Property, construction hit by election fallout

April 16, 2008
Property, construction hit by election fallout
Fears that the opposition coalition would tighten vetting of projects
By PAULINE NG IN KUALA LUMPUR

MALAYSIA'S March 8 general election was toughest on the construction
and property sectors, with both indices falling by over 20 per cent
in the first quarter on fears that gains by the opposition coalition
would lead to tighter vetting of projects.

In the same period, the benchmark Kuala Lumpur Composite Index (KLCI)
declined 13.7 per cent, registering its worst quarterly performance
in over seven years.

Already dented by global economic uncertainties which had a knock-on
effect on Malaysia, equities took a further hit when the election
results threw a curve ball and gave Opposition parties control of
five states and boosted its representation in Parliament by fourfold.

The ruling federal government under Barisan Nasional (BN) had
unveiled five regional economic corridors last year to attract
hundreds of billions of ringgit in investments, and had expected a
strong mandate at the polls to help it implement the programmes
smoothly.

Instead, there appears to be a bit of a paralysis as BN leaders
continue to fight for their political survival or jockey for higher
party positions.

There are 'near-term administrative uncertainties pertaining to the
deployment of 9th Malaysia Plan mega projects - these including the
interstate water transfer projects - as well as power pricing
reviews, and scheduled toll and water tariff hikes', said
stockbroking unit Aseambankers.

Viewed as one of the potential 'losers' of the general election, the
construction sector fell nearly 23 per cent in the first quarter.
Fears of a margin squeeze on existing projects was also a factor.

But the property sector took the worst hit, plunging 24.4 per cent in
the first three months as the new state governments - particularly
those in the two most industrialised states of Selangor and Penang -
were expected to vet proposed property projects more closely.

Indeed, the new Selangor state government has declared that it would
no longer accept applications for developments on Class 3 and 4 hill
slopes - those that have a 26-degree gradient or greater - to avoid
landslides and to preserve the environment.

Penang's new Chief Minister Lim Guan Eng has also tossed a spanner in
the works of a few property developers, the main one being Equine
Capital's proposed RM25 billion (S$10.8 billion) Penang Global City
Centre. Mr Lim said that the ambitious mixed-use development
comprising 33 tower blocks of over 40 storeys had not been approved
by state authorities, Prime Minister Abdullah Ahmad Badawi's launch
of it notwithstanding.

A special panel has also been established to investigate dubious land
deals or improprieties allegedly practised under the previous
administration.

On the bright side, once the dust settles there could be less red
tape and bureaucracy if the new state governments prove to be more
efficient.

None of the sectors ended in positive territory last quarter. But the
two best performing were the consumer sector and plantations which
outperformed the composite index, both registering declines of 7-plus
per cent.

Domestic demand is expected to remain relatively strong on the back
of surging commodity prices, crude palm oil hitting record highs of
over RM3,000-plus a tonne.

Analysts believed that the election results will be positive in the
longer term, but as some delay in project implementation looks
inevitable, they suggested that 'recession-proof' sectors such as oil
& gas, plantations, gaming and rubber gloves might be better buys for
now.

EastLiving.com.sg

Contact Stuart Chng: (65) 9691 9907
Email: stuart.chng@eastliving.com.sg

EastLiving - Singapore Property and Real Estate DB