Top Grade Contractors Earning Premiums Amid Property Boom

Source : Channel NewsAsia, 05 October 2007

It's not just property developers who are riding the current industry boom.

Established construction companies that struggled through the stormy late 90s are now experiencing a robust turnaround, and are commanding price tags which are up to 20 percent higher than their smaller peers.

That's because there are not enough of them to go around in a market awash with developers who want only the best for their projects.

The larger number of projects is an obvious factor, but there is another key reason for the squeeze. A number of contractors had gone bust, and for those still around, most have been down-sized.

Kunalan Sivapuniam, managing partner at Emirates Tarian, said: "Developers are very cautious about quality. We are also faced with discerning buyers who want to pay for quality. So you have to look for quality contractors. If you look at category A or grade one contractors, there are not that many now."

Industry watchers said that going forward, top grade construction firms may command premiums higher than now.

Song Seng Wun, regional economist at CIMB-GK Research, said: "At this juncture, we are at the beginning of the upturn of the construction cycle. I suspect in the coming few years, the construction firms will do quite well."

Developers say higher costs could be passed down to home buyers.

Emirates Tarian's Kunalan Sivapuniam said: "It's hard to say how much of that is going to be passed on. It's a question of whether they are in a hurry to launch the projects, in which case they have to bite the bullet.

"If you have developers that are able to hold on to their projects and launch them over a longer period of time, then they would be able to pass on a lot of this, because the market is rising."

As this demand bulge moves further down the pipe, industry players say related services like interior design and electrical fittings can also look to rosy days ahead.

According to some estimates, the value of construction contracts awarded this year will hit more than S$20 billion. - CNA/ir