Malaysia Infrastructure Report Q1 2009

Despite Malaysia's construction industry having only just come out of a recession in 2007, a slowdown occurred in 2008. We estimate that the construction industry grew by 2.1% in real terms in 2008. The slowdown is due to the government cutting back on its investment programme in public infrastructure (a number of projects were shelved in April). In light of the intensification of the US financial crisis and its spread to other markets in H208, the prospects for 2009 are not bright. With major world economies moving into what could be a prolonged recession, we predict that the Malaysian construction sector will contract by 1.4% in real terms in 2009. We forecast a return to (very modest) real growth in Malaysia's construction sector in 2010, in the order of 2.1% y-o-y in real terms, thanks in part to our expectation that the global economy will receive support from the US economy moving back onto a positive growth path.

Risks to our forecasts are largely to the downside, particularly in 2010. The external threat generated by the global economic downturn is the main risk factor. In the worst-case scenario, a prolonged recession in the US and elsewhere would severely crimp Malaysia's export growth, GDP growth and government revenues, with attendant implications not only for commercial construction in the country, but also public investment and infrastructure tenders. In a context where the Malaysian government's investment in infrastructure was already being scaled back even before the US-centred crisis began to translate into a worldwide economic downturn, this is a disconcerting scenario.

In December 2008, the government approved a new US$443mn low cost carrier terminal to be built in Labu. The new terminal would be called KLIA East @ Labu and be built with financing from Sime Darby Bhd. Darby said that it would only be the developer on the project, and not own or operate any of the facilities. The price tag does not include the cost of land, but only for the construction of the terminal and runway facilities. The airport would have parking places for 70 planes and a terminal capacity of 30 million passengers per year. It is expected to be completed by March 2011.

In December plans were announced for a US$831.2mn mixed golf course and residential development called Mines Golf City. The development, located near Bukit Beruntung would eventually feature a 63- hole golf course, the largest in the country. In addition to the residential bungalows and property lots being offered for sale, the site would also include a golf academy, a health clinic and spa, an international school, an equestrian academy, a diving academy, a country retail mall and a world-class entertainment centre. Construction is expected to be completed sometime in 2015.