Developers adopt ‘wait-and-see’ attitude

Labour shortage issue likely to persist, says analyst

“While 390,000 foreign workers were approved, only 47,000 have arrived as of end-august, which is less than 5% of the workers needed.” HLIB Research

KUALA LUMPUR: Property developers are increasingly facing the labour shortage issue that is now affecting the progress of their projects.

Most of these developers are, however, expecting that the it will likely be resolved by the fourth quarter of this year, according to HLIB Research.

However, the research house was less optimistic on the entire situation.

“We are of the view that the issue will take longer to resolve given the wide imbalance between labour supply and demand.

“For perspective, a report by Reuters estimated that Malaysia lacks some 1.3 million workers, with the construction sector alone taking the lion share of 550,000 workers.

“While 390,000 foreign workers were approved, only 47,000 have arrived as of end-august, which is less than 5% of the workers needed.

“Given the wide gap to fill and that the construction sector has to compete with other sectors for labour, we anticipate that the shortage issue will persist in the near to medium term,” HLIB Research added.

It noted that the slowdown in construction progress would impact the cash flow of developers since payments would depend on site progress.

It added that slower site progress would also impact revenue recognition for the developers.

“Contractors will also compete and pinch workers from their competitors, which will drive up labour costs,” HLIB Research said.

It pointed out that property launches in the first half of 2022 were slow, with new launches trailing significantly behind the developers’ full year target.

“Developers are adopting a wait-and-see approach due to volatility in building material costs and the delay in project approvals as government agencies process backlog cases accumulated during the lockdown.

“As a result of the labour shortage, we continue to anticipate that launches will be slow in the second half as developers do not have enough workers to develop new projects and as such, may not be able to deliver the projects on time.

“There will be a slowdown in operating cash flow from ongoing projects to fund new project development,” HLIB Research added.

It said for better cash flow and to ensure stable earnings recognition, developers may likely shift their focus to selling completed inventories.

The effort to clear completed inventories coupled with a slowdown in new launches should help to lower the housing supply, it noted.

“The property overhang data has shown sequential easing in the first and second quarter of the year from its peak in the fourth quarter in 2021.

“The continued easing in property overhang should bolster a healthy increase in house prices in tandem with inflation growth,” said HLIB Research which had a “neutral” rating on the property sector.