Building costs rise for developers due to higher demand, better designs: analysts

Construction costs for developers have been going up.According to some estimates, the jump was as much as 20% last year.

Industry watchers say that is mainly because of the increased demand for building services from major new projects like the integrated resorts.

Ku Swee Yong, Director of Savills Singapore, said: “There are several mega projects that Singapore is under-taking, in particular the two $5 billion investments in the casino integrated resorts, and several government infrastructure projects. All these would be fighting for the same pool of resources such as manpower, scaffolding, cranes.”

Major developer City Developments noted in a recent report that its construction costs increased in the past year, due to higher demand because of the more active property market.

Building costs aside, architect and design fees have also been on the uptrend.

This, as developers rope in famous international designers – such as Dutch architect Rem Koolhaas – to come up with unique designs to attract increasing-savvy home buyers.

These architects can command fees which are at least 50% higher than those of their local counterparts.

Wallace Chu, DBS Vickers’ Assistant Vice President, said: “They want their projects to stand out, with the buyers becoming more internationalized – they’ve been travelling and they know more about design, and they get used to the international lifestyle. That will push them to go for high quality, and they may not accept those normal types of designs.”

But analysts say property developers can well afford the higher costs, thanks to the buoyant property market.

Wallace Chu said: “The current situation is that (home) prices continue to go up. So for developers who have bought land a little bit earlier, that increase in overall costing will be buffered by that (home) price increase. So the bottom-line should still be strong for developers.”

Private home prices rose 10.2% last year and are seen climbing by some 15% this year.

Source: Channel NewsAsia, 05 April 2007

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