Higher build costs, but Malaysia’s edge holds firm
With average build costs now at US$1,354 per square metre, Malaysia’s construction market faces new tax and trade pressures. Still, the market continues to attract high-value investment through competitive fundamentals.
Malaysia’s construction industry is undergoing a transformation. While costs have increased to US$1,354 per square metre, the market is changing into a destination for high-value, high-quality projects.
The rise in costs is driven by new tax and trade policies, a tighter labour market and other market dynamics – such as a continued period of high inflation. However, these challenges are balanced by the country’s growing ability to deliver complex projects. This includes data centres, advanced manufacturing facilities and sustainable buildings.
Malaysia remains competitive despite high costs
Despite cost escalations, Malaysia remains competitively positioned. With a location index of 25.2 (compared to London’s 100), Kuala Lumpur is still approximately 75 percent cheaper than mature global markets.
Core trade rates also remain attractive. For example, concrete slab work averages US$88 per cubic metre, structural steel beams cost around US$2,256 per tonne and curtain wall glazing stands at US$338 per square metre.
These figures underscore Malaysia’s attraction to investors who want value and high technical standards, even as costs rise.
Tax and trade policies reshaping project economics
From 1 July 2025, the expanded Sales and Service Tax (SST) introduced a six percent service tax. This applies to construction work services. However, it does not include purely residential projects or public facilities related to those residential buildings.
Base materials, such as cement and aggregates, are exempt from this tax. However, it will impact commercial and industrial projects. This will require recalibrated budgets and financial planning.
Additionally, the US has announced a 25 precent reciprocal tariff starting 1 August 2025 on select Malaysian exports.
While semiconductors are largely exempt, helping preserve Malaysia’s role in high-tech manufacturing, this development could influence future export-oriented investment decisions. Project stakeholders must understand how these factors will influence budget and timelines.
Data centres lead growth
Malaysia’s data centre sector continues to grow steadily, supported by regional demand and capacity restraints in Singapore.
Johor and Cyberjaya are the primary hubs for these technically demanding developments. However, other areas around Kuala Lumpur, including parts of Selangor, are also seeing more interest and investment.
At an average cost of US$1,365 per square metre for core and shell with basic mechanical, electrical and plumbing (MEP) services, data centre builds in Malaysia remain significantly more affordable that in Singapore. Here, similar projects often exceed US$3,000 per square metre.
However, the industry is not without its challenges. Labour shortages, particularly in MEP trades, are straining timelines and placing upward pressures on costs.
Preliminaries on complex projects can reach 15 percent of total project costs, driven by compliance requirements and specialised equipment.
The ongoing shortage of skilled workers is a growing concern. This is especially true for high-value sectors and complex builds that need specialist traders.
To stay ahead, many developers are turning to strategies like modular construction and digital planning tools. They also engage early with contractors to avoid potential delays and cost overrunning.
On the materials side, with no major supply chain disruptions flagged in 2025, ongoing geopolitical volatility continues to test the country’s supply chain resilience.
Sustainability gains momentum
Malaysia is beginning to integrate embodied carbon tracking into its construction practices. Around 34 buildings cover about one million square metres already registered for assessments.
Tools like CarbonScore and GreenRE are becoming popular. However, widespread industry adoption remains limited. This is partly because there are not enough locally developed Environmental Product Declarations (EPDs). As a result, many projects rely on international data that doesn’t always reflect Malaysian conditions.
While tools like EC3 and One Click LCA exist to support embodied carbon calculations, uptake has been slow. Many consultants and project stakeholders continue to build the skills and systems needed to implement these assessments effectively.
Currently, there are no regulatory requirements mandating embodied carbon tracking in Malaysia, though the proposed 2026 carbon tax could begin to change this.
Clear requirements or incentives would accelerate progress. However, forward-looking developers and industry leaders are already looking into voluntary measures to stay ahead of future requirements.
To move forward, progress will hinge on developing local EPDs with manufacturers and integrating embodied carbon modelling in project planning. Moreover, it's important to upskill teams and leadership from industry bodies like CIDB and REHDA.
Malaysia has a real chance to lead in embodied carbon, but scaling it will require stronger data, clearer frameworks and market demand.
Malaysia’s outlook for the second half of 2025
Despite new tax measures and trade headwinds, Malaysia’s construction market is expected to remain resilient and growth-oriented in the second half of 2025. Tender prices are projected to rise by about three percent for the year. This is supported by major infrastructure initiatives, including the MRT3 Circle Line, the Penang LRT, the Pan Borneo Highway and flood mitigation projects.
For investors and developers, the message is clear: Malaysia is no longer the cheapest, but it is among the smartest bets in Southeast Asia. The country offers a rare combination of cost efficiency, technical capability and a growing sustainability agenda.
Success in this dynamic market will hinge on proactive cost planning, early contractor engagement, robust supply chain strategies and sustainability integration ahead of regulation.