https://www.businesstimes.com.sg/gov...rkers-analysts

Covid-19 will shake up dorm market for workers: analysts

They add that tougher rules and higher costs may force consolidation among operators and clients, and a further shift towards purpose-built housing

Wed, Apr 15, 2020

Annabeth Leow


THE for-profit workers' housing industry is due for a shake-up, as the spread of the deadly new coronavirus could prompt the authorities to tighten standards, watchers believe.

With the virus tearing through workers' quarters, eight dormitories had been declared special isolation areas under the law, by Sunday.

The situation highlights how living conditions pose immediate risks to foreign workers' health and well-being, according to Satya Ramamurthy, head of infrastructure, government and healthcare at KPMG in Singapore.

DBS analyst Ling Lee Keng, who opened coverage of dorm operator Centurion Corp with a "buy" last year, told The Business Times: "Given the wide spread of Covid-19 in dormitories, there is a possibility that regulators may revise the current rules to improve the living conditions."

Tougher rules and higher business costs may force consolidation and digitalisation among dormitory operators and their industry clients, even as the market shifts further towards purpose-built housing, analysts said.

About 135,000 migrant workers now live in temporary quarters at construction sites, or in converted industrial spaces. But employers can also put workers up in 43 larger facilities, licensed under the Foreign Employee Dormitories Act (FEDA), which are home to roughly 200,000 workers.

Operators of FEDA-licensed properties include mainboard-listed Centurion, which has a stock of 28,000 beds under the Westlite brand; logistics solutions firm MES Group's Labourtel, with 24,000 beds; and construction player Aik Chuan Group's Vobis Enterprise, with 21,000 beds.

Business at purpose-built facilities is booming: Centurion's Westlite arm, which also does business in Malaysia, earned S$52.2 million in the year to Dec 31, 2019, before finance costs, fair-value gains and other items.

In fact, even at monthly fees of S$250 to S$400 a head, dorm operators manage to stay in the black. Labourtel eked out gross profit of about S$964,100 in the year to June 30, 2019, on S$4.25 million in revenue - albeit before clocking a net loss on hefty fines for breaching regulations.

Otherwise, in the year to Dec 31, 2018, Nexus Point Investments - a joint venture involving construction players TA Corp and King Wan Corp - derived S$14.2 million in gross profit from S$17.6 million in turnover.

Signalling rosy prospects for operators, Centurion even flagged a looming shortage of up to 150,000 beds in an earnings briefing in late February.

Yet Covid-19 may force a rethink of dorms' business model. The infectious respiratory disease, which has no cure, has sunk its hooks into foreign worker communities island-wide.

The biggest cluster, S11 Dormitory @ Punggol, had 718 of Singapore's 3,252 confirmed cases on Tuesday. No stranger to contagion, S11 Dormitory @ Punggol, as well as Covid-19 clusters Toh Guan Dormitory and Sungei Tengah Lodge, also saw measles outbreaks last year.

CGS-CIMB analyst Ngoh Yi Sin, whose team called the industry fragmented in a January report, has now told BT that the latest epidemic may cause "a push towards more structured, better-quality housing or more diverse types of housing models".

Under guidelines last released in 2016, the Urban Redevelopment Authority requires at least 4.5 square metres of gross floor area for each resident, including sleeping, kitchen, dining and toilet areas. There must also be at least one set of toilet facilities for every 15 dormitory residents.

But lawmaker Louis Ng, who last week called for living conditions to be "improved significantly", is calling for the standards to be raised further.

On top of more living space, the People's Action Party MP is looking into bringing the ratio of showers and toilets closer to International Labour Organization's recommendation of one set for every six residents.

Mr Ng also wants to make outdoor recreation areas mandatory for all dormitories - not just those with more than 1,000 inhabitants - alongside a minimum number of sick bays, based on the number of residents.

"We are compiling a list of specific recommendations and will raise this in Parliament again at the next sitting," he told BT in an e-mail.

Mr Ng's proposals were echoed by other observers, with employment law practitioner Goh Seow Hui adding that it will be hard to prevent overcrowding or dirty toilets without changes to the minimum living space and sanitary facilities requirements.

CGS-CIMB's Ms Ngoh also told BT that "there could be enhancements to the dormitories" after the epidemic.

Changes might include caps on the capacity of each dormitory, a ramp-up in building dorms, and a faster shift towards purpose-built worker accommodation, instead of temporary or converted facilities, she suggested.

But, whichever rules are tweaked, dormitory operators and their clients are expected to face higher operating and investment costs - although Ms Ngoh did not rule out potential government subsidies to alleviate the hike in worker housing costs.

"Smaller dorm operators may not survive the tighter requirements," she told BT. "This could lead to possible consolidation in the industry, which may benefit market leaders."

DBS' Ms Ling added that, despite the diverse mix of publicly-listed and privately-held operators, "the winners would be those who are able to comply (with) the new requirements, regardless of their listing status".

All the same, Ms Goh, a partner at Bird & Bird, waved away the notion that tougher standards will reduce bed density, eat into dorm operators' profits and cause higher business costs to be passed on to consumers.

"Stringent standards may mean that more dormitories need to be built, that employers will have to get more efficient with labour, that dormitory building and designs will have to become 'smarter'," she said, adding that bosses should also bear some responsibility for dorm conditions.

KPMG's Mr Ramamurthy noted that companies renting dorm beds for staff could tap foreign worker levy rebates for help with any short-term cost spikes. But the employers must eventually raise productivity with re-skilling and technology, he added.