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Construction Economy Of Malaysia Economics Essay

Malaysian construction industry sector covers the aspects of the planning, design, conservation, demolition and repairing various types of buildings and all types of mechanical and civil engineering works other field work involved (Ofori, 1990). Economic construction industry is different from other industrial products because it is considered unique and a very important asset. It encompasses large Economics cannot be separated and are very expensive. It is very different in terms of the sale and purchase of buildings and other items. Malaysia is a developing country to rapid economic development. Therefore, the construction industry plays an important role in realizing the aspirations of the people as well as meeting basic needs. This is because the contribution of the national economy almost to 6 % in the output analysis of the gross National Product (KDNK). The construction industry is an important economy in the management and activities either in the private and government sector.

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The construction products provide the necessary public infrastructure and private physical structures for many productive activities such as services, commerce, utilities and other industries. The industry is not only important for its finished product, but it also employs a large number of people (directly and indirectly) and therefore has an effect on the economy of a country/region during the actual construction process. Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the per cent rate of increase in real gross domestic product, or real gross National Product (KDNK).

Growth is usually calculated in real terms, such as inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods and services produced. An economic system is the combination of the various agencies, consumers, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money and are continuously flowing. The economics system involves production, allocation of economic inputs, distribution of economic outputs, landlords and land availability, household’s capitalists, banks and government. It is a set of institutions and their various social relations.


In Malaysia, the construction industry is one of the first sectors of the national economy. During the era of increased economic development in Malaysia’s development, its contribution to gross domestic product (KDNK) is in the range of 3-6 % per year. For eight years from 1989 -1996 year, the construction industry has recorded double-digit growth rates. The development of the construction industry is directly proportional to the national economy. This is due to the construction of the project or activity involves high costs. Must require the good economic conditions and stable to be able to have the capital or cash flow sufficient to launch all these construction projects. This can be demonstrated by looking at the growth of the construction industry and a good stable country in tahun1990 has achieved the highest growth of 19.1 per cent, while growth during recessions in 1998 also was 23.0 %

Construction industry to achieve the best performance in 1995 with the transfer of the property growth of new and existing buildings by 15.8 % and 34.1 %. For the housing component, transfer growth (new and existing) is to reach 11.7 %, which exceeded 150,000 units with total more than RM15.8 Billion. Help for buyers are also available. Loans offered by the banking system by as much as 18.1% or RM5.1 billion to RM33.1 billion as at end-1995.

From a study of the National Bank, offering individual loans approved by banks increased by 38.1%. From this value of 51.9% for medium-cost houses, 36.1% and 12% higher cost to lower cost. For non-residential components, the number of loans approved by banks amounted to RM40.2 billion. Total transfer of commercial buildings grew by 10.1% to RM6.9 billion.

In the 1998 recession, the construction industry where the growth of -23% compared to 9.5% recorded in 1997. Reduction in the value of the transfer of 28% – 34.8% was recorded. Comparing the performance of the construction industry in 1995 and 1998 has shown a close link between the performances of the construction industry to the national economy. The research cycle analysis and product demand is needed to enable us to know in greater detail about the nature of the industry and enable a more effective investment.

E:indexmundi_ex66.jpgDiagram 1, gross domestic product (KDNK), Malaysia

source, index mundi

The construction industry has attracted researchers, but most studies have been done on the construction industry is revolves around the study of technology as design analysis. The lack of studies that touch on product demand and the development of the construction industry. This is probably one of the causes surplus in output growth falling building and construction industry is worse than the national economy when the economic downturn. Analysis of product demand and the relationship between economic growth and the construction industry have seen. This will not only demonstrate the workability of a building on the demand side but also allows estimates are made about the development of the construction industry based on current economic conditions and economic cycles related to the construction industry for the past. Research examines the development of the Construction Industry and correlation with output components such as commercial, residential and civil engineering to be carried out.

