2008 Construction Deals Seen Hitting Record $27b

Source : The Business Times, January 16, 2008

The value of construction contracts awarded this year will reach $23-27 billion on the back of strong demand from the private sector, according to official estimates released yesterday.

Last year, the total value of construction contracts awarded hit $24.5 billion - also mainly due to strong private sector demand - according to the Building and Construction Authority (BCA).

The figure came in slightly above analysts' estimates of around $24 billion as well as BCA's previous estimate of $19-22 billion.

In terms of nominal value, last year's figure is higher than the peak demand of $24.4 billion seen in 1997. But if inflation is taken into account, last year's demand still fell about 9 per cent short of the total value of contracts awarded in 1997, BCA said.

Analysts said that the pace of contracts awarded in 2007 shows that growth is still to come.

'The $24.5 billion number is certainly impressive,' said Citigroup economist Kit Wei Zheng. 'Consider this. In the first 10 months of the year, we had $18.5 billion of construction contracts. This implies that $6 billion of contracts were awarded in November and December alone - roughly $3 billion a month. This is far higher than the $1.85 billion monthly average in the January to October period.'

Mr Kit said that the trend indicates that the pipeline of future contracts is likely to support construction GDP growth well into the second half of 2008 and 2009.

For this year, the private sector is again expected to account for the bulk of construction demand, mostly from residential and commercial developments. In 2007, some $18.8 billion worth of contracts came from the private sector.

However, the high construction demand is expected to continue to exert pressure on the construction industry's resources by driving costs up and leading to a capacity crunch.

In 2007, the price of ready-mixed concrete climbed 75 per cent to $130 per cubic metre, while the price of steel bars rose 34 per cent to $1,000 per tonne, BCA's data showed. Labour costs are also on the way up. Overall construction costs increased as much as 40 per cent last year, analysts said.

Many developers are also reporting that most contractors are fully booked for 2008.

Addressing this, the government said that it is 'taking proactive measures' to ease the pressure on construction resources.

Last November, it identified more than $2 billion worth of public sector projects that could be rescheduled to 2010 or beyond. 'All ministries are currently combing through their list of projects to identify more projects for rescheduling,' Parliamentary Secretary for the Ministry of National Development Mohamad Maliki bin Osman said yesterday.

BCA will also increase the number of overseas testing centres to 25 by mid-2009, up from 19 at present. This would allow more foreign workers to be employed.

The government is also encouraging the industry to use more recycled and alternative construction materials. A proposed licensing scheme for importers of materials like sand and granite is being finalised, said Dr Maliki.

He said that the assistance scheme that BCA implemented last year to share the risk of bringing in sand from distant sources will be ended, since it has been a year since Indonesia banned the export of concreting sand to Singapore. 'The move is based on feedback from the industry that the scheme is no longer necessary,' Dr Maliki said.

BCA also intends to continue to encourage the development of environmentally sustainable buildings. New guidelines on concrete usage will be introduced later this month, it said.