The construction boom in Singapore is looking less promising for contractors who face higher material costs, squeezed margins and labour shortage, as an increasing number of construction companies compete to reap the spoils.
Fear also looms in the construction sector that the increase in demand could also suddenly fall, leaving companies burdened with more workers and resources than they need.
Builders are currently constructing private residential homes and expecting more of such developments, given the huge supply of state land that has been released. Additional demand is also expected, as the Ministry of National Development has promised a bumper supply of public housing projects.
According to a Kim Eng report, the additional Build-To-Order (BTO) flats this year will be worth approximately S$380 million in construction revenue. In addition, National Development Minister Khaw Boon Wan has also promised to keep up the pace next year, noting that 50,000 more HDB flats could be put on the market in just two years.
At first glance, this could be a golden era for developers and contractors, with an abundant supply of new housing developments in the pipeline. However, concerns are growing among property players that the spike in demand, along with limited resources and labour shortage, could lead to increased construction costs.
Mr. Pek Lian Guan, Chief Executive and Executive Director of Tiong Seng Holdings, said that tender prices slipped this year due to competitive bidding. At the same time, costs of raw materials and of foreign worker levies have increased.
He warned that ramping up the construction of BTO flats to clear the backlog of demand will lead to an increase in construction costs. However, if construction demand drops in two years, the industry might peak.
“For us in construction, we prefer a more steady market because if you increase your demand suddenly, the industry has to respond by building its capacity,” said Mr. Pek. “When a contractor builds his capacity, of course, it’s more costly, so prices will go up. If two years later you shrink your programme after they’ve built their capacity, then what are they going to do?”
While some of the cost increases can be handed over to developers, contractors will have to bear the brunt of projects secured earlier, said Ho Nyok Yong, President of Singapore Contractors Association.
He noted that when contracts are abundant, companies invest in new technologies and employ more people to speed up development. However, if the industry slows down suddenly, it will become a “big problem”.
“There’s always a risk in expanding the construction business too quickly, and we’ve constantly reminded our members to do so in a more careful manner with proper planning,” he said.
“A gradual growth of the industry is best for contractors so we can continue to retain skilled workers, engineers and professionals in the industry. We don’t want a roller-coaster scenario, which will make the industry unsustainable.”
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