About Us About Us About Us

BACK Regional reports • Southeast Asia Market Review 2019

Share

Southeast Asia Market Review 2019

Download report

Contents

The Southeast Asia region continues to develop at a steady pace, with economic growth projected to reach an annual average rate of 5.1% during 2018-2022. This makes it the fastest-growing among all global regions

5.1%

Projected growth rate to 2022

Southeast Asia Market Review

In this commentary, Southeast Asia is taken as countries bordering the South China Sea, particularly Singapore, Vietnam, Malaysia and Indonesia.

The Southeast Asia region continues to develop at a steady pace, with economic growth projected to reach an annual average rate of 5.1% during 2018-2022. This makes it the fastest-growing among all global regions, and marks an acceleration from the already-healthy rate of 4.8% recorded over the last five years.  

It is expected that construction in the member states of ASEAN (Association of South East Asian Nations) is poised to grow by more than 6% annually over the coming five years, with the combined value of megaprojects (with a minimum value of $25 million across the region standing at $2.9 trillion. Much of this growth is driven by investment in new infrastructure, while increasing domestic demand is driving the rise in the construction of buildings across the Residential and Non-residential sectors. It has also been bolstered by
numerous reforms to promote Public Private Partnerships (PPPs), which were almost universal across the ASEAN region. The Philippines, Myanmar, Laos and Vietnam have undergone such reforms, to create more accessible markets for private sector investment in construction through PPPs. 

It is expected that construction in the member states of ASEAN (Association of South East Asian Nations) is poised to grow by more than 6% annually over the coming five years.

Whilst the outlook for Southeast Asia is very encouraging, Malaysia is transitioning through political reform, resulting in some adjustments to planned major construction for the coming years. Mahathir Mohamad was sworn in as Malaysia's seventh prime minister in May 2018, defeating the coalition that has ruled the nation for six decades, since it obtained independence from Britain. This change in leadership brought with it a detailed review of the capital expenditure outlook, and in fact, resulted in the reduction of the 2019 budget, which affects a number of megaprojects. Two such projects were the Chinese-funded $20 billion East Coast Rail Link (ECRL) project and a natural gas pipeline project in Sabah, which have been postponed. It should be noted that the cancellations and suspensions of major rail projects, including the Singapore-Kuala Lumpur high-speed railway and the East Coast Rail Link, influences not just direct construction expenditure, but also reduces the potential for real estate development along the route. 

Contributors: John Butler and Michael Murphy


 

Singapore Market Review

Sustained public sector demand allowed the Singapore construction industry to perform at a moderate to strong level, despite some difficulties through the monitored quarters. Whilst 2017 saw the biggest gap between expectation and reality, with only $24.5 billion in projects being awarded, 2018 saw a marked improvement, with the awarding of $30.5 billion in projects. The Building and Construction Authority (BCA), which predicted this
figure to be between $28 billion and $35 billion attributed the difference to the rescheduling of a few major public sector infrastructure projects. 

It is believed that Singapore is experiencing the knock-on effects from a slowing global economy and disruptions to global trade. External risks are now building, as regional supply chains come under strain because of the US-China trade war, oil prices remaining elevated and the strengthening of the dollar. 

Singapore’s GDP rose by 3% quarter-on-quarter on a seasonally-adjusted and annualised basis in Q3 2018, surpassing the 1% increase seen in Q2. On an annual basis, the city-state’s economy rose by 2.2%.  

The service-producing industries expanded by 2.4% year-on-year, slowing slightly from the 2.8% figure in the preceding quarter. The finance and insurance sector posted the fastest rate of growth (5.6%), followed by information and communications (4.7%), and accommodation and food services (4%) sectors. In contrast, construction shrank by 2.3% year-on-year, extending the 4.2% decline in the previous quarter.  

Singapore’s GDP rose by 3% quarter-on-quarter on a seasonally-adjusted and annualised basis in Q3 2018, surpassing the 1% increase seen in Q2. On an annual basis, the city-state’s economy rose by 2.2%.  

