Construction sector set for slowdown after existing projects run out

Singapore’s construction sector looks set to ride out the current economic downturn, thanks to a strong orderbook of projects lasting for at least another year.

These projects are expected to be valued at around S$30 billion by the end of 2008. That is 22.4 per cent higher than 2007.

But some experts are predicting a prolonged economic slowdown lasting past 2010. This could mean tough times ahead for the construction industry.

Singapore’s construction industry had one of its best years in 2007. Despite soaring prices of fuel and materials, the sector grew 20.3 per cent last year, and confidence was high at the beginning of 2008.

It expanded by 16.9 per cent in the first quarter, and saw 17.4 per cent growth by the end of the first half.

The projects secured in the 12 months ended June this year will ensure that the industry continues to thrive in 2009.

Desmond Hill, president, Singapore Contractors Association, said: “Most of the jobs that we have in hand were already obtained either in the first half of this year or last year.

“Most contracts are on firm price contracts, so most contractors would actually have a very busy year in 2009. So in that respect, the effect will not be felt or be so obvious to contractors.”

The economic slowdown took its toll on the industry and growth was halved to about 7.8 per cent by the third quarter of this year.

But industry players said their immediate concern is a tight labour market resulting from the slew of projects started in 2007 and 2008. This is especially the case when it comes to supervisory positions, and companies expect to continue to be short-handed next year.

Mr Hill added: “You’ll find that, although it’s picked up since 2006, contractors are still having difficulty getting the right number of people to come on board as supervisory and management staff. And I think that will go at least up until the end of 2009.”

But the financial crisis is expected to spread to the real economy and observers said this will mean fewer new construction projects from next year onwards.

Thomas Kaegi, Wealth Management director, Global Investment, Recommendation Head, UBS, said: “As demand for new projects is diminishing, we also see significant over-capacity now in the retail as well as in the office properties sector. As such, the demand for new projects will be significantly lower in 2009, which then has effects for 2010.”

Singapore’s construction industry last experienced a slowdown in the decade between 1995 and 2005.

Market watchers said that the companies that survived are better placed to weather this new crisis.

Source : Channel NewsAsia – 18 Dec 2008

COMMENTS