August 14, 2008 Thursday

Building projects busting budgets

Shortage of construction workers and materials causing costs to shoot up by as much as 50%

By Francis Chan

SOME building projects in Singapore are facing cost blowouts of 30 to 50 per cent above their original budget as higher construction costs bite hard.

The continuing shortage of construction workers and building materials has left project bosses with little choice but to pay upfront for the far higher costs or abandon the project.

Anecdotal evidence suggests that building budget blowouts are far bigger than official figures indicate.

One project that has been hit by higher building costs is the Khoo Teck Puat Hospital in Yishun.

The chief executive of Alexandra Hospital, Mr Liak Teng Lit, who is overseeing the construction project, said some parts of the project face cost hikes of 30 to 40 per cent. The original total cost of the project was $400 million.

Another project that has been hit is Safra's Jurong clubhouse. Costs for the project have shot up 30 per cent since its groundbreaking ceremony in February last year. Its original budget: $30 million.

And earlier this month, the Health Ministry announced that it would provide Ren Ci charity with additional funding of 'up to $9.3 million' for its new hospital at Irrawaddy Road.

This was to help cover the hike in construction costs for the medical centre - now set to cost up to $42.4 million.

Although Ren Ci declined to comment on the issue, previous reports indicated that the initial budget for the project was $30.8 million.

One of the biggest cost increases reported this year involves the Singapore Island Country Club (SICC). The club was reported in June to have sought club members' approval to increase its budget to construct a new clubhouse from $60 million to $90.3 million - a whopping 50 per cent rise.

The Building and Construction Authority reported that construction costs rose 20 to 30 per cent last year.

A statement by National Development Minister Mah Bow Tan last month said a rise of another 3 to 5 per cent was recorded in the first quarter of this year.

Mr Goh Ngan Hong, president of the quantity surveying division at the Singapore Institute of Surveyors and Valuers (SISV), said: 'Based on leading quantity surveyor firms and general industry feedback, construction cost was estimated to have increased by about 20 to 30 per cent in 2007.'

He added that costs were 'estimated to have increased by another 10 to 15 per cent by mid-2008'.

Market watchers and most industry players such as property developers, contractors, suppliers and construction-related firms that The Straits Times spoke to broadly agreed with SISV's figures.

However, a number of projects surveyed by The Straits Times painted a bleaker picture.

Project bosses cited the escalating cost of essential construction materials, including sand, concrete, steel and other base metals. Another problem is the lack of construction industry manpower.

'This spike in basic plant, equipment, materials and labour costs is affecting construction project budgets,' said the executive director of the Singapore Contractors Association, Mr Simon Lee.

He said such cost increases would inevitably cause delays in the completion of contracts, which was 'not good for business'.

The construction cost hikes have affected big and small projects alike.

The Marina Bay Sands and Resorts World at Sentosa integrated resorts have also fallen prey to cost hikes.

Marina Bay Sands was recently reported to have blamed soaring prices of building materials for its cost rising from an estimated US$3.6 billion ($4.9 billion) to US$4.5 billion. And last November, Resorts World at Sentosa bumped up its budget to $6 billion from $5.2 billion.

The Singapore Manufacturers' Federation (SMa) took a more contrarian view of construction costs.

'Although raw material and labour prices have risen significantly over the past two years, costs or selling prices of most construction-related materials... have by and large not risen more than 15 per cent year-on-year,' said Mr Alan Lee, chairman of the SMa's building products and construction materials industry group.

When asked what measures the construction industry may put in place to tackle the problem of rising costs, the SISV said: 'Passing the higher costs to the property purchasers and other consumers - this seems to be the likely case.'

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Additional reporting by Fiona Chan