Published March 9, 2009

Building tender prices to ease 10-15% this year: consultant

S'pore's fall steepest among key markets forecast; HK's slide expected to be 6%

By ARTHUR SIM

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(SINGAPORE) Given the slowdown in construction demand and the decline in both material and commodity prices, building tender prices in Singapore are expected to ease by an average of 10-15 per cent in 2009.

Silver lining: While private sector demand has slumped, public sector work, estimated at $18b-$20b, is expected to shore up overall demand

Construction cost consultant Rider Levett Bucknall (RLB), which tracks tender prices in key markets worldwide, expects Singapore to register the steepest drop in the tender price index (TPI).

Against the 10-15 per cent drop in Singapore, the TPI - which reflects tender price movements in specific sub-sectors of the construction industry - is forecast to fall by a smaller 6 per cent in Hong Kong and 4 per cent in London.

It will rise 2 per cent in New York, 3 per cent in Sydney and 7 per cent in Dubai, staying unchanged in Beijing.

RLB says construction demand in Singapore has been badly hit by the global financial crisis and credit squeeze. 'This is evident in the International Tender Price Index Relativity Matrix, where the Singapore index has fallen from a high of 122 in July 2008 to 112 in January 2009 (-8.2 per cent), registering a greater decline than Hong Kong (-7.0 per cent), Macau (-5.5 per cent) and the other regional cities,' the firm said in its report.

There is, however, one bright spot. While Singapore's private sector work is expected to fall from $20 billion in 2008 to $9 billion this year, public sector work comprising largely infrastructural and civil engineering works estimated at $18 billion to $20 billion will shore up overall construction demand for 2009.

Kim Eng Research analyst Wilson Liew says RLB's projection of a 10 per cent TPI fall is not unexpected.

He notes that developers in Singapore have held back new project launches due to relatively high tender prices and poor sentiment in a soft market. 'As long as raw material prices fall, I believe construction companies will lower their tender prices to keep their order books filled,' he says.

'Even if the government ramps up its construction spending, it will just offset some of the decreased private demand.'

In Q4 2008, private demand fell to $1.93 billion, down 60 per cent from $5.03 billion in the preceding quarter.

In the same comparative period, government spending increased by 80 per cent to $5.94 billion in the final quarter of 2008.

Government spending also increased from $5.7 billion in 2007 to $14.5 billion in 2008.

Some industry watchers say, however, that because the bulk of the government's spending is for specialised infrastructure projects such as the MRT and roadworks, construction demand in general may not be significantly boosted.

At a recent Building and Construction Authority seminar it was estimated that $4.2 billion of public housing construction contracts were awarded in 2008, compared with $7.2 billion for civil engineering work. For 2009, BCA believes civil engineering demand could hit $10-$11 billion.

Public housing construction demand could be in the range of $3.5 billion to $3.8 billion, while institutional and other building construction demand could add up to $3.5 billion to $5.7 billion.

Singapore Contractors Association Ltd executive director Simon Lee said the increase in infrastructure projects is not an issue for members at the moment. Instead, most are waiting for the smaller public sector building projects that have been promised. 'I believe the government will try to help smaller contractors,' Mr Lee said.

A check with some of Singapore's larger construction firms and specialist sub-contractors reveals that they, too, are dependent on government spending.

Koh Brothers recently reported that it has more than $690 million of contracts in hand. Managing director and CEO Francis Koh said that of these, only one is a private sector project worth $10 million. About 90 per cent are infrastructure projects.

Mr Koh reckons government projects in the pipeline will be infrastructural and says Koh Brothers will tender for them.

Koh Brothers, which recently reported a 30 per cent decline in 2008 net profit, is one of only about 10 A1 grade contractors allowed to tender for public sector construction projects of unlimited value.

Yongnam Holdings is a specialist sub-contractor in infrastructure, and CEO Seow Soon Yong says competition comes mostly from foreign companies.

This year Yongnam was awarded two coveted contracts to build parts of the Marina Coastal Expressway. The group has a sizeable order book of $504 million, about half of which comes from overseas - up from some 40 per cent a year ago.

How construction demand will be boosted by government spending here will be closely watched. United Engineers remains optimistic.

A spokesman said: 'We feel the projects to prime the economy will be a mixture of big and small jobs that will likely benefit most players in the construction industry.'