Demand likely to drop from next year as more developers defer projects
By Joyce Teo 28 October 2008
The deepening global financial crisis has hit the outlook for the local construction sector, even as current demand is at a record high.
Contractors are now expecting a fall in demand from next year as more developers defer their projects.
Just four months ago, the construction sector was so hot that the Government deferred another batch of projects.
Today, as the global financial turmoil rages on, calls have been made for the Government to consider bringing forward those projects.
'Developers are postponing the completion dates of their projects and that will affect the construction sector,' said Mr. Nicholas Mak, Knight Frank's director of research and consultancy.
While most contractors will be kept busy with contracts on hand until 2010, the situation after that depends on how the crisis pans out, Mr. Desmond Hill, president of Singapore Contractors Association Limited (Scal), told The Straits Times.
If the global market situation improves next year, projects will be tendered out again, keeping contractors busy till 2011 or 2012, he said.
In a speech made at a Scal dinner last week, Mr. Hill said the association hopes the Government will bring back deferred projects by next year or latest by 2010, as existing jobs will be completed by mid- to end-2010.
Speaking at the same dinner, Minister for National Development Mah Bow Tan said the Government would consider doing so if the need arose. Any such move would have to be carefully timed so as not to drive up construction costs.
It was just in July when the Government made the decision to defer $1.7 billion worth of public-sector construction projects to ease pressure on building costs and resources.
That was the third deferment since November last year, when it took the rare step of deferring $2 billion worth of projects. It deferred another $1 billion worth of projects in February.
In July, capacity was very tight and construction material prices were then seen to be climbing for the rest of the year, raising concerns that the costs would diminish developers' profits.
Today, the picture is very different.
Steel rebar prices have dropped from $1,700 a tonne in July to about $1,300 a tonne recently, said Mr. Hill.
Manpower and other costs relating to contract requirements remain high. But rental prices of equipment such as cranes could soften next year after suppliers finish recovering their capital cost.
'Margins which looked bleak in the past months are starting to improve as commodity prices (primarily oil and steel) are starting to come off,' said Mr. Jackson Yap, managing director and chief executive of United Engineers.
But the tight resource situation will continue to prevail as mega projects such as the two integrated resorts and Orchard Road rejuvenation are still ongoing, he added.
The latest forecast for Singapore's construction demand this year is at a whopping $30 billion, above an earlier forecast of up to $27 billion and last year's $24.5 billion.
But the current crisis is expected to hit demand.
'If the banks are not lending as much as before, some developers may not be able to get sufficient credit to start construction,' said an industry source.
Said another industry executive: 'Generally, when markets soften, demand will pull back faster than supply adjustment.'
Any government move to bring forward deferred projects would help to keep people employed, but it has to be done carefully so as not to strain contractors' tendering and construction resources.
For now, there is a good chance of costs coming down.
'As global markets right themselves in the aftermath of the financial crisis, prices are likely to correct themselves to more tenable levels that will keep the construction industry alive,' said Mr. John Brells, senior vice-president and managing director, Asia-Pacific, at United States-listed construction consultancy firm Hill International.
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Construction Sector Woes
Demand likely to drop from next year as more developers defer projects
By Joyce Teo
28 October 2008
The deepening global financial crisis has hit the outlook for the local construction sector, even as current demand is at a record high.
Contractors are now expecting a fall in demand from next year as more developers defer their projects.
Just four months ago, the construction sector was so hot that the Government deferred another batch of projects.
Today, as the global financial turmoil rages on, calls have been made for the Government to consider bringing forward those projects.
'Developers are postponing the completion dates of their projects and that will affect the construction sector,' said Mr. Nicholas Mak, Knight Frank's director of research and consultancy.
While most contractors will be kept busy with contracts on hand until 2010, the situation after that depends on how the crisis pans out, Mr. Desmond Hill, president of Singapore Contractors Association Limited (Scal), told The Straits Times.
If the global market situation improves next year, projects will be tendered out again, keeping contractors busy till 2011 or 2012, he said.
In a speech made at a Scal dinner last week, Mr. Hill said the association hopes the Government will bring back deferred projects by next year or latest by 2010, as existing jobs will be completed by mid- to end-2010.
Speaking at the same dinner, Minister for National Development Mah Bow Tan said the Government would consider doing so if the need arose. Any such move would have to be carefully timed so as not to drive up construction costs.
It was just in July when the Government made the decision to defer $1.7 billion worth of public-sector construction projects to ease pressure on building costs and resources.
That was the third deferment since November last year, when it took the rare step of deferring $2 billion worth of projects. It deferred another $1 billion worth of projects in February.
In July, capacity was very tight and construction material prices were then seen to be climbing for the rest of the year, raising concerns that the costs would diminish developers' profits.
Today, the picture is very different.
Steel rebar prices have dropped from $1,700 a tonne in July to about $1,300 a tonne recently, said Mr. Hill.
Manpower and other costs relating to contract requirements remain high. But rental prices of equipment such as cranes could soften next year after suppliers finish recovering their capital cost.
'Margins which looked bleak in the past months are starting to improve as commodity prices (primarily oil and steel) are starting to come off,' said Mr. Jackson Yap, managing director and chief executive of United Engineers.
But the tight resource situation will continue to prevail as mega projects such as the two integrated resorts and Orchard Road rejuvenation are still ongoing, he added.
The latest forecast for Singapore's construction demand this year is at a whopping $30 billion, above an earlier forecast of up to $27 billion and last year's $24.5 billion.
But the current crisis is expected to hit demand.
'If the banks are not lending as much as before, some developers may not be able to get sufficient credit to start construction,' said an industry source.
Said another industry executive: 'Generally, when markets soften, demand will pull back faster than supply adjustment.'
Any government move to bring forward deferred projects would help to keep people employed, but it has to be done carefully so as not to strain contractors' tendering and construction resources.
For now, there is a good chance of costs coming down.
'As global markets right themselves in the aftermath of the financial crisis, prices are likely to correct themselves to more tenable levels that will keep the construction industry alive,' said Mr. John Brells, senior vice-president and managing director, Asia-Pacific, at United States-listed construction consultancy firm Hill International.
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