http://www.businesstimes.com.sg/arch...anges-20130227

Published February 27, 2013

REACTIONS TO BUDGET

Construction industry anticipated changes

By ong chor hao


[SINGAPORE] That the latest measures announced in Monday's Budget would impact the construction industry is pretty clear, but the severity may be relatively muted, analysts and companies say.

Maybank Kim Eng, for example, said that the hikes to foreign worker levies, imposed as a way of weaning the industry from its reliance on such workers, had already been expected by construction firms.

Their response has thus been to look for alternative income streams; those who have done so should be in better shape, it said.

DBS Vickers Securities (Singapore), offering another reason for the effects of the changes to be muted, said that, in anticipation of the policy change, contractors have been walking away from projects that threaten profit margins.

"Firms now know how to manage costs and have chosen to remain profitable even though this meant lower revenues," it said.

The analysts were reacting to the policy changes unveiled in the Budget on Monday, when it was also announced that levies will go up for less-skilled work-permit holders between this July and July 2015.

Steeper levy hikes on workers hired outside a company's Man-Year Entitlement will also apply, along with regulations to mandate the use of more manpower-efficient designs and technologies in building projects.

Kenneth Lim, the assistant director at civil engineering firm Swee Hong, said he believes the pain of restructuring may not be too prolonged, because the discomfort or displacement brought about by the changes would last only as long as it would take for the industry to see the benefits the changes bring.

Offering an example of how his company adopted technology in the form of Building Information Modeling (BIM) in 2010, he said that there was at first a lot of resistance to the technology, which generates 3D models of buildings on computers; its engineers had been used to 2D computer-aided design (CAD).

But the company was convinced that BIM would cut its reliance on manpower and improve the perception of the industry.

It took about a year for the benefits to show, he said: "It needs a lot of motivation, and when people start to see it and they are used to it, I think that is how things start to move."

DBS Vickers, pointed out, however, that tightening of the foreign labour tap until 2015 would be a bane for the industry, which has seen its average net profit margins shrink since 2010 as a result of higher costs of labour and materials.

Ong Pang Aik, the executive chairman at Lian Beng Group, expressed concern that the increase in levies would make it difficult to plan project tenders. Firms make bids based on the levy at a specific point in time, so changes in between will affect their margins, he said.

A knock-on effect will be higher project costs for future property development.

"Definitely part of the levy we will add to the construction costs," he said.

Ho Nyok Yong, president of Singapore Contractors Association, said smaller players have begun consolidating, but the industry will still be hamstrung by manpower shortages in the near term, with the tightening of the labour policy.

"Consolidation could be a good thing, but (firms) closing down will severely affect the construction industry as a whole because the large contractors rely on small subcontractors to execute a project," he said.

The result would be delays in completion of projects, he added.