BCA projects Singapore construction demand in 2023 to hit S$27-32b, with public sector leading the way

Jan 12, 2023

THE value of construction contracts to be awarded in 2023 is projected to range between S$27 billion and S$32 billion this year, Singapore’s Building and Construction Authority (BCA) said on Thursday (Jan 12).

Analysts are also positive on the sector, even as it continues to face manpower constraints and disruptions from safety incidents.

This predicted range is the same as the year before, with 60 per cent of construction demand expected to come from the public sector, which BCA estimates will contribute between S$16 billion and S$19 billion.

This will be supported by a strong pipeline of public housing projects as the Housing and Development Board ramps up Build-To-Order flat supply, BCA noted. Industrial and institutional building construction will also boost public sector demand with more water treatment plants, educational buildings and community club projects.

The private sector, meanwhile, is anticipated to contribute between S$11 billion and S$13 billion, in line with 2022 figures. Residential and industrial building construction demand is projected to be similar to last year, buoyed by new condominiums and high-specification industrial building projects.

BCA expects commercial building demand to rise as some major projects from 2022 were rescheduled to 2023. Old commercial premises will also be redeveloped to enhance asset values.

Based on preliminary estimates, total construction demand in 2022 hit S$29.8 billion, in line with BCA’s S$27 billion to S$32 billion forecast and similar to the S$29.9 billion recorded in 2021.

Public sector construction demand rose slightly to S$17.9 billion in 2022, from S$17.8 billion in the year-ago period. Private sector demand, however, moderated slightly to S$11.9 billion in 2022 from S$12.1 billion the year before, on various economic downside risks.

On construction output, BCA expects the value of certified progress payment to increase to between S$30 billion and S$33 billion in 2023, from the 2022 preliminary estimate of S$30.2 billion. It projects a steady level of construction demand and some backlog from remaining workloads impacted by the Covid-19 pandemic.

In the medium term, BCA estimates total construction demand to hit between S$25 billion and S$32 billion per year from 2024 to 2027, with the public sector continuing to lead demand with S$14 billion to S$18 billion per annum.

Private sector demand is expected to remain steady over the same period, reaching some S$11 billion to S$14 billion per annum, keeping “healthy investment commitments” in mind amid the Republic’s strong economic fundamentals, BCA said.

Analysts that The Business Times spoke to said locally listed construction companies should benefit from robust demand.

CGS-CIMB analyst Ong Khang Chuen said the latest forecast suggests that construction companies will be able to replenish their order books on top of their strong order backlogs, despite macroeconomic concerns.

“We also expect better margins for construction companies as they continue to flush out pre-pandemic order books (lower margins hit by a spike in related costs) and start executing on newer projects,” he said.

Head of equities research at SAC Capital Matthias Chan believes the value of construction contracts awarded could even surprise on the upside as the sector continued to suffer the effects of Covid-19 related constraints in 2022.

In particular, he likes Lian Beng Group : L03 0% for its inexpensive valuation and dividend yield of close to 6 per cent, adding that the company derives about 80 per cent of its revenue from construction activities.

Meanwhile, Ong continues to favour building material players such as steel solutions provider BRC Asia : BEC 0%, ready-mix concrete provider Pan-United Corporation : P52 0%, and industrial conglomerate Hong Leong Asia.

Still, SAC’s Chan noted that construction companies could still experience manpower shortages and manpower cost increases.

Phillip Securities Research senior research analyst Terence Chua said he expects work delays due to the heightened safety period imposed by the Ministry of Manpower in September last year.

“The downside risk is an extension of the heightened safety period beyond Mar 1, 2023 in view of the high spate of workplace accidents, which could weigh on the construction companies,” he added.

CGS-CIMB’s Ong suggested that the sector might also see credit risks as financing costs rise.