Lessons from Greatearth's bust: Integrated players best placed to tackle construction

Greatearth collapse: will more construction firms follow as reliefs and government help end

Fri, Aug 27, 2021 - 7:23 PM
UPDATED Fri, Aug 27, 2021 - 9:41 PM

https://www.businesstimes.com.sg/rea...overnment-help

Yong Jun Yuan


IN THE wake of news that Greatearth Corporation and Greatearth Construction have gone bust, lawyers working with construction companies said that factors like increased cost of materials and labour could deliver the same fate to more contractors.

On Wednesday, HDB informed affected homebuyers of five ongoing Build-To-Order (BTO) housing projects that there would be further delays as the two related contractors have run into "financial difficulties".

Another two public projects, the Mandai Crematorium and Columbarium under the National Environment Agency and the Gali Batu bus depot under the Land Transport Authority, could be held up as well.

In the first seven months of this year, Accounting and Corporate Regulatory Authority (ACRA) data showed that 1,324 business entities in the construction sector had ceased operations. This is marginally higher than the 1,282 entities recorded in the corresponding period last year, but still lower than the 1,422 entities recorded in the first seven months of 2019.

Derek Loh, a partner at Singapore-based TSMP Law Corporation, said employers may have refrained from pressing main contractors during the relief period due to the Covid-19 (Temporary Measures) Act. The act was amended on April 5 to extend the relief period for construction contracts, supply contracts or any performance bonds until Sept 30.

It was also amended to require the co-sharing of qualifying costs resulting from delays caused by the pandemic from April 7 to Sept 30 this year.

Both Mr Loh and Danna Er, a partner at Eldan Law LLP, noted that some stumbling blocks faced by contractors include increases in materials cost due to disruptions in supply chains, and labour-cost increases due to the manpower crunch that the industry is facing.

Ms Er said: "Construction companies that have been able to stay afloat during this difficult Covid-19 period have been able to do so because of a combination of strong financial reserves and government support received."

When these reliefs and other government assistance schemes end, these companies could resort to legal proceedings or face insolvency, she added.

Mr Loh also foresees that employers will need to shoulder some of these costs, or the financial health of the industry will worsen, resulting in more failures.

"This will be to the detriment of employers as well as they would have to employ replacement contractors who would naturally quote higher prices, thereby adding to the construction costs of employers," he said.

Troubled contractor Greatearth files to wind up company, a week after shock BTO sites closures

September 3, 2021

SINGAPORE - Troubled construction company Greatearth has started the process of winding up, a week after their shock closure of five Build-To-Order (BTO) project sites which caused more than 2,900 home buyers to face longer delays.

Mr Goh Eng Hwee, the director of Greatearth Corporation and Greatearth Construction has filed a statutory declaration of the company's inability to continue business.

Professional services firm PwC has been appointed as provisional liquidators for the companies on Friday (Sept 3).

A creditors meeting will be held on Sept 27.

The two related companies Greatearth Corporation and Greatearth Construction were the main contractors for the five affected BTO projects, which comprise a total of 2,982 units. The projects are Sky Vista @ Bukit Batok, Senja Heights and Senja Ridges in Bukit Panjang, Marsiling Grove in Woodlands and West Coast Parkview in Clementi.

Works at the five sites have stopped since Aug 20.

The Housing Board had informed home buyers that the projects would be further pushed back, although it did not specify the length of the delay.

New contractors will be appointed as soon as possible to complete the remaining works, said HDB.

The completion dates for these projects had already been pushed back because of manpower and supply disruptions in the construction sector caused by the Covid-19 pandemic.

Greatearth was also the main contractor for two public projects that are now facing possible hold-ups.

They are the Mandai Crematorium and Columbarium under the National Environment Agency and the Gali Batu bus depot under the Land Transport Authority.

Several subcontractors are facing heavy financial losses on the contracting fees owed to them by Greatearth.

Some said that they are unable to retrieve valuable unpaid building materials such as steel components as they have been locked out of the work sites.

Lessons from Greatearth's bust: Integrated players best placed to tackle construction woes

Sep 08, 2021

Nisha Ramchandani

THE plight of defunct contractor Greatearth underscores the severity of the headwinds that have been plaguing the construction sector.

Since the pandemic first broke, construction companies have seen work disrupted by the circuit breaker as well as stringent safe-distancing measures at worksites. Arguably the biggest challenge, however, is tighter border controls which have restricted the flow of foreign workers and resulted in a manpower shortage.

Companies have had to hike salaries to retain their existing workers, who also have to be tested regularly for Covid-19. All this has driven up costs and put pressure on margins. Supply chains have also been disrupted, which has impacted the supply and cost of construction materials. In short, it's created the perfect storm for the construction industry.

Analysts say that construction costs have gone up anywhere from 10 to 30 per cent as a result. RHB analyst Vijay Natarajan reckons there is some sharing of the burden between contractors and developers for existing projects, although developers are likely factoring in the spike in construction costs when undertaking new projects and passing costs on to buyers.

Property developers have also had to contend with delays with respect to the completion timelines of their ongoing projects.

But the challenging operating environment has started to take its toll. Notably, affiliated companies Greatearth Corporation and Greatearth Construction are being wound up. As a result, there will be further delays in the construction of five build-to-order housing projects and two public projects as HDB sources for new contractors to complete the remaining works. Several subcontractors are reportedly staring at sizeable losses due to unpaid fees owed by Greatearth, while over 2,900 home buyers are expected to be affected by the disruption.

Already, existing delays for public and private housing projects have resulted in some prospective buyers turning to the rental market as well as the HDB resale and private resale markets as some may be unable or unwilling to wait for their new home.

Analysts expect that construction players with exposure to property development should be better placed to ride out the storm, given the fairly buoyant state of the property market.

"Construction players will have to grapple with low margins for some time, but if they are a developer, they may be able to pass on some of these increased costs (to buyers)," Mr Natarajan said.

Diversified revenue streams

Being able to fall back on diversified revenue streams also helps.

Construction and property group Tiong Seng Holdings posted an operating loss of S$683,000 for H1 2021 at its construction business, albeit narrowing from S$6.3 million a year ago. Operating profits from its property development and engineering solutions segments, however, helped mitigate some of the fallout, keeping it in the black with a net profit of S$1.4 million.

Meanwhile, Wee Hur Holdings posted its first loss in over 40 years for H1 FY2021 - to the tune of S$25 million - weighed down by its construction and purpose-built student accomodation (PBSA) businesses. These losses were partially offset by gains from the property development business and workers' dormitory business.

But even as the pandemic continues to present challenges for its other businesses, Wee Hur appears fairly sanguine where property development is concerned as it ramps up to launch its 115-unit condominium Bartley Vue for sale this month.

An integrated player such as Chip Eng Seng Corp or Lian Beng Group may also be better placed to meet construction timelines versus a pure play developer. Integrated players will be able to plan better, according to DBS analyst Derek Tan. "Developers are passing on the increased construction costs to consumers but if there are limitations to how much they can pass on, they would need to look at which avenues to cut. An integrated player would have more leeway - there's more flexibility and, possibly, more control over raw materials and inventory."

The eventual relaxing of curbs to allow the inflow of foreign workers should help alleviate some of the pressure on the construction sector. But even as the pandemic is contained, analysts say that construction costs may not return to pre-pandemic level since some of these increased costs are due to structural changes - such as the shift towards ensuring a better living environment for workers.

As Singapore works towards reducing its reliance on foreign labour, automation will be a key part of helping the construction industry adapt to the new normal.

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