Value added in the construction sector declines sharply by an estimated 19.2% in 1998 (1997: +9.5%), reflecting significantly lower construction starts in certain segments of the property market which have excess supply as well as the completion of major infrastructure projects. Difficulty in getting bridging and end-financing for the construction and purchase of properties, high interest rates prior to September 1998 and erosion of the population's financial wealth due to a sharp drop in share prices are major factors contributing to the slowdown in construction starts in 1998. A more cautious stance of prospective property buyers in anticipation of further fall in property prices has also adversely affected demand for property. In the light of weaker demand, developers have to defer their construction starts.

In the non-residential sector, construction activities related to high rise commercial buildings particularly office space and retail outlets as well as hotels are sluggish, as there is excess supply in these property segments due to overbuilding in recent years. Based on present supply and new projects completed, office space is estimated to increase by a million square metres (s.m.) or increase in supply against a back drop of weak demand, occupancy rate is likely to drop to 82.2% in 1998 compared to 94.6% at the end of 1997. In Kuala Lumpur, among the prominent buildings that are sunder construction in 1998 are Capital Square Tower II, Duta Plaza, Vision City (Bandar Wawasan) and Pacific Bank while in Selangor they are Damansara Fairway and the Subang Twin Business Centre. With the already excess supply, developers are discouraged by the situation to embark on new construction starts of office space in view of high holding costs. Reelecting the impact of excess supply and weak demand for office space, rental rats have declined by 10%-30% compared with 1997. In the prime areas of Kuala Lumpur such as in the Golden Triangle, the rental rates were between RM26-RM43 p.sm in September 1998.

Similarly affected by the over supply situation are retail-cum-commercial complexes which have a total space of about 3.9 million s.m. throughout the country. As a result, the occupancy rates of retail-cum-commercial complexes have generally declined in major towns throughout the country. For example, the current occupancy rate for retail complexes in Kuala Lumpur was estimated at 75% in September 1998, out of total available space of 969,1000 s.m. At the end of 1997, the occupancy rates for some other states such as Selangor has declined to 39%, Perak 88% and Penag 67% when compared to the corresponding occupancy rates of 89%, 94% and 88% in 1997. With an additional 2.3 million s.m. net floor area to be added to the existing space of retail-cum-commercial complexes when projects currently under construction come on stream next year, the prospects of even lower occupancy rate in the face of economic uncertainties has deterred new construction starts in the retail-cum-commercial complexes during 1998.

The oversupply situation has also affected the hotel industry. 142 new hotels with 36,328 rooms are envisaged to come into operation in 1998. Of these, 53 are five hotels. With the additional new hotels,

a total of 1,507 hotels will become available in Malaysia by the end of 1998. The average occupancy rate of hotel rooms for the first half of 1998 declined to 49.8% in 1998 (January-June 1997: 57.6%). This has discouraged new construction starts in the hotel industry. Much of the construction activities in the hotel sector are related to projects yet to be completed such as Dorsett Regency (Jalan Imbi), Cendana hotel (Jalan Conlay) and Duta Hyatt Kuala Lumpur (Golden Tringle) in the Klang Valley, Harbour Place hotel and Marriot Hotel (Klang) in Selangor and Sutera harbour Business hotel and Kinabalu Ramada Renaissance in sabah. A recent development in hotel construction is the trend towards construction of smaller hotels with less towards construction of smaller hotels with less than 300 rooms. In 1998, 21 such hotels will be completed in Kuala Lumpur, and 14 each in Penang and Johor.
Construction activities related to industrial sites and factories are sluggish in 1998, as investors defer the expansion of their plants and the building of new factories in the light of the less encouraging business environment. In part, the slower construction starts in this property segment reflects the 24.6% decline in the number of industrial projects approved by the MIDA during 1997 and by 7.8% during the first seven months of 1998. For the first half of 1998, only 4,948 units of industrial properties were launched with another 17,519 units still in the pipeline selangor had the most units launched in 1998, that is 4,051 units, in the pipeline. Among the notable industrial estates that have so far been developed during 1998 are the Sunway Damansara Technology Park, Mah Sing Integrated Industrial Park and the north Port Tech Zone. Other new development areas are in Pulau Indah and Banting in the Kuala Langat District, Selangor which will also house the RM2 billion Mega Steel Projects. In Seremban, industrial sites that were under construction in 1998 are Nilai Utama Industrial Park and Nilai Industrial Estate 3. In M

As is the case with other segments of the construction industry, the residential sector construction activity is also affected by the economic slowdown. This is reflected in the drop in both the volume and value of transactions in 1998. During the first eight months of 1998, 84,660 transactions totaling RM9.5 billion were made, compared with 117,645 transactions valued at RM 14.5 billion for the same period of 1997. This indicates a 28% drop in volume of transactions and 34.8% drop in volume of transactions and 34.8% drop in transacted value. The slower construction activity in the residential sector is also reflected in the 26.3% decline in number of new licenses and 26.0% decline in advertising permits issued for construction of new houses by the ministry of housing and Local Government. In view of the softer demand for residential properties, some developers have either deferred or scaled down the size of their projects. The decline in construction starts in residential sector is largely in the case of higher-end condominiums and higher price landed properties. Due to poor demand some developers have been saddled with excess stock of these properties. To reduce stock they have introduced a number of schemes to attract buyers such as giving them a grace period before they have to pay their installment payments. The overall softening of the residential property market is reflected in the 9.3% decline in the Malaysian House Price Index during the first half of 1998 when compared to the second half of 1997. The price index for terrace houses declined by 5.1% detached houses 10.2%, semi-detached 6.7% while high-rise units declined by 5.6%

