April 6, 2007, 8.23 pm (Singapore time)

Sand costs may raise property prices

THE cost of sand and concrete may be rising, but Singapore's property developers are not feeling the pinch yet.

That's because they are still not publicly committing to helping building contractors share the burden of a rise in raw material prices.

And even if they do bear some of the added cost in future, they are likely to be able to pass this on to homebuyers in the current bouyant property market.

Also, the disruption in sand supplies is not yet serious enough to cause delays to current building projects.

'It's not going to derail the property upturn,' concluded one property analyst, who professed to initially having some concerns over rising sand costs.

The price of sand has risen from a pre-ban rate of about $20 per cubic metre, including transport, to $60 currently for Government stockpiled sand.

Alternative supplies are coming in at some $47 per cu m, say industry players. But the problem is that price of concrete have not come down.

Concrete now costs as much as $200 per cubic metre, from $70 per cubic metre before the ban.

Yet the rise in material costs will probably push up total development cost for developers by just 1 to 3 per cent, said Mr Seah Choo Meng, executive chairman of quantity surveying firm Davis Langdon & Seah Singapore.

The reason for the relatively small overall increase is that a large part of development cost is still land cost.

One controversy that has arisen in recent weeks is that building contractors say private developers have refused to help absorb the rising cost of sand and concrete.

This is despite the fact that developers are better buffered from rising material costs than contractors, since they enjoy higher profits.

'It's up to the developers to help the contractors,' said Mr Winston Liew, an analyst at OCBC Investment Research.

'They can absorb any increase in material costs.'

Contacted by The Straits Times last week, developers who agreed to comment on the matter said they were sympathetic and would help their contractors on a case-by-case basis.

'We are not aware of any situation where the contractors have said that we are not helping them,' said Mr Chia Hock Jin, executive director of the Real Estate Developers Association (Redas).

Frasers Centrepoint's chief executive Lim Ee Seng said: 'We are still finalising actual costs sharing with our contractors but are helping those who may experience temporary cash flow problems.'

Another developer, which declined to be named, said it will monitor the situation closely and work with their contractors to overcome this hiccup.

But developers also added that they will not adopt the 'one-size-fits-all' approach of the public sector.

The Government is picking up the tab for 75 per cent of the rise in sand costs for contractors and has encouraged private developers to adopt a similar cost-sharing approach.

They may soon not have much of a choice, because contractors are now thinking of doing away with fixed price contracts and incorporating price fluctuation clauses which allow them to pass on increased sand and concrete costs directly to developers.

'Then presumably the increased cost would be passed on to the end buyers,' said Mr Seah, sending property prices up slightly.

Still, the rise in prices is likely to be masked by an overall rise in prices driven by demand.

'Home prices are now more market-driven than cost-driven,' noted a property market watcher.

Aside from increased costs, developers could also be affected if sand and concrete become more difficult to source, potentially slowing down or even delaying new developments.

Frasers Centrepoint said that there have been minor delays in obtaining concrete, but otherwise developers like Keppel Land, Ho Bee and United Engineers have said the sand ban has not resulted in major delays or disruptions to building schedules.