Builders have backs to the wall

MANY sectors are affected by the rising costs due to the increasing crude oil price, but none are hurting as acutely as the construction sector.

A bulk of its cost component is tied to crude oil prices.

With the ongoing Middle East conflict, industry players are worried that the overall cost of doing business may go up by over 40%, squeezing already thin margins.

Even if the war ceases completely, the concern is that it will take months, maybe years, for supply, prices and businesses to return to “normal” levels.

Pansar Bhd chief operating officer David Tai Wei says costs have already increased by between 5% and 10%.

“We are tracking it closely and collecting data. For contracts where we can, we will apply for variation orders,” he says.

Some documents sighted by StarBiz 7 show that suppliers of materials like ready mixed-concrete had already informed their customers of price increases since last month.

It is understood that a temporary diesel surcharge has been applied to materials like cement as the Middle East conflict has disrupted global oil supply and pushed prices to levels not seen in years.

The surcharge is likely to be removed once diesel prices go back to normal levels.

Contractor and property developer Iconic Worldwide Bhd managing director James Tan Cho Chia says new project tenders now come with a 25% to 30% cost increase.

“There is no effect on our previous contracts as they were lump sum contracts, but the costs increase will affect new projects,” Tan says.

Fibromat (M) Bhd managing director and chief executive officer Danny Ng is slightly more worried, saying that the impact on the group’s bottom line can be “significant”.

“Since the start of the conflict, diesel price has risen from RM2.85 per litre to RM7.20 per litre, a 153% increase.”

Ng says for prefabricated vertical drain work, which his company does, the proportion of diesel cost was 8% before the war, and this has increased to 18% now.

“Similarly for earthworks, the proportion of diesel cost was 42% and this has increased to 64%. The impact on the bottom line can be significant,” he adds.

However, Ng notes that the company’s ongoing projects are mainly government projects where variations are applicable.

“Some of our private clients are willing to alleviate some pressure by subsidising us on the diesel part,” he adds.

Decline in new launches

Olive Tree Property Consultants founder and chief executive officer Samuel Tan says construction costs in Malaysia are estimated to rise by an overall 10% in 2026, although specific materials and logistics have seen sharper spikes.

“For example, the cost of tiles has gone up by 10%, aluminium by 15%, concrete has also increased while the price of premix has doubled.”

Tan, who tracks the construction and property sectors closely, says such prices will remain volatile.

“The Middle East conflict has triggered a surge in global oil prices, directly hitting Malaysian contractors through higher transportation costs and machinery operation expenses.

“A persistent shortage of skilled labour also continues to drive up wages. This is particularly acute in high-growth regions like Johor, where competition for talent is intense.”

Tan reckons that new residential properties are now costing roughly 15% more than comparable existing ones, reflecting the transfer of these construction costs to the buyer.

“The average house price in Malaysia has reached approximately RM502,922, with the Malaysian House Price Index showing a moderate growth of 2.6% to 3.3% for landed homes,” he says.

Tan says many projects awarded in the record-breaking 2025 (RM202.5bil in contracts) year are now entering peak construction.

“Companies are finding that the ‘fixed-price’ contracts they signed a year ago did not account for the 2026 fuel and materials and they are now shifting from aggressive growth to defensive execution. The focus in 2026 is on margin protection rather than volume.”

In order to maintain margins, developers and contractors are moving up the value chain.

This is especially evident in the data centre boom, where specialised contractors are integrating advanced power and cooling systems into their offerings to command higher premiums, he says.

“There is a notable shift toward prefabrication and industrialised building systems.

“By moving more work off-site, companies can better control material waste and reduce the number of on-site workers needed, mitigating labour cost hikes.”

Tan also notices that “forward-thinking” firms are now attempting to lock in prices with suppliers for the duration of a project.

“However, suppliers are increasingly resistant, often offering quotes that are valid for only very short periods (sometimes just days).”

Property developers are also becoming more selective, with a 14.9% decline in new residential launches recently.

“They are prioritising high-demand urban areas and ‘premium’ sites with ready infrastructure (power/water) over mass-market developments. While the sector remains resilient due to strong foreign direct investment and infrastructure commitments (like the 13th Malaysia Plan), the margin squeeze is real.”

Tan says smaller contractors are the most vulnerable, facing significant cash-flow risks, while larger, diversified firms are using their scale to weather the volatility.

In a report to clients this week, Kenanga Research says the recent surge in building material and transportation costs driven by the Middle East crisis has resulted in a mixed impact across the sector.

The implications vary depending on contract structures, it says, adding that rising diesel costs are particularly challenging, as these are typically not pass-through expenses and lead to direct margin pressure.

Conversely, certain material costs include pass-through clauses, allowing players to mitigate some of the inflationary pressure, it says.

Overall, Kenanga Research says its channel checks suggest that if the crisis does not persist beyond three months, the resulting margin compression should remain “manageable”.