Demand in construction sector holding up this year

SINGAPORE - Public sector projects will be key demand drivers for the construction sector this year, as private sector projects take a back seat amid wariness among developers. Even so, the construction sector is still expected to secure contracts worth S$29 billion to S$36 billion this year, the Building and Construction Authority (BCA) estimates.

The sector marked a new record of S$37.7 billion contracts last year - which was at the upper-tail of BCA's forecast - on the back of more institutional and civil engineering construction contracts.

"Construction demand over the next five years will remain strong," said Senior Minister of State for National Development and Trade & Industry Lee Yi Shyan.

BCA is projecting the sector will achieve S$27 billion to S$36 billion of contracts per year for 2016 and 2017, and S$26 billion to S$37 billion per year for 2018 and 2019. "Major healthcare and infrastructure works, such as the remaining contracts for the upcoming MRT lines and Changi Airport Terminal 5, provide support for the industry," Mr Lee said at the annual BCA-Redas Built Environment and Property Prospects seminar.

Public sector projects are expected to account for 60 per cent (S$18 billion-S$21 billion) of all construction contracts, up from 52 per cent last year. While public housing projects will moderate from a ramp-up in previous years, a sustained pipeline of institutional and civil engineering works as well as an increase in industrial projects will lend support going forward, according to BCA.

Construction demand from the private sector, however, is going through a soft patch. This is estimated to ease further from S$18 billion last year to S$11 billion-S$15 billion as developers remain cautious given a tepid housing market and increased global uncertainties.

Lo Yen Lee, director for economics research and business development at BCA, said that weakness in the private residential market may be reflected in construction demand over the next four to five quarters.

As the building zeal wanes, the construction sector is seeing a structural shift in demand towards civil engineering works, whose share of total contracts in the construction sector already grew to 27 per cent in 2014 from 19 per cent.

Going by BCA's forecasts, industrial projects and civil engineering works are the only two segments that could likely see an uptick in contracts this year. Contractors that BT spoke to said that the projected decline in construction contracts for 2015 is marginal and is not likely to affect their business.

Singapore Contractors Association president Ho Nyok Yong noted that while the construction sector may not mark another record year, it will have sustainable volumes for the next two to three years.

Eric Ng, executive director of Singapore Exchange-listed Logistics Holdings, noted that the strong demand forecast for public sector projects bodes well for the group as it mainly undertakes public construction projects. "We are optimistic that there will still be many projects to tender for this year," he said.

BCA is expecting construction output to remain strong at S$35 billion-S$37 billion this year, though a high base effect from a record 2014 (estimated S$36 billion) will result in muted year-on-year comparisons. A decade-long expansion of the sector has seen construction output surge 200 per cent in nominal value from 2005's S$12 billion, Ms Lo noted.

Construction output typically accounted for under 5 per cent of Singapore's gross domestic product (GDP). Advanced estimates by the Ministry of Trade and Industry released last week showed real GDP in the construction sector growing 3 per cent in 2014 on the back of strong public-sector activities.

Projects that kept contractors busy last year included Changi Airport Terminal 4, Project Jewel, Sengkang General & Community Hospitals, as well as contracts for the Thomson-East Coast Line (TEL).

This year, projects in the pipeline include the TEL MRT line, proposed infrastructure works for Changi East Runway 3, State Courts Building at Havelock Square, JTC Space@Tuas, and Far East's commercial project Woodlands Square.

Cost consultancy and project management firm Davis Langdon KPK projects that construction tender prices here will rise by 1-2 per cent from Q4 2014 to Q4 2015, similar to last year.

But some cost relief has lately come in the form of lower energy prices, which are likely to stay low this year, CIMB regional economist Song Seng Wun pointed out. Also on the downtrend lately are building material prices given a slowdown in China, he said.

"As far as the (residential) property market is concerned, we already see that the supply of new homes is likely to keep downward pressures on prices, especially when the global economy and Singapore's growth environment remain subdued," Mr Song added. When prices fall, people start scouring for properties, he observed.

Also speaking at the BCA-Redas seminar, BCA chief executive John Keung said that the agency will continue to focus on enhancing productivity and working with the industry to adopt the Design for Manufacturing and Assembly approach to move more construction work off-site.

This, he said, will allow for better quality control, faster completion of work and better cost management in the long run.

This article was first published on January 9, 2015.
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