Construction sector gets boost from Budget 2018

Sector seen as one of the key beneficiaries along with households

PETALING JAYA: Malaysian households and the domestic construction sector are the key beneficiaries of Budget 2018, according to several analysts.

RHB Research, which indicated that Budget 2018 was broadly within expectations, said Budget 2018 sought to address the rising cost of living and to roll out construction spending.

“While the strong focus on fiscal discipline was encouraging, the budget’s populist slant contained measures to address the rising living costs with special focus on assisting lower income groups and civil servants.

“In addition, it emphasised on investments in infrastructure, education, and skills development.

“The proposals are clearly positive for the consumer and construction sectors, and mildly so for property.

“The proposal to cut income tax rates ought to help to lift consumption, while the continued positive news flow for construction is likely to sustain investor interest in the sector.

“On balance, we expect the budget proposals to offer a mild boost to market sentiment.

“All in, the budget goodies came within our expectations, given the looming 14th general elections are expected by next year,” said the research house in a note.

A total of RM2.2bil has been allocated in Budget 2018 to increase home ownership by delivering 258,000 units of affordable housing.

The bulk of the allocation or RM1.5bil has been allocated to build 210,000 units of 1Malaysia People’s Housing (PR1MA) houses at below RM250,000 over the next two years.

Apart from that, the Government has extended the step-up financing scheme in PR1MA projects to private housing developers, subject to certain conditions. The ‘stepup’ financing scheme would allow borrowers to service only the interest on the housing loan for the first five or 10 years, before servicing both the principal and interest payments for the balance of the loan tenure.

The Government has guided for a lower fiscal deficit of 2.8% of gross domestic product (GDP) in 2018, compared to a deficit of 3% estimated for this year.

The country’s economy is also expected to expand by 5% to 5.5% next year, largely attributed by robust domestic demand and sustained growth in the external environment.

On the other hand, RHB Research projects a fiscal deficit of 2.9%, with a GDP forecast of 5.4% for 2018.

Meanwhile, CIMB Research said that fiscal measures for households in Budget 2018 have crowded out allocations for businesses.

“Despite limited fiscal bandwidth, Budget 2018 made room for initiatives to address long-term structural bottlenecks such as infrastructure, productivity and incentives for new growth areas.

“The two percentage points cut in personal income tax rates for the RM20,000 to RM70,000 income bands, was partly expected.

“The tax savings of RM300 to RM1,000 per individual adds RM1.5bil into the pockets of taxpayers and takes over the heavy lifting from the Bantuan Rakyat 1Malaysia (BR1M),” said the research house.

Total allocation for BR1M was unchanged at RM6.8bil under Budget 2018 and households with a monthly income below RM3,000 will receive RM1,200.

As for households earning RM3,000 to RM4,000 a month, they will receive RM900 while single individuals earning below RM2,000 a month will receive RM450.

On headline inflation, CIMB Research has projected a benign inflationary outlook next year. “Headline inflation in 2017 has exceeded initial forecasts of 2% to 3% and the Government has revised its 2017 estimate to 3.9% to reflect developments in global oil prices. Looking ahead, it expects inflation to moderate next year between 2.5% and 3.5%, which is in line with our forecast of 2.5%,” it said.