Govt projects this year may exceed those in private sector

Govt projects this year may exceed those in private sector

Singapore - This year and next, there will likely be more construction demand from government projects compared to the private sector - a reversal from past years - as the private property market grinds to a crawl.

But overall, the total volume of projects should still hold at around the same level as in 2015.

This was the "sense" the Building & Construction Authority (BCA) has for 2016, CEO John Keung told The Business Times in a recent interview.

BCA will be releasing actual figures for 2015 and forecast figures for 2016 on Jan 15.

Traditionally in the last five years, government projects have hovered around 40-50 per cent of the total volume of construction projects, with the private sector accounting for the remaining 50-60 per cent, Dr Keung said.

That proportion will likely swop in 2016, amid the private property market slowdown.

He said: "The private sector is coming down a bit. It depends a lot on the health of the property market. The supply-demand patterns can change very fast so it's less predictable, but there will likely be less projects to go around in the private sector.

"As for the public sector, it will probably come in more strongly in terms of projects such as healthcare and hospitals and civil engineering projects."

Civil engineering projects typically involve infrastructure works such as roads, bridges, railways, sewers, canals, drainage systems, underground structures, and so on.

Several major public projects have recently been completed, including the second phase of the Downtown Line 2, but Dr Keung said there are still many public-sector projects in the construction pipeline - not just building projects but also civil engineering ones.

"Construction work on-site will still be busy because many of those projects started in 2014 and 2015. A construction project can last two to four years depending on the scale, even if external demand patterns change," he said.

Earlier, the statutory board had forecast construction demand to reach S$29 billion to S$36 billion in 2015, with S$16 billion to S$19.5 billion coming from the government, and S$13 billion to S$16.5 billion coming from the private sector.

In 2014, construction demand hit close to S$39 billion, equally split between both sectors.

But Dr Keung reckons that the 2015 figures are likely to "be on the low end rather than the high end" of the range, and that the 2016 figures will be around the same as 2015's.

The construction sector, which accounts for about 5 per cent of Singapore's gross domestic product, grew at an annual pace of 1.1 per cent in 2015, according to the latest flash estimates, slowing from 3 per cent in 2014 and 6.3 per cent in 2013.

Bloomberg in an article last month said builders here are quite leveraged, with debt levels predicted to rise still. A few are also restructuring their debt with lenders and asking bondholders to ease financial covenants in their issued notes. There is general pessimism in the sector.

But Dr Keung said the present construction demand is still much better than the nominal demand from 2001 to 2006 of S$10 billion to S$16billion.

"In the last five to seven years, our construction demand has been on a historical high, and it's not just because of private sector development but also many public sector projects - railway, public housing and so on. Our industry has also built up the capability to handle bigger projects."

He also cautioned against making blatant comparisons in construction demand from year to year, given the "lumpy" nature of construction contracts. For instance, a Land and Transport Authority railway line could comprise 10 to 20 contracts of station and tunnel construction, each averaging hundreds of millions of dollars. When these contracts are awarded in a year, the total demand for that year could increase by a few billion dollars at one go.

As the construction sector continues to feel crippled by foreign hiring restrictions which look set to stay, Dr Keung said the one way construction companies can stay competitive is by changing the way they build.

"If you can do that, you can make your company much stronger in capability, and stand a better chance at securing contracts.

"What the government and BCA are trying to do is: If you are coming forward and wanting to improve your company's productivity and change your building processes, we are here to help with funding support.

"We have S$450 million (being the second tranche of the Construction Productivity and Capability Fund) to help our industry change its process and upgrade its skills, so it's a good time for companies that are progressive to gear up. . . Our funding support is open to everyone. We don't discriminate."

He doesn't deny that competition for projects - and with foreign players to boot - can be tough, but maintains that competition is a "good thing" and "nothing new".

"Our market is open. We have foreign contractors and local contractors. Competition is a way of life. We need to compete. If you look at it in the longer term as a good thing and try to improve yourself, you'll be in a stronger position to compete."


This article was first published on January 14, 2016.
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