Malaysia Construction Costs Rise: What Contractors Should Review Now
REHDA Malaysia’s Property Industry Survey for 1H 2026 found that respondents reported an average 13% increase in construction costs between March and June 2026, although the impact differed by work type.
Earthworks and infrastructure work reportedly recorded increases of about 20%–24%, while some conventional building work rose by as little as 3%–5%. REHDA linked the pressure mainly to higher fuel prices and geopolitical uncertainty, including the West Asia conflict.
Contractors should update their cost-to-complete forecasts, separate actual, committed and uncommitted costs, obtain current supplier quotations and assess the potential effect on project margins and cash flow.
The reported percentages came from an industry survey of developers and should not be applied automatically to every project.
Key Findings
REHDA Malaysia’s Property Industry Survey for the first half of 2026 gathered responses from 181 REHDA member developers in Peninsular Malaysia.
The findings included:
- 81% reported higher business costs, up from 74% in the second half of 2025.
- Of those reporting higher costs, 35% experienced increases of between 3% and 6%.
- 90% of respondents reported an average 13% increase in construction costs between March and June 2026.
- Earthworks and infrastructure work recorded increases of about 20%–24%.
- Some conventional building work recorded increases of as little as 3%–5%.
- 63% cited difficulties involving building materials and labour.
REHDA president Datuk Zaini Yusoff attributed part of the pressure to higher prices for diesel-related products, including bitumen, citing the Middle East crisis. He said the increase was driven mainly by rising fuel prices and geopolitical uncertainties.
These findings describe what surveyed developers reported. They should not replace project-specific quotations, supplier information or contractual assessment.
How Much Have Construction Costs Increased In Malaysia?
REHDA reported an average increase of approximately 13% between March and June 2026, based on the responses of the 90% of surveyed developers who reported an increase.
However, this does not mean every contractor, project or work package experienced the same increase. Actual exposure depends on factors such as:
- Project type and location
- Scope of work
- Materials required
- Fuel dependency
- Labour requirements
- Procurement timing
- Supplier and subcontractor arrangements
- Contractual price-adjustment provisions
Contractors should therefore assess their own project data instead of increasing every budget or tender rate by 13%.
Which Types Of Construction Work Recorded The Largest Increases?
According to REHDA, earthworks and infrastructure work experienced increases of about 20%–24%. Some other reports of the same briefing describe the increase as more than 20% or around 20%–25%, so treat the figure as approximate.
This may reflect the greater exposure of these activities to:
- Diesel and machinery costs
- Bitumen and roadwork materials
- Transportation
- Heavy equipment
- Site conditions
- Infrastructure-related inputs
Normal building works reportedly experienced increases that could be as low as 3%–5%.
The difference reinforces an important cost-management principle: contractors should forecast costs by work package rather than applying one escalation rate across the whole project.
Are Ongoing Contracts And New Tenders Affected Differently?
According to Zaini, ongoing contracts should be able to complete within budget with a slight increase, as they probably carry a contingency of about 3% to 5%. He said the sharper increases were more likely to appear in newly awarded contracts, since contractors had already built some of the higher costs into new tenders.
Malay-language coverage of the briefing also reported his view that overall building material prices had stabilised after the initial rise, and that he did not expect increases of the same scale even if the geopolitical conflict continues.
This does not mean ongoing contracts are safe. A contingency of that size may not cover work packages with higher exposure, such as earthworks or fuel-dependent activities. It does suggest that current quotations, not assumptions about further rises, are the right basis for updating forecasts and pricing tenders.
How Can Rising Costs Affect Contractor Margins?
A project can remain within its original contract value while its expected profit falls.
Margin pressure may develop when:
- Supplier prices increase after the tender is submitted.
- Subcontract packages remain unawarded.
- Historical rates are used for new purchases.
- Work takes longer than planned.
- Fuel, labour or equipment costs increase.
- Variations are carried out before approval.
- Management monitors invoiced costs but overlooks commitments.
Contractors need an updated estimate of the total cost required to finish the work. Reviewing actual expenditure alone may not reveal the project’s full financial exposure.
Why Are Uncommitted Costs Especially Important?
Uncommitted costs relate to materials, subcontract packages, plant or services that are required but have not yet been formally ordered or awarded.
These costs remain exposed to market changes.
For example, a project budget may still show available funds because a subcontract package has not been awarded. If current subcontractor quotations are higher than the original allowance, the apparent budget balance may already be overstated.
Management should compare:
- Original budget
- Approved budget changes
- Actual expenditure
- Purchase-order commitments
- Subcontract commitments
- Approved variations
- Forecast uncommitted costs
- Latest cost to complete
This provides a more realistic view of the project’s expected final cost and margin.