Picking up from a slower 2017, construction continued to show signs of difficulty for the
first half of 2018. During the Q3 period, nominal certified progress payments shrank by 1%, which was a more gradual pace of contraction than the 4.9% decline seen in Q2. The decline in construction output was due to a fall in public certified progress payments (down 4.6%), which was in turn weighed down by a poor performance by public institutional and other building works (down 27%). On the other hand, private certified progress payments provided some support to overall output growth, rising by 3% on the back of an upturn in private industrial building works (14%) and private commercial building works (20%).  

This upward trend demonstrated in Q3 2018 continued into Q4, emphasised by thecompletion of more than 1,000,000sq.ft. of office spaces, primarily at One Marina,
Guoco Tower and OUE Downtown. 

Looking forward 

The latest survey from the Monetary Authority of Singapore (MAS) indicates that private
economists expect Singapore’s economy to grow by 3.3% this year, slightly higher than the previous forecast of 3.2% made in September. 

Construction demand is expected to remain strong in 2019 due to sustained public sector
contracts, as the industry continues to recover from a challenging three-year spell. 

The latest survey from the Monetary Authority of Singapore (MAS) indicates that private economists expect Singapore’s economy to grow by 3.3% this year.

The BCA projects the total construction demand in 2019 to range between S$27billion and$32billion. This is comparable to the S$30.5billion awarded in 2018, and in spite of additional cooling measures in the private property market and the delay in construction of the Kuala Lumpur-Singapore high-speed rail project last year. 

Public construction demand, expected to be between $16.5 billion and $19.5 billion thisyear, is set to make up about 60% of projected demand for the year. Singapore continues to push for improved productivity, and enhanced infrastructure sustainability and maintainability, via the adoption of advanced construction methods in both public and private sector projects. As part of this, firms are being encouraged to invest in technology and innovation to enable them seize future opportunities. To support firms in this, the BCA is expanding the– an interagency platform that accelerates the regulatory clearance of technologies that improve construction productivity – to cover any type of innovation that can improve Singapore’s built environment. Such innovations can include advanced and sustainable building materials, technologies for green buildings and automation for construction. The enhanced BIP will be implemented in Feburary 2019, and will benefit Singapore’s built environment by supporting innovation efforts.   

Value of construction output 

Value of Construction Output

Singapore GDP growth rate*

Singapore GDP Growth

Currency exchange rates* 

Singapore Exchange Rates

Linesight average Singaporean construction costs 2019 

Singapore construction costs

Malaysia Market Review

Malaysia’s economic growth is expected to remain robust in 2019, with domestic demand supported by solid government consumption and stronger growth in fixed investment. However, household consumption growth is likely to ease after a strong 2018. Meanwhile, the uncertain impact of the more expansionary fiscal stance on government finances, lingering trade tensions and financial market volatility all threaten the outlook. It is expected that the economy will grow by 4.6% in 2019 and 4.4% in 2020. 

Overall, the services sector remained the major contributor towards GDP (55.3%) , followed by manufacturing (23%), mining (8%), agriculture (7.8%) and construction (4.5%). 

It is expected that the economy will grow by 4.6% in 2019 and 4.4% in 2020.  

Looking at construction specifically, the civil engineering subsector is expected to remain as the main industry driver in 2019, largely supported by ongoing projects. The public sector has invested in various public transport projects, focusing on the Pan Borneo Highway, Central Spine Road, Mass Rapid Transit (MRT) Sungai Buloh-Serdang-Putrajaya (SSP) Line and Light Rail Transit Line 3 (LRT3).  

Meanwhile, in the petrochemical and power plant segment, major projects include the Deepwater Petroleum Terminal 2 at the Refinery and Petrochemical Integrated Development (RAPID) Complex in Johor, Floating LNG 2 in Sabah, and the Central Processing Platform in Sarawak.   