As the construction industry involving investments or high cost and different components, is often associated with the request output. Analysis of demand for each type of product development is very important to know the extent of the economic influence on the development of the construction industry in Malaysia. Analysis of the trends in the construction industry and its relationship with the demand for its products to be made. This will give a clear picture of the development of the construction industry in the past, but also to estimate its future. Close relationship between the construction industry and economic growth of a country is often referred to. Instability of the construction industry in Malaysia led people to worry about making an investment. A detailed analysis is made to study the development of the construction industry in Malaysia to systematic planning and preparation in advance can be done to overcome the problem of the construction industry during the recession. As the construction industry as a major economic sector in Malaysia, a detailed study should be made so that its development trends can be identified. This study is expected to be a reference in planning and investment sectors of the construction industry in the future by taking into account changes in the size or demand that may occur. Studies should focus on a detailed analysis of the pattern of industrial development

4.0 economic factors in the housing marketing

In fulfilling this requirement, factors such as buyer affordability, development costs and selling prices always affect the demand and supply of housing sector. Based on the current position, residential development is concentrated in urban and suburban areas are densely populated where buyer’s ability is higher and the housing market is more widespread. However, to meet current housing needs, particularly for low-and middle-income earners, the Government and the private sector must play their respective roles to fulfil its social responsibility to the people.

For the implementation of housing development by the private sector, the Ministry of Housing and Local Government (ministry) takes monitoring and enforcement under the Housing Development (Control and Licensing) Act 1966 [Act 118] to ensure projects run smoothly and is completed in a timely manner .

There are several factors in the economy in construction,:-

4.1 Ability buyer

4.2 Cost Development Division

4.3 the sale price.

4.1 Ability buyer

National housing policy is to provide adequate housing, quality and the ability of all people from all walks of life, especially for the lower income group. Thus, the government has established policies and specific programs to achieve national housing policy. Rules and guidelines for the housing industry (Lawrence Chan, 1997), including the Developer

Housing (Control and Licensing) 1966, 1988 and 1989, the allocation of 30 per cent low-cost houses, 30% quota for the population of Malaysia, 1990 Housing establishment of committees and councils related to housing and the establishment of the Construction Industry Development Board in 1994. The Authority is responsible for the development of housing and housing is the Ministry of Local Government. This ministry plays a key role in implementing the Government’s policies, in particular to the development of low-cost and low-medium cost houses to ensure that the low and medium-income and affordable opportunity to own a home. At the state level, the State authorities and the local authorities are responsible for implementing the Government’s policies and also acts as the governing body of the housing industry activity. In terms of the implementation of the housing program, not only involves the participation of the public sector but also the private sector. Role of the public sector, particularly housing programs for low-income earners, while the private sector to the development of more housing for the entire residential market especially for the medium and high. In order to achieve the government allocated housing various other incentives to the developer control, especially private developers. (Lawrence Chan, 1997).

Among the incentives that have been given is that the incentive to increase home ownership system, easy source of financing for home, check housing related regulations, to promote research on quality, construction techniques and building costs, identify and privatize housing projects and the promotion of home ownership as well as a campaign . The Government has introduced a number of incentives in principle to promote home ownership, namely: –

4.1. 1. Stamp Duty Incentive

Stamp duty is a tax imposed on the transfer of assets to the house or new and is a stamp that is used to pay taxes on documents (stamp duty), registration or more. This type of stamp issued by the Inland Revenue Board of Malaysia (LHDN). It was introduced on December 5, 1949. These incentives involve exemption from payment of stamp duty and reduction of the ceiling in the event the transfer of residential property. But it only involves low-cost housing. Then on January 1, 2002 to June 2002, payment of stamp duty eliminated and the next extended economic stimulus packages announced in May 2003

4.1. 2. Treasury Housing Loan Eligibility increase.

Increase loan eligibility has been proposed by the government as an incentive to enhance home buyers in the private and public servants through the presentation of the 2002 budget. Apart from the government, through the year 2002, by circular Bil.12, announce mortgage financing for the second property. Seen to attract incentives for civil servants to invest in housing and can overcome the problem of excessive.

4.1. 3. EPF Withdrawal to Purchase a Second Home

The Government also submitted a department of the Employees Provident Fund (EPF), which is an organization for retirees. But it has two accounts as a result of rejection of workers’ wages as the first account is money for retirement while the second account may be issued for buying a home or education for children.

Withdrawal EPF savings is necessary to reduce the cost of purchasing a home, especially in making the advance payment and payment. On 1st January 2001 the production for the purpose of purchasing a second home is prohibited.

4.1. 4. Terms easing Real Estate Ownership by Foreigners.

Ownership of property by foreigners is worth less than RM10 million is not required to get approval from the Foreign Investment Committee (FIC). Parties only need to inform the FIC. (Previously RM 5 million)

Foreigners are allowed to own all types of residential units, shops, office space and retail space worth RM 250,000 over without local equity participation. Purchases can be financed with loans and should be 50 per cent complete. Further easing is under Haired Siver Program (elderly) that allow foreigners to buy residential units priced exceeding RM150, 000.

