectors above. Even though the statistic represent

lower than 3 sectors, the construction industry is still important in terms of driven vast

contribution facilities and infrastructures. The construction industry is expected to grow

further at the average rate of 8% till the year 2020 as compared to the average rate of

6.4 percent for the past 20 years. Under Vision 2020, Malaysia is targeted to be

Page | 37

developed nation where the GDP is projected to reach RM920 millions (at 1990 price)

(Salih, 1992)

5.3 CONSTURCTION INDUSTRY IS LOWER CONTRIBUTION TO GDP

COMPARE TO THE OTHER SECTOR

Page | 38

12%

25%

10%

3%

50%

Comparison Contribution TO GDP of Various Economic Sectors

Agriculutre Manufacturing MiningConstruction Industry Services

Pie Chart 1 : Average Division Contribution To GDP of Various Economic Sectors

The Pie chart 1 shows that the monopolized of contribution of GDP is service sector and

followed by agriculture, manufacturing and mining sectors. However, the construction

industry sector is the lower contribution to GDP due to the following reasons:

a) High Cost

Construction projects represent a unique set of activities that must take place to

produce a unique product. The success of a project is judged by meeting the criteria

of cost, time, safety, resource allocation, and quality as determined by the owner.

The cost of construction is depends on the client income. Demand for the

construction industry is somewhat less than other sectors due to the cost factor.

To fullfill the rakyat’s need, the government has established various initiatives

such as house schemed subsides. Being too expensive is the cost of the product, the

rate of growth of the sector has been slow or less compare to the other sector

products which is more expensive and people are able to possess or use the services

provided.

Page | 39

b)Time consuming

Time is money to owners, builders, and users of the constructed facility. From the

owner’s perspective there is lost revenue by not receiving return on investment,

cash flow crunch, potential alienation and loss of clients/tenants, extended interest

payments, and negative marketing impacts. From the users’ perspective, there are

financial implications similar to owners. Delays in upgrading facilities translate into

operating at below optimum efficiency resulting in higher user cost. Generally, a

project will take many years to complete. The most long use time is during the

construction process. While other sectors, it took several days to complete and

sometimes only takes a few minutes to become products. for this reason the growth

rate of the construction industry to be the least that only averaged 4% based on the

percentage growth of the economy in the last year.(khairani haji ahamad,2012)

c) Parties involved

In order to become successful execution of a project, effective planning is essential

within parties involved. The parties involved in construction are clients, consultants

and contractors. To handle a project is not an easy one; it requires considerable care

and thorough planning by both sides to avoid any problems from occurring. When

compared with other sectors, they only involve a few parties over the construction

industry. Therefore, the cost of the product will be less expensive and preferred by

people less able to get it.

d) Malaysian Plan (RMK)

As we all know, The Malaysia Plan is a 5-year Malaysian government national

development initiative. For example, Construction Sector was the only sector that

recorded a positive growth during every quarter of 2009. It is can attribute this trend

to the proactive implementation agenda of the 9th Malaysia Plan, the two Stimulus

Page | 40

Packages amounting to RM67 billion as well as the relative stability of building

material prices. It was within this scenario that the Construction Sector registered a

strong growth of 5.89% in 2009. The construction sector will need to gear itself in

preparing for the abundant opportunities laid out under the Plan. These opportunities

will drive, strengthen and generate a multiplier effect in stimulating and enhancing

demand and domestic growth for the entire economy and in particular, the

Construction Sector. Thus, the allowance will affect the percentage growth of the

construction industry in the country which will be reduced or increased.

e) Physical Nature Of The Product

The construction industry products is required large size and take a long time to

complete that involved long years to complete. For example, a building made in

2010 will take 2 years to finish. Thus, in 2010, this building does not contribute to

GDP in 2010. In addition are not portable which cannot move. Every buyer should

choose strategic locations caused troublesome in terms of location is what makes

people less interested in engaging in this sector. As result, it will reduced the rate of

growth of the construction industry in our country.

6.0: CONCLUSION

The construction industry contributes significantly to an economy. Typically

construction employs large amounts of resources including financial, labour, material,

plant and equipment. It contributes significantly to the domestic produce (GDP) of the

Page | 41

economy.Construction industry has traditionally been recognised as one of the major

economic forces that has contributed vastly in developing Malaysia on becoming

adeveloped nation by the year 2020.

The GDP in the recent years are growth smoothly,and sometimes fall under

control. Compare to the other sectors, Construction industry plays an major role to the

development of other sectors therefore to the economic growth.

The mechanism of the government to control and moniter the economy through

Fiscal policy and Monetary policy have bring the construction industry positively

sustain. Effective monitery policy and fiscal policy balance the aggegate demand and

supply in the Malaysia's economy. The economic growth cannot be achieved without

the effectiveness of Central Bank system in conducting the economy.

7.0: LIST OF REFERENCE.

Page | 42

1. Fadhlin, A., Chai, V. C., Kharul A. and Tan, T. S., 2004. An Overview On The

Growth and Development Of The Malaysian Construction Industry. Workshop

on Construction Contract Management 2, p.1- 12

2. Kharini, A., 2009. Constuction Economics, p.1-12

3. Norizan, A, 2004. Introduction to Construction Economics and Construction

Industry, Lecture One, p.8

4. Abdullah, M.L. 1985. Work Study in the Construction Industry, The National

Productivity Centre, Kuala Lumpur,

1. Melvin, L., 2010. Consultant Asia Pacific Environment and Building

Technologies Practice, Frost & Sullivan. 2010

2. Fadlin, A., 2004. Construction Industry and Economic Development : Penerbit

UTM.

3. The German Chamber Network- AHKs. “Market Watch 2012” Construction

Industry in Malaysia. 2012

4. Malaysia 2006. Ninth Malaysia Plan, 2006-2010, KL : Govt Printers.

5. Malaysia 2001. Eight Malaysia Plan,2001-2005. KL: Govt Printers

6. Malaysia 1996. Seventh Malaysia Plan, 1996-2000. KL: Govt Printers

7. Malaysia 1991. Sixth Malaysia Plan, 1991-1995. KL: Govt Printers

8. http://ibsresearch.blogspot.com/2010/06/major-innitiatives-under-rmk-10-

related.html/ accesed viewed 1st November 2012

9. http://www.economywatch.com/world-industries/construction/trends.html/

accesed viewed 1st November 2012

10. Sukhdave, 2011. Monetary Policy Framework in Malaysia,

11. Azali M ,2000. The Malaysian Economy And The Monetary Policy,

12. Vengedasalam & Madhavan , 2010. Principles of economics 2nd. Ed 2010,

pp.288

13. http://en.wikipedia.org/wiki/Overnight_Policy_Rate/ accesed viewed 1st

November 2012

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