Sand cost: How much will filter down to home owners?

With prices of sand, granite and concrete now costing more than twice what they used to be, home buyers and home owners should expect to pay more for renovation and building work.

But exactly how much more will depend on the deal that they signed with their contractor and their relationship with him.

The price hike was triggered by Indonesia’s ban on the export of land sand on Feb 5, which led to Singapore turning to countries further afield for its supplies.

A few weeks after that, Indonesia detained barges carrying granite to Singapore, disrupting the supply of another basic construction material.

The price of sand used to be roughly $20 per tonne. Now, the Building and Construction Authority (BCA) is releasing sand from its stockpile at a price of $60 per tonne, and granite at $70 per tonne to stabilise supply.

The price of concrete - which is made with sand, cement and granite - has risen from about $70 per cubic metre to about $200 now.

As a result, the cost of renovating a five-room flat has risen by about $1,000, estimates renovation contractor Lim Ah Bah, who is also an adviser to the Singapore Renovation Contractors and Material Suppliers Association.

To build a $2.5 million bungalow from scratch will require more raw materials - with the increase in cost weighing in at about $100,000.

But whether a home owner bears the cost will depend on factors like timing. Property owners who signed fixed-price deals with their contractors before the disruptions started are legally not obliged to pay more.

Still, some like engineer Siow Phek Chuan, 28, chose to do so out of goodwill.

Mr Siow hired a renovation firm in early February to do up the executive flat in Sengkang he had just bought.

A few weeks later, his contractor, Mr Lim , approached him for help, as the price of sand needed for the $35,000 project had risen by about $750.

Mr Siow offered to pay an extra $300 anyway. He told The Straits Times: ‘My renovation would be done up better if I have a very good relationship with my contractor. A few hundred dollars is not a big issue.’

However, the cost increase is not dealt with so amicably in every instance.

According to a Straits Times check with more than 10 renovation contractors and building contractors, it is more common for home owners and developers who had sealed fixed-price deals before the hikes to refuse to pay a single cent more.

With Singapore’s current building boom unlikely to slow, the big question now is who will ultimately pay the bill.

BCA estimates that the increase in prices of sand and granite will raise total construction cost of building projects by 7 per cent on average.

This works out to a 2 per cent increase in development cost - of which construction cost is one component. And this will eventually filter down to home buyers and home owners.

Renovation contractors and construction firms polled say they are now more likely to push for a clause in their contracts that takes into account the fluctuation of raw material prices. If that is not possible, they will tender for jobs at higher prices to prepare for similar hikes in the future.

Private developers mostly stayed silent when asked whether the future cost increases would be passed on to home buyers, but analysts reckon that the answer is almost certainly a yes.

According to property firm Knight Frank’s director of research and consultancy, Mr Nicholas Mak, most of the increase in cost can be easily passed on to consumers in a booming private property market.

And this sector has been anything but sluggish over the previous year, with private home prices growing 4.6 per cent between January and March, and 10.2 per cent for the whole of last year.

Before the ban, Singapore imported about six to eight million tonnes of sand from Indonesia annually.

Singapore also imports about 10 million tonnes of granite aggregate from Indonesia a year.

Now, contractors are tapping supplies in countries like Malaysia, China and Vietnam.

Contractors also say they are getting frequent offers from brokers or ‘middlemen’ hoping to make a quick buck by trying to hook them up with suppliers from new sources such as Myanmar, Cambodia and even Australia.

Source: The Straits Times, 07 April 2007