Nevertheless construction starts for low and medium cost houses are sustained in 1998 as demand for these more affordable houses remains strong. Consequently, most of the new launches during 1998 are of medium cost and low-cost houses. Of the 90,184 houses built during the first half of 1998, 26.1% were low cost houses while 43% were medium cost houses. In part, the strong demand for these houses is attributed to the easier access to end-financing for houses priced RM 150,000 and below. In addition, lower mortgage of 9% for residential units costing RM 100,000 and below has also induced demand for low and medium cost houses. Consequently, 76.2% of all houses sold in the first half of 1998 rose by 14.2% to RM78,000 per unit from RM68,300 per unit during the corresponding period of 1997. On the other hand, residential properties costing more than RM 150,000 dropped in unit price to average RM 248.687 per unit during the first half of 1998 from RM272,189 per unit in the corresponding period of 1997. The softening demand has also led to 10.9% decline in the number of houses built by the private sector during the first six months of 1998 to 90,184 units of houses (January - June 1997 : 101,225 units).

Construction starts of low and medium cost houses during 1998 were also underpinned by various Federal Government initiatives to provide housing to the lower income group. These include the RM 600 million Housing Fund for Hardcore Poor. Under this Fund, a total of 19 projects comprising 9,232 units was completed at the end of August 1998. Another Fund initiated by the Government was the RM500 million Fund to Accelerate the Construction of Low-Cost Housing, under which a total of 39 projects were completed, while 22 projects are under construction. Up to August 1998, a total of 39 projects were completed, while 22 projects are under construction. Up to August 1998, a total of RM302.9 million has been disbursed from the Fund to developers. Under the Revolving Fund for Low-Cost Housing, which is another Fund initiated by the Government, 83,701 units of houses including medium and high-cost units will be built in 1998, of which 4,674 units are already on the ground and will be completed in 1998. Another 39,900 units are under various stages of construction. In May 1998, the Government set up a RM2 billion Special Scheme for Low and Medium Cost Houses. Developers can avail themselves to this Fund for which 131 applications have been received as at 25 September 1998. Construction starts of low cost houses are also undertaken by various State Governments under the Public Low Cost housing Programme. Up to August 1998, the construction of 10,576 units has been completed and another 22,343 units are at various stages of construction. Under the 'Programme Pemulihan Rumah' implemented by the ministry of Rural Development, people in rural areas are entitled to receive a maximum RM 6,000 grant to construct a new hose or to renovate his existing residence.

Value-added of the construction sector during 1998 has been supported by the development of Putrajaya and Cyberjaya currently underway. These two 'Smart Cities' are within the Multimedia Super Corridor (MSC), 1 15 km. Wide and 50 km. Long corridor stretching from the Kuala Lumpur City Centre in the north to the Kuala Lumpur International Airport in the South.

Putrajaya is the future Federal Government Administrative Centre. Phase 1 of the project, which comprises the development of the Prime Minister's Department and the Prime Minister's Office, is scheduled for completion by the end of 1998 or January 1999. Being developed and completed at the same time are support amenities such as Putra Mosque, two smart schools, a health clinic, police station, fire station, library, market, community halls and shop houses. Altogether 1,758 staff quarters are also planned for completion by the end of 1999. Living up to its concept as a Garden City, two public parks, Putrajaya Botanical Garden and Taman Putra Perdana, are being developed for partial completion by the end of 1999. In the case of Cyberjaya, which is located next to Putrajaya and occupying 7,000 hectares, it is being developed as an intelligent city with multimedia enterprises, R & D centres and a Multimedia University and operational headquarters for multinationals wishing to direct their worldwide manufacturing and trading activities using multimedia technology. Among the projects that have already been completed in Cyberjaya are the Project Office, Cyberview Lodge and Office Complex for the developer, Cyberview Sdn. Bhd. And the Head Office of the Multimedia Development Corporation. Currently under construction are several projects including 60 units of apartments, the Multimedia University, the NTT Research and Development Centre, the Telecom IT Complex, the District Cooling Plant and Incubator Office Complex which are scheduled for completion in 1998 or early part of 1999.

Due to completion of major infrastructure projects such as the Kuala Lumpur International Airport and the Commonwealth Sports Complex, construction activities in the civil engineering sector have slowed down significantly. Nevertheless, civil works related to the development of Light Rail Transit System, Kuala Lumpur Central Station, Express Rail Link and the Kuala Lumpur Monorail System, development of ports such as extension of Kuantan Port and Tanjung Pelepas Port and expressways such as the KL-KLIA Highway, Cheras-Kajang Highway and the Pantai Baru Highway have helped to cushion the drop in construction activities in the infrastructure sector in 1998. The additional allocation of RM7 billion for development expenditure recently should also lead to new construction starts with regard to small infrastructure projects such as construction of roads, bridges as well as educational, health and agriculture facilities in 1998.