What Should Contractors Review In New Tenders?
New tenders should reflect current market evidence rather than historical rates alone.
Before submitting a price, contractors should:
- Obtain current quotations for high-value packages.
- Confirm how long quotations remain valid.
- Identify materials exposed to fuel, commodity or currency movements.
- Review subcontractor capacity and pricing.
- Check whether the programme creates long procurement gaps.
- Include realistic labour, plant and logistics costs.
- Assess the working capital required.
- Review price-fluctuation and variation clauses.
- Record the assumptions and exclusions used in the tender.
- Conduct a downside scenario before approval.
Tender teams should also avoid assuming that every cost increase can later be recovered from the client.
Practical Contractor Checklist
- Update the cost to complete for every major project.
- Separate actual, committed and uncommitted costs.
- Obtain new quotations for significant outstanding purchases.
- Reassess unawarded subcontract packages.
- Review earthworks, infrastructure, fuel and bitumen exposure separately.
- Check supplier quotation-validity periods.
- Compare updated forecasts with the remaining project budget.
- Calculate the effect on expected margin and cash flow.
- Review fluctuation, variation and notice provisions.
- Maintain supporting records for material cost movements.
- Escalate significant forecast changes to management early.
- Use current supplier information when approving new tenders.
- Obtain professional advice before asserting contractual entitlement.
How Can ContractX Help Contractors Monitor Rising Costs?
ContractX can connect project budgets with purchase orders, subcontract awards, approved variations, actual expenditure and committed costs.
This can help management:
- Compare budgeted, committed and actual costs.
- Assess how much of the project budget remains available.
- Monitor procurement commitments before invoices arrive.
- Review project cost and profit information.
- Track costs across multiple projects.
- Identify potential budget pressure earlier.
ContractX does not predict future market prices or establish a contractual right to recover higher costs. Contractors still need current quotations, supporting records and a review of the applicable contract.
Frequently Asked Questions
Did every Malaysian construction project experience a 13% cost increase?
No. The figure was reported as an approximate average for March to June 2026 from REHDA’s survey of its members. The impact differed substantially by work type and should not be treated as a universal construction-cost index.
Should contractors increase every tender price by 13%?
No. Tender prices should be based on current quotations, quantities, scope, programme, project risks and contractual conditions. One survey percentage should not be applied to every project.
Which projects may face greater cost exposure?
Projects with significant earthworks or infrastructure components, heavy fuel usage, long procurement periods, large uncommitted packages or limited price-adjustment protection may face greater exposure.
Are ongoing contracts affected the same way as new tenders?
Not necessarily. REHDA’s president said ongoing contracts probably carry a 3%–5% contingency, and that the sharper increases were more likely to show up in newly awarded contracts. Each project’s exposure still depends on its scope, procurement timing and contract terms.
What should contractor management review first?
Start with high-value uncommitted packages, updated supplier and subcontractor quotations, the latest cost-to-complete forecast, expected project margin and procurement-related cash requirements.
What is the difference between actual and committed costs?
Actual costs have already been incurred or recorded. Committed costs arise from obligations such as purchase orders and awarded subcontracts, even if the corresponding invoices have not yet been received.
Can contractors automatically claim higher costs from clients?
No. Any entitlement depends on the specific contract, the cause of the increase, applicable clauses, notice requirements and supporting evidence. Contractors should obtain professional advice where necessary.
Can ContractX prevent construction-cost increases?
No. ContractX cannot control external market prices. It can help management monitor budgets, commitments and actual expenditure so that emerging cost exposure is easier to identify.
Sources
- The Sun, “Rehda says developers absorbing part of escalating construction costs,” 23 Sept 2026: thesun.my/business/rehda-says-developers-absorbing-part-of-escalating-construction-costs/
- Malay Mail, “Rehda survey finds property developers grappling with rising construction costs amid West Asia conflict,” 23 Sept 2026: malaymail.com/news/money/2026/09/23/rehda-survey-finds-property-developers-grappling-with-rising-construction-costs-amid-west-asia-conflict/236226
- New Straits Times, “81pct of developers report higher business costs in 1H 2026,” Sept 2026: nst.com.my/property/2026/09/1539261/81pct-developers-report-higher-business-costs-1h-2026
- EdgeProp.my, “Outdated compliance costs should be reviewed to help reduce housing cost — Rehda,” 23 Sept 2026
- RTM, “Kos kerja tanah, infrastruktur meningkat lebih 20 peratus – REHDA,” 23 Sept 2026: berita.rtm.gov.my
- DagangNews, “Kos pembinaan, ketidaktentuan ekonomi terus tekan pemaju hartanah Malaysia – Tinjauan Rehda”
