Wednesday, November 14, 2007

Singapore to postpone public projects

The government said yesterday that it would postpone several public projects - at a time when the building boom is stretching Singapore’s construction resources to the limit.

The government’s cut-back could reduce the demand for additional construction manpower in the next two years by 20-40 per cent. The authorities will further relax policies on the employment of foreign manpower and help expand construction capacity.

The government’s move to push back projects worth at least $2 billion comes as construction costs escalate and contractors are in short supply.

Developers told BT that most contractors are fully booked for the next 12 months.

Construction costs have also gone up by as much as 40 per cent over the last year on the back of rising raw material prices and wage increases brought on by tight labour supply.

‘The investment and property boom is leading to a construction squeeze,’ said Citigroup economist Chua Hak Bin. ‘The property boom is moreover not confined to just one segment, but is across the board - commercial, residential, infrastructure and the integrated resorts (IRs).’

Annual construction demand is expected to hit $19-$22 billion in 2007, and is likely to be sustained at this high level in 2008 and 2009, said industry regulator Building and Construction Authority (BCA).

The sharp increase in construction demand in Singapore also coincides with a global surge in construction activity - especially in China, India and the Middle East.

For developers here, this adds up to a shortage of contractors and rising costs. ‘Contractors are booked 12, 15 months ahead,’ said the chief executive of a Singaporean developer. ‘And it’s not just the main contractors; the main contractors are saying that sub-contractors are hard to find as well.’

‘I think most contractors already have big orderbooks, so supply is tight,’ said Cheang Kok Kheong, development and property general manager for Frasers Centrepoint (FCL). ‘There are many big projects for them, such as the IRs and the Gardens by the Bay.’

FCL is not feeling the pinch as it has the support of contractors it has worked with for many years, Mr Cheang said. But others, he added, might not be as lucky. ‘If you don’t have that many projects and you are new in the market, then there will be difficulties getting contractors,’ he said. FCL’s construction costs have gone up by 20-30 per cent over the last year. Other developers report cost increases of up to 40 per cent.

Several big projects have already been hit. Genting International recently upped its budget for its Sentosa IR to $5.75 billion - from an original $5.2 billion. The company said that $275 million of the $550 million budget increase is due to rising construction costs.

And in August this year, Marina Bay Sands said that its cost could escalate to $5.2 billion, from $5.05 billion originally.

On the flip side, things are starting to look very bright for construction companies, as the sector is coming off a decade of sub-zero growth rates.

Kim Eng analyst Wilson Liew estimates that some contractors are now able to command a higher pre-tax margin of about 15 per cent, as compared to 5 per cent in the past. ‘This margin is expected to improve even further as established contractors hold greater bargaining power amidst an increased number of contracts,’ he said.

But this could soon change. Right now, BCA is working with developers and builders to expand the capacity of both local and foreign firms in Singapore. It is also exploring attracting new foreign contractors - especially those in the top-tier and specialist trades - to come to Singapore, it said.

The government will also monitor the manpower situation closely and will further adjust its manpower policies if necessary, BCA said.

For now, various government agencies have identified a list of public projects in the pipeline for 2008 and 2009 that could be rescheduled to 2010 and beyond.

The projects being deferred include the Health Ministry’s National Addiction Management Centre, and Cluster C of the Changi Prison Complex.

Public sector projects that are ‘essential’ - such as those required for Singapore’s economic growth or needed to meet key social needs such as public housing - would not be affected, BCA said.

‘The bulk of the construction activities and resources in 2008 and 2009 are expected to be concentrated on mega projects such as the IRs, Marina Business Financial Centre, Downtown MRT Line and petrochemical plants,’ said BCA. ‘Once these have been completed, more construction resources and capacity will be available for other new projects beyond 2009.’

Source : Business Times - 14 Nov 2007

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