Construction Demand Could Set New Record

Source : The Business Times, January 14, 2008

Analysts estimate $24 billion worth of contracts were inked in 2007

Construction demand in 2007 exceeded official estimates and is likely to have hit $24 billion, analysts said.

At present, the official forecast for last year's construction demand is $19-$22 billion. But in just the first ten months of 2007, construction demand hit $18.5 billion. In addition, several major contracts were also awarded in the last two months of the year.

'A ballpark estimate suggests that contracts awarded could have reached $23 billion for the whole of 2007,' said Citigroup economist Kit Wei Zheng. CIMB-GK economist Song Seng Wun is slightly more bullish - he expects construction demand for last year to come in at $24 billion.

Singapore's construction sector has once again emerged as a major growth driver, after being in the doldrums for about eight years following the Asian Financial Crisis of 1997/98.

Last August, industry regulator Building and Construction Authority upped its construction demand forecast for 2007 from its earlier estimate of $17-$19 billion.

There is also a sense that this year, construction demand will exceed the previous peak of $24.4 billion seen in 1997.

'The construction sector is expected to remain a key driver to GDP growth in 2008,' said Kim Eng's research team. 'The combined construction budget of the two Integrated Resorts amounts to over $12 billion and there is burgeoning demand from the residential property segment.'

Citigroup, for one, predicts that the pipeline of future contracts will likely remain large, supporting construction growth well into the second half of 2008 and 2009. 'Given the synchronised supports from the integrated resorts, residential and commercial property boom and infrastructure projects, construction demand could well exceed the previous 1997 peak this year,' said Citigroup's Mr Kit.

Apart from the two IRs and infrastructure projects, the large pipeline of residential projects could yield between $12-15 billion of contracts awarded over the next two years, he said.

OCBC Investment Research analyst Serene Lim also pointed out that the government intends to raise the value added of Singapore's energy industry to $34 billion in 2015 - an increase of about 70 per cent from current levels. The initiatives include probable plans to build an oil refinery with a capacity of 150,000 barrels per day, a liquefied natural gas terminal and biodiesel production plants, she said.

A recent report by construction cost consultancy Rider Levett Bucknall says that Singapore is on the upturn of the construction activity cycle, having recently emerged from a trough.

Analysts are also bullish on the prospects of construction firms in 2008.

'The going will continue to be good for local builders as they enjoy strong order books and margins expansion,' said Kim Eng Research.