KUALA LUMPUR: Global profession services firm Turner & Townsend expects tender price inflation (TPI) for construction work in Malaysia to sit at three percent through 2024, a softening of two percentage points since 2023.

Turner & Townsend's inaugural Malaysia Market Intelligence report saidinflation eased due to waning negative effects of manufacturing backlogs, logistics and supply chain disruptions.

The forecast complements the stability of national interest rates, which has been maintained at three percent since January 2024, giving businesses greater confidence to invest.

Bolstered by the country's strategic location, business-friendly environment and relative cost competitiveness compared to nearby markets, the report points to Malaysia's growing potential as a hotspot for high-growth industries including data centres and specialist manufacturing in Southeast Asia.

The combination of investment in these areas alongside government-backed infrastructure programmes is increasing demand for construction despite rising costs, which are largely driven by the price of materials and labour.

The report was supported by source data from the Malaysia's Construction Industry Development Board (CIDB).

Overall construction activity has seen a considerable post-pandemic rebound and has been driven to its highest levels since 2019 according to the Bursa Malaysia construction index. 

Turner & Townsend's report highlights manufacturing and service industries - including those delivering critical components such as semiconductors - as key contributors to this trajectory, accounting for 97 percent of Malaysia's approved private investments as of 2023.

Meanwhile, this has also coincided with state-backed interventions to cultivate growth. 

As part of the Madani economy framework, the government has made a substantial allocation of RM90 billion to development expenditure to support significant infrastructure programmes such as the Sabah Pan Borneo Highway, the Sabah Sarawak Link Road Phase two and the Penang Light Rail Transit.

Construction is also expected to benefit from the anticipated rise in tourism across 2024 and beyond. 

Initiatives such as Visit Malaysia 2026 are aiming to build on increased tourism rates and enhance the business case for infrastructure, hospitality and commercial investment. 

The report points to the negative impacts that a diminishing skilled workforce could have on development pipelines and anticipated projects, especially with the wider region drawing from the same labour pool. 

This will also impact wage rates, with the data from CIDB recording an average 9 percent salary hike for in demand skilled labourers such as bricklayers and carpenters, since last year.

Escalating overheads is another challenge for businesses. 

Improving standards of worker accommodation, increasing amenity provision and robust health and safety parameters have presented new costs of compliance.  Companies have also invested in the repatriation of foreign workers following the pandemic, which comes at a premium.

Crucial materials like aggregate, sand and concrete are experiencing upward price pressures - increasing by 1.4 percent, 8.5 percent and 10.6 percent, respectively as of last year.

On the other hand, steel bars and cement prices eased due to the declining cost of essential global commodities such as iron ore and steel.

https://www.nst.com.my/business/economy/2024/04/1041519/report-tender-price-inflation-stay-3pc-2024-softening-slightly-2023