Fuel price rise likely to hit building sector

The construction industry may experience a slowdown for the rest of the year given the recent increase in fuel and building material prices.

Construction Industry Development Board (CIDB) Malaysia chairman Tan Sri Jamilus Hussein said since the government raised the price of fuel by 41 per cent on June 5, Malaysia's 63,000 contractors are starting to feel the pinch.

Bank Negara Malaysia had earlier said the sector, which is one of the country's engines of growth, has chalked positive growth for the past 11 consecutive quarters and registered a 5.3 per cent rise in the first quarter of this year.

"Construction costs have gone up at all levels of the value chain from building materials such as sand, cement, concrete and roofing materials to logistics," Jamilus told Business Times after launching a seminar on best construction practices in Kuala Lumpur yesterday.

Malay Contractors Association of Malaysia secretary-general Datuk Osman Abu Bakar said since the fuel price hike, the sector has seen an average increase of 30 per cent per sq inch of space.

"House prices may also increase between 25 per cent and 30 per cent and projects under the Ninth Malaysia Plan may not reach their targets," said Osman.

Osman said he has also received feedback that some of the association's 7,000 members had rejected letters of award for construction jobs because there was no profit to be made due to the high price of building materials.

Osman and Jamilus, however, said the high construction cost is a global phenomenon.

Osman said among the solutions, the government can compensate the contractors on the cost difference, especially on steel and cement costs.

"Projects can also be staggered and lengthened periodically such as awarding 30 projects a year instead of 50 a year so that demand for building materials can stabilise and prices can soften," he added.

He said although global cement and steel prices have stabilised since price controls were liberalised last month, the government should impose a 20 per cent export tax on cement and steel to curtail them from leaving the country.

Osman said projects should not be surrendered because it is costly and time-consuming to recall tenders.

Helping contractors will also benefit the government in the long run because the infrastructure and amenities are for the people.

Jamilus said CIDB will also form a task force comprising industry players to brainstorm and find solutions on how to mitigate the impact from the hike in fuel prices. - By Zaidi Isham Ismail (Business Times)

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