4.1. 5. Housing Allowance

All civil servants are given housing allowances and incentives can be used to purchase a home.

4.1. 6. Increase in Gross Income

The government has taken steps to add the gross income of civil servants or private sector through reducing income tax rates and reduced EPF deduction from 11 % to 9 %. With a reduction in the rates of the monthly disposable income will increase.

4.1. 7. Real Property Gains Tax Exemption

Property gains tax on property disposed of within one year from 1 hb.Jun 2003 excluded.

Government will introduce these incentives is to achieve the nation’s housing every citizen the right to own house and thereby stimulate economic growth.

4.2 Cost Development Division

Progress in construction costs are the costs associated with the implementation of the project during construction. Developers will need something as important as the price of land in civil engineering costs and so on. Price is according to the environmental conditions, advantages and disadvantages of the project for the study. Cost of research has been done in the standard. Among the types of costs in the development are as follows: –

4.2.1 Establishment of a civil engineering project estimation system

This division undertakes research to develop an integrated and consistent estimation system to explain the terms and conditions of the contract price calculation, and to implement more efficient and more rational estimate of civil works projects. And for further rationalization, also perform the research to determine what the appropriate form of the estimation process in the future.

4.2.2 Research on the evaluation and reduction of construction costs

The division is performing research on methods of evaluating overall construction costs incorporating external costs. It is also using a data base of past estimations to perform structural analysis of the cost structure at the execution stage, in order to evaluate basic technologies for cost reduction and to clarify research policies in this field.

4.2.3 Review of standard designs for civil engineering structures to lower costs

The division is reviewing standard designs for civil engineering structures in order to replace the “material minimum” with the “labour minimum” to minimize overall prices in response to changes in the economic environment.

4.2.4 Research on supervision, inspection, and payment methods

The division is performing research on “periodic – design change consultations and partial payment method”: periodically consulting on design changes and paying according to the quantity of completed work. The division is also performing research on the way that public works project should be supervised and inspected.

4.3 The house sale price.

The influence house prices have a very profound effect on the economy in the housing marketing. Here some of the factors that affect price of the house are: –

4.3. 1. Internal factors –

It is attributed to the increase in the cost of which is controlled entirely by the developer or homeowner fully influence the cost of the house. Various causes of internal factors that led to the calculation of the expected low cost during the planning and design aspects of the delivery or schedule change project planning, procurement methods and construction process of complex engineering. Scope is not only happening in the planning and design stage, but it would be moving slowly and the addition to the changes that are inconsistent (Shane 2009).

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Internal factors occur during the construction phase of the development. Internal factors that lead to low cost estimate is the cost of poor project planning and defects in the design document. Specifically, these factors will lead to inconsistent implementation of the future cannot be identified, the wrong execution, contract preparation has many meanings and conflict in the contract documents. Each of these factors can stand on its own or combine with other factors to influence the parallel increase with time.

4.3. 2. External factors –

External factors are factors which cannot or only little control of the project owner against its effects. However, owners or developers themselves need to consider during the process of calculating costs. Designed during the planning process of project development, external factors such as; attention and needs of the government and buyers, up and down the rate of inflation, changes in the scope, the scope is slow, and uncertain market conditions can lead to errors in the estimated cost of the project. During the construction process is on-going, external factors such as attention and needs of the local government, the market, which is not unexpected incident, the incident is not suspected as the cause of the increased costs, the circumstances surrounding the project have access or not.

4.3. 3. The cost of building materials –

It depends on the current market price for materials. List of building materials involved are brick, wood, cement, aggregate, floor and wall finishes, doors, windows, fittings mechanical and electricity, water supply and drainage equipment, roads, etc. is an important element. It is also a major factor as it depends on the type of home customization or developer that the higher the quality and the quantity of building materials, the higher the price of a house.

4.3. 4. Professional Services, Non-Professional and Labour Force

Cost of professional services are used to obtain the legal services of a lawyer hired to handle all legal matters including contract writing, legal counselling, legal education. The cost of management is the money used for those employees responsible for administering and operating the affairs of the office such as accounting, documentation and others.

Human resources are divided into two general groups. First, professionals and the second is that the workforce or labour. Both complement each other. Professionals required to manage and supervise construction projects in time and even after the project are completed. The second type of manpower is labour. The energy contributed to the success of the project (Ayob 1989). They help build the project as labourers as carpenters, brick fastener, welders, drivers and others.