Private mixed development projects, like the Tun Razak Exchange and Bukit Bintang City Centre in Kuala Lumpur, are expected to further support the growth of the subsector. 

In 2019, the labour market is expected to remain favourable. With an unemployment rate of 3.4%, Malaysia is considered to now be at full employment, with total employed persons projected to increase to 15.1 million in 2019. Following Malaysia’s effort to reduce dependency on low-skilled foreign workers to not more than 15% of the total number employed by 2020, a significant impact will be felt in the labour-intensive construction
industry. 

With an unemployment rate of 3.4%, Malaysia is considered to now be at full employment, with total employed persons projected to increase to 15.1 million in 2019. 

Malaysia’s short-term growth outlook remains positive for the most part, with sound macroeconomic fundamentals and table financial conditions, as well as a broad-based and diversified economic structure. However, as an open economy, Malaysia faces several risks relating to external uncertainties. The most pressing of these lies in having China as Malaysia’s largest trading partner and the US as its third-largest export destination. This means that the trade conflict between US and China will have considerable repercussions for Malaysia, impacting supply chains, businesses, jobs and consumers. 

Moving forward, the Government, through various measures, will have to continue to strengthen structural reforms and accelerate the country’s convergence with developed economies. These measures include addressing the gap in the labour market; improving the quality of education and training; further diversifying the range of exports and markets; encouraging innovation and the adoption of technology, as well as unlocking the potential of the digital economy as a future driver of growth.  

 

Malaysia GDP growth rate* 

Malaysia GDP Growth

Malaysia currency exchange rates*

Malaysia Exchange rates

Linesight average Malaysian construction costs 2019 

Malaysia construction costs

Vietnam Market Review

Vietnam experienced strong economic growth in 2018, with GDP rising by 7.1% in 2018 and the forecast putting the 2019 figure at 7%. The main drivers are a surge in foreign direct investment and a growing level of exports. It remains an attractive location for foreign investors, and new foreign direct investment increased year-on-year by 77.5%, from countries such as Japan and South Korea. 

The economy also benefits from a young population, mostly of working age. Unemployment is low when compared to other Asian economies, at approximately 2.18%, and domestic demand is strong.  

The construction industry is expected to expand over the forecast period (2019–2022) by an estimated 6.7% on average, albeit at a slightly slower pace compare to 2018. The industry's expansion over this period is expected to be primarily supported by the Government's efforts to improve the quality of the country's overall infrastructure. Significant population growth adds to the urgency of this as an initiative, so the Government has prioritised the construction of rapid railway, airports and infrastructure. There are a few major projects in Ho Chi Minh City, which include the Thu Thiem Smart City, US$850 million of investment in metro lines, the planned US$15.8 billion Long Thanh International Airport, and an extension to Tan Son Nhat International Airport. There is also the PPP-funded 654km North-South Expressway project, expected to cost around US$5.20 billion. 

The Construction Price Index (CPI) for tender prices is predicted to increase by about 5% in 2019 ,similar to 2018.The Dong was relatively stable against the dollar in 2018, with the Central Bank’s daily USD/VNĐ exchange rate increasing by about 1.5% over the course of the year, while the rate listed by commercial banks increased by about 2.8%. 

The Construction Price Index (CPI) for tender prices is predicted to increase by about 5% in 2019 ,similar to 2018 

Overall, the future of Vietnam is optimistic, and with its rapidly-growing economy, it is attracting more and more investment. To meet the demands of increasing urbanisation and a growing population, a strategic infrastructure development plan is underway, providing a huge boost for the domestic construction industry.  

Vietnam GDP growth rate* 

Vietnam GDP Growth

Currency exchange rates* 

Vietnam Exchange Rates

Linesight average Vietnamese construction costs 2019 

Vietnam construction costs

Indonesia Market Review

Although overshadowed by the news of the devastating earthquake and tsunami, the Indonesian economy performed well in 2018, recording GDP growth of 5.3%.   

