Smaller firms and those relying on private projects most affected.
CONSTRUCTION firms that rely heavily on private-sector projects face tough times ahead as more property developers delay building works.
Even public spending recently earmarked for infrastructure work may not be enough to tide contractors over the slump in demand, as 60 per cent of such spending is for specialised civil engineering works which a typical contractor cannot take on.
ST PHOTO: TERENCE TAN.The Government recently pledged $18 billion to $20 billion for public infrastructure works this year, and another $15 billion to $17 billion each for next year and 2011.
Of the amount, 40 per cent is for building works such as schools, hospitals and museums, said the Building and Construction Authority (BCA).
The other 60 per cent will go to civil engineering contracts such as extending the Downtown MRT Line and the widening of the expressways.
Industry experts told The Straits Times that contractors which build private residential condominiums will feel the full brunt of the global recession - likely to be after next year, when existing projects are completed.
While the private sector contributed an estimated $20 billion in construction demand last year, this is expected to plunge to between $5 billion and $9 billion this year.
Revenue from private residential projects, in particular, is expected to drop from $6.5 billion last year to just $1.7 billion to $2.3 billion this year, said BCA.
Contractors say this figure could be worse come 2010 and beyond, and it looks like the public pie will not be big enough for everyone.
Mr Lim Yew Soon, managing director of a unit of local builder Evan Lim & Co, noted that civil engineering projects are very specialised, which 'only very few' experienced contractors can carry out.
The rest of the industry has to fight for the remaining 40 per cent of public building work, if private-sector projects all but dry up.
A check on BCA's online directory showed three times the number of contractors listed for building works - 2,751 - compared to 975 for civil engineering.
'A lot of these private projects have been shelved for obvious market reasons,' said Mr Desmond Hill, president of the Singapore Contractors Association.
'Credit is tight, and it's difficult to get financing to build projects, especially if people are not buying,' he said.
Those who strictly depend on private- sector projects may begin to get worried next year, he added, and this will have a knock-on effect on the smaller specialist sub-contractors.
Keppel Land, for example, announced recently it has deferred the construction of two projects - Marina Bay Suites in Marina Bay and Madison Residences in Bukit Timah - because of the downturn.
Late last year, a City Developments- led consortium deferred construction of the mega development South Beach on Beach Road, while developers such as GuocoLand have postponed redevelopment plans for acquired collective sale sites, and putting them back on the rental market.
'It's obvious private-sector work has dried up, there's no question about it,' said CIMB-GK Research construction industry analyst Lawrence Lye.
Even companies which have begun foundation works have been told to stop completely, he said. 'It's no surprise that everybody will now try to compete for public-sector projects.'
Firms such as Yongnam will survive the recession better as they specialise in civil engineering, and will have plenty of public-sector work, he added.
Mainboard-listed construction firms Lian Beng Group and KSH Holdings, on the other hand, are contractors that have built numerous condominiums and are now turning their eye to the public pie.
KSH Holdings recently had one of its contracts - Madison Residences - put on hold. Its executive chairman and managing director Choo Chee Onn said that currently, 50 per cent of its projects are private, and it expects to bid for more public ones in the future.
Lian Beng's executive chairman, Mr Ong Pang Aik, has a similar strategy.
Both are A1-grade contractors, a status which allows them to tender for public- sector construction projects of unlimited value.
Mr Hill estimates that construction industry revenue needs to hit $22 billion a year on average to sustain the building sector. If this demand is not there, firms might start to go under and professionals will get laid off or leave the industry, as in the last construction industry bust following the Sars crisis of 2003.
When the market eventually recovers, the industry might find itself short on local manpower, just as it did in the recent boom, he added.
All eyes are now on the market and whether developers will launch enough projects from the massive land bank they accumulated in the run-up to the 2007 property boom to sustain the industry.
CIMB-GK's Mr Lye said the bigger, fitter contractors are likely to survive the tough couple of years ahead.
Smaller firms are at greater risk. If their order book is small, all it takes is just a few cancelled or delayed projects to sink them, he said.
No comments:
Post a Comment