Cost management is the money used for those employees responsible for administering and operating the affairs of the office such as accounting, documentation and others.

4.3. 5. Construction Equipment or Machinery

Cost of machinery calculated either by day or hour (Seng, 2006). Among the on-site construction are included in the cost of construction concrete mixers, excavators, tractors, compressors and vacuum water. Other than those mentioned above, the costs of machinery are also accounted for as cost of maintenance, this includes diesel fuel, and driver management or supervisor engine.


For Malaysia, it is important because it secures the housing marketing in the country’s economy. All on sales and purchase are management to ensure economic stability of the country and people to maximize satisfaction. Among the marketing importance of housing in the economy is: –

Interest focuses on investors

Real estate is an asset of a permanent nature compared with other goods for other goods which are not of a permanent nature are not as durable as it may suffer damage and loss. While real estate can remain and ensure the long term situation, it can be as an investment because land prices are increasing in the world market on the increase and progress in development.

Investment in real estate became a sought-after, it depends on the site as a site that can guarantee the economic aspects such as in farming, ranching and construction assets. Properties under development for housing increased in price if a suitable site conditions such as the well-equipped, equipment and so on.

Owner / User – These people are both owners and tenants. They buy a house or commercial property as an investment and also to live in or use as a business as well as developing the business economy of the country.

5.2 planning increase the standard of living and economic

Marketing planning in housing through facilities such as how to have a home loan or otherwise able to increase sales to the buyers. It helps to improve the standard of living because of having to live in the comfort of assets. Government and private sector to take the incentive to provide convenience to residents of Malaysia whether the able to the less able. The main aim is to reduce poverty which is prevalent in the country Malaysia.


direct and indirect economic impact of housing

7.0 Current issues and research

The housing market still in a situation of uncertainty. Since the outbreak of the Asian financial crisis in 1997, the housing market is not stable due to pressure from internal and external factors.

After nine years of the Asian financial crisis, the economy could not breathe a sigh of relief, the subprime mortgage crisis the United States (U.S.) also took place in 2006 and continues to spread into the global financial crisis in July 2007.

Chronology of the subprime crisis should give a lesson to us how sensitive and risk housing sector in the national economy that adopting a market economy. The openness of the global market economy and is now capable of significant external factors threaten the economy and the property sector. This is still happening in the world today.

The increase in world oil prices are now back to trends such as sub-prime crisis began earlier, due to the political crisis in the Middle East and North Africa that back pressure on the world oil market. Coupled with the catastrophe that befell Japan, the fate of the world economy and in particular Malaysia as a country dependent on international trade sector is at a crossroads.

What can be said the housing sector is in a state of uncertainty and pressing demand of the property market on the grounds of cost inflation pressure longer. With the trend of rising house prices, especially in Kuala Lumpur, Selangor and Penang since the 2007 global financial crisis to date coupled with the two most recent crisis, the impact is expected on house prices in the future.

Those in the housing and construction industry forecasting and speculative remark about the sharp increase in house prices due to higher oil prices and building materials. They play the market sentiment for its own interests, as if in spite of the construction costs will increase due to the rise in world oil prices and building materials, the increase in house price was the inevitable and will take place according to the law relative to the market. This means that the price adjustment will occur but will not affect their interests in terms of development gains.

Developer problem

For developers, the scenario of the market even more driven by inflationary pressures, the properties offered saleability factor in the medium-high category still unsold give impetus to remain in the market. Reality they misrepresented the factors underpinning housing demand over the years, it is not based on fundamental economic law but rather artificial factors.Demand for housing should be supported by real income that determines the ability to buy. In contrast, the current demand is driven by the financing scheme so readily offered by banking institutions such as low mortgage rates, long repayment period and the percentage of loans up to 90 per cent in house prices.

As long as attractive loan packages remain available, as long as the housing market that is still able to be active even under the pressure of rising costs of inflation. The developer is also actually still prone to bridging loan from the bank, other than to see an active market; the loan amount is a percentage that is lower than the cost of development,between 30 % to 40 %. And 60 % to 70 % will be borne by the buyer through periodic payments according to the construction progress of the delivery system architecture for purchase later this more favourable to the interests of developers. For the bank, they also believe the risk is low because of sustained delivery systems sell then build housing market, the importance of security in the two layers of bank guarantee, the guarantee from the developer and the buyer.


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