The country has experienced impressive economic growth steadily since 2008. As the world’s fourth most populous country, the young population and sizeable middle-class demographic with rising levels of disposable income provide the platform for the biggest consumption base in Southeast Asia. 

Public debt is relatively low and inflation moderate at around 4%. Governance is stable and political risk is low. Stronger commodity prices should boost the value of exports and support growth in year 2019. The unemployment rate remains static, at circa 5.3%.  

The currency (Indonesian Rupiah) is stable and inflation remains low against the US dollar, due to the Bank of Indonesia setting controls with low interest rates.  

The construction industry is being boosted by Government efforts to improve infrastructure, logistics and low-cost housing, while rising domestic demand and lower interest rates are fuelling the private housing sector. Major infrastructure projects will continue to be key contributors, with work underway on 850km of new roads as part of its US$30 billion 2018 roads budget, which includes new sections of the Trans-Sumatran highway, expected to be completed in 2019.  

Sluggish markets are impacting investment in new projects, particularly for Commercial and Residential projects, though there are signs of an increase in construction activity, which could bode well for 2019. There is an ambitious set of capital projects planned across power, transportation, roads, water and waste. 

Major infrastructure projects will continue to be key contributors, with work underway on 850km of new roads as part of its US$30 billion 2018 roads budget, which includes new sections of the Trans-Sumatran highway, expected to be completed in 2019.  

The total Indonesian construction industry is expected to have reached IDR500,000 billion in 2018, of which 65% would be in the civil sector and 35% in the building sector. The Construction Price Index (CPI) for tender prices is predicted to increase by about 3% in 2019, with the larger part of this increase coming from infrastructure.   

In terms of the outlook, Indonesia's economy is expected to growth by 5.2% in 2019, on the back of stronger domestic consumption, investment inflows and export growth. The focus will be on ensuring greater equality across the country by accelerating development in eastern Indonesia, border areas and less developed regions; strengthening the local economy in villages and rural areas; and intensifying efforts to address poverty. With annual population growth at about four million, construction will remain a key economic driver. Expansion in roads and infrastructure is vital, with annual new vehicle registration at almost one million. However, challenges remain, with skilled labour a key concern, along with problems acquiring land and considerable project delays.   

Indonesia GDP growth rate* 

Indonesia GDP Growth Rate

Currency exchange rates* 

Indonesia Exchange Rates

Linesight average Indonesian construction costs 2019 

Indonesia construction costs

Republic of Korea Market Review

Following 3% growth in 2017, the South Korean economy is projected to expand at a sustained rate of 2.8% in 2018 and 2019. Exports expanded at a double-digit pace up until the conclusion of 2017, caused by a strong demand for semiconductors and petrochemical products, and this growth is expected to continue in 2018. Looking ahead, this demand is expected to support the upward trend in investment activity.

Following 3% growth in 2017, the South Korean economy is projected to expand at a sustained rate of 2.8% in 2018 and 2019.

 An increased Government budget for the 2018 fiscal year was announced in early December 2017, aimed at creating more jobs and enhancing welfare benefits. It is expected to have a positive effect on consumer spending, with a 4.6% increase in spending compared to the previous year. On the other hand, Government measures to curb rising house prices, as well as increasing the corporate tax rate and the upper personal income tax rate, could affect the outlook considerably.

 A favorable external political climate should cause a positive effect, with improved diplomatic relations with China expected to enhance trade. However, tensions on the Korean Peninsula intensified considerably in 2017, and investors are very sensitive to sociopolitical events in the region. These tensions will continue to pose a threat to the South Korean economy in 2018, in the form of investor sentiments and the domestic financial market.  

Republic of Korea GDP growth rate* 

Korea GDP Growth Rate

Currency exchange rates*
 

Korea Exchange Rates

Linesight average Republic of Korea construction costs 2019 

Korea construction costs

Related Insights

Related Insights