Tuesday, March 25, 2008

Home Makeovers Hard Hit By Price Hikes

Source : The Straits Times, Mar 21, 2008

Spike in building material prices, labour crunch pushing renovation costs up by 20% this year

PLANNING to renovate your home? If so, be prepared to pay 20 per cent more.

Construction costs - for both big projects and home renovations - have risen due to a rise in raw material prices and labour costs. And they are expected to increase even more this year.

ESCALATING PRICES: The cost of reinforcing steel bars has increased by about 60 per cent in the span of one year, while cement prices have gone up by 30 per cent. -- ST PHOTO: DESMOND LIM

Industry experts say overall construction costs are expected to rise by another 15 to 20 per cent this year - following a 40 per cent spike in the last two years.

A global spike in raw material prices, and a construction resources and manpower crunch here, are to blame for the relentless rise, say market players.

In particular, prices of reinforcing steel bars - used extensively in construction - have soared 64 per cent from $753 per tonne in January last year to $1,235 this January, according to data from the Building and Construction Authority (BCA).

Rising global demand for steel, fuelled by a building boom in developing countries such as China, India and Vietnam, is pushing prices up sharply.

The price of cement rose 30 per cent to $117 per tonne in the same period.

Consumers' pockets are hard hit by the price hikes. Contractors say home owners now have to fork out up to 20 per cent more for renovation works.

Renovating a 110 sq m five-room HDB flat, for example - which would have cost $80,000 at most at the start of last year - would now mean forking out $100,000, said contractor Steven Koh, 51, of Colorado Design.

But there is good news: the extra cost of building a new home is unlikely to be passed on to flat buyers.

Real Estate Developers Association of Singapore executive director Chia Hock Jin said developers cannot simply pass on the costs: 'It's the market that determines the prices.'

Given the recent cooling of the property market, price hikes for homes are also unlikely.

Local developer Frasers Centrepoint Homes said it has partly absorbed the rising costs and has also tried to mitigate them by adopting more efficient ways of building and securing raw material in bulk.

Construction costs typically make up 20 to 25 per cent of the total cost of a development, with the bulk coming from land cost, said Mr Seah Choo Meng, executive chairman of quantity surveying firm Davis Langdon & Seah Singapore.

Meanwhile, main contractors are starting to feel the pinch, with price rises eating into their profit margins. Wacon Construction & Trading, hired for a $5million spruce-up of MacRitchie Reservoir, was recently reported to have gone bust due to the hikes in raw material prices.

Mr Simon Lee, executive director of the Singapore Contractors Association Limited, said contractors had only a small margin in factoring such rises into building tenders.

One source of relief is the stabilising prices of sand, granite and concrete. BCA's latest data show prices of these materials are easing, after an artificial spike following Indonesia's abrupt ban of land sand exports last February. Still, compared to January last year, these prices have escalated and, in some cases such as sand, even doubled.

Mr Lee said there was concern that developers were slow in paying contractors, especially those affected by the sand ban, which might exacerbate contractors' cash-flow problems.

Mr Seah said he does not expect the construction crunch to abate, predicting that constructing demand will go up to $27 billion this year.

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