Published January 24, 2007

Construction demand could hit $19b in '07 on property boom

Contractors urged to seek alternative building methods to curb rising costs


CONSTRUCTION demand could hit its highest level in a decade, but the authorities have urged contractors and developers to step up the use of alternative methods to overcome the rising cost of traditional building materials.

The total value of contracts awarded here is likely to reach $17-19 billion this year, according to the Building and Construction Authority (BCA). If the forecast holds true, the figure would be the highest since the 1997 peak of $24 billion. The upbeat projection follows a solid performance last year, when demand climbed 40.8 per cent to $16.1 billion.

But the authorities have warned that costs will go up because of higher raw material costs and tight labour supply.

'The projected uptake in construction volume has posed some challenges to the industry,' Minister of State for National Development Grace Fu said at the Construction & Property Prospects 2007 seminar yesterday. 'With the vibrant global and regional level of construction activities, demand for basic construction materials has also gone up. We can therefore expect prices of construction materials to rise in tandem.'

Overall construction costs are estimated to have increased 6-8 per cent in 2006. Figures from BCA show the price of a 50kg bag of cement climbed 2.7 per cent in 2006, while ready-mixed concrete gained 1.6 per cent and steel reinforcement bars rose 6.3 per cent.

For 2007, prices of cement and steel reinforcement bars will each rise 5 per cent, while concreting sand and granite will cost at least 30 per cent more, BCA said.

Industry players are aware of this. A recent straw survey by BCA showed a majority of industry players expect a likely increase of about 8-10 per cent in overall construction costs in 2007.

To overcome this, construction companies have been encouraged to 'explore and adopt alternative construction methods and materials'. Ms Fu said: 'For example, the industry can explore the use of more pre-cast or semi-finished products, which could be efficiently manufactured in other markets, and the use of products such as dry walls and structural steel in place of concrete.'

And as for the labour squeeze, BCA estimates that an additional 40,000 foreign workers and 5,000 professionals and technical and supervisory staff will be needed over the next few years. For its part, the government has taken a 'proactive review' of its policies and eased some regulations to allow firms greater access to qualified manpower, Ms Fu said.

The industry is, therefore, gearing up for another hectic year after 2006's strong showing. Last year's expansion was driven mainly by a significant rebound in the private sector. In contrast, construction demand from the public sector moderated due to a decline in industrial and institutional construction orders.

Public sector construction demand fell 8.3 per cent to $3.6 billion in 2006. One reason for this was a drop in orders from JTC Corporation. Singapore's biggest industrial landlord continued to halt new factory development amid a decision on divesting its industrial properties.

However, the private sector more than picked up the slack. BCA's figures show private sector construction demand expanded more than one and a half times to $12.5 billion in 2006 - the highest level since the peak in 1997.

The surge was underpinned by significant rebounds in residential, commercial and industrial developments, which BCA attributed to the buoyant property market, appreciated rental and capital values and strong foreign investment.

This year, BCA expects public sector construction demand to improve to between $5.2 billion and $6.0 billion, fuelled by expected increases in all types of developments. The most significant expansion is likely to be in the industrial building category.

However, the private sector is still expected to be the star performer, awarding between $11.8 billion and $13 billion of projects in 2007.