S$16b-$19b in public-sector construction projects this year to help industry ride out slump

SINGAPORE — Public sector works are expected to account for the bulk of construction projects this year as it did in recent years, pushing the overall value of construction contracts to S$31 billion at best, to salvage declining demand seen from 2015.

The Building and Construction Authority (BCA) projected that public sector construction demand — or the value of construction contracts to be awarded — would be between S$16 billion and S$19 billion. They are expected to contribute to about 60 per cent of total demand, which is between S$26 billion and S$31 billion.

Demand from the private sector is estimated to be between S$10 billion and S$12 billion.

Mr Desmond Lee, Second Minister for National Development, said on Thursday (Jan 11) that the Government would award more public sector construction projects this year as part of ongoing efforts to help Singapore firms ride out the slump in the construction industry.

Public sector construction demand has been propping up the sector, with increasing share in recent years. Analysts said that this move looks to be sustainable even until next year.

Some of the projects expected to be awarded this year include more major contracts for infrastructure projects such as the 21km North-South Corridor of transport routes, national water agency PUB's deep tunnel sewerage system, and various healthcare facilities.

Speaking at a seminar on the prospects for the built environment and property sectors, Mr Lee said: "The last few years have been challenging for (these) sectors. We have seen a drop in construction demand and many firms have felt the pressure."

He added that the Government would continue to monitor the demand for construction work and "ensure a stable and sustainable property market".

While there are signs that things are picking up in the overall economy and the private property sector, the Government would "help firms ride out the downturn" by continuing to lead the demand for construction projects in the coming years.

"We have also been encouraging government agencies to parcel out large infrastructure projects into smaller chunks, where possible. This helps agencies diversify risk and creates more opportunities for local firms," he said.

FALLING DEMAND 'NOT EXTREME'

A total of S$24.5 billion in building and civil engineering works was awarded last year — S$1.9 billion less than that in 2016. The figure was at S$38.8 billion in 2014 and has been falling steadily.

The construction sector also contracted 8.1 per cent year-on-year for the full year last year, despite the Singapore economy registering a growth of 3.5 per cent for the whole of 2017, advance estimates from the Ministry of Trade and Industry showed.

Mr Nicholas Mak, executive director of real estate investment firm ZACD Group, said that driving up public construction works is what many governments in developed nations usually do.

"When the government wants to prevent economic growth from falling too much, they build on the country's infrastructure. But the sustainability of that is provided that the government has the money to do it, which is a 'yes' for our Government. The public sector projects — MRT works, tunnel works — still look sustainable going into this year and next year."

The trend in recent years for construction demand hovering below S$30 billion is also not a big jump compared to the figure in 2014, he added. "It is not too extreme for demand to be around S$30 billion as well."

The overall construction demand for this year is unlikely to ever exceed S$30 billion either, Mr Mak predicted. "In general, (total demand) has tended to hover around S$24 to S$27 billion over the past few years. The levels in 2014 and 2013 (S$38.8 billion and S$35.8 billion) are also not considered extreme. The market is able to manage."

On why the construction industry is shown to be contracting in economic growth for last year compared to a year ago, Mr Mak explained that the contracts are still being awarded and time is needed "for the deals to materialise".

EN-BLOC SALES TO ADD TO DEMAND

Mr Mak expects private sector demand to pick up, on the back of the recent surge in en-bloc sales, which would spur construction activities. "For next year, the demand could also be similar to this year's expectations of between S$10 billion and S$12 billion," he said.

Another analyst agreed that the construction sector may be poised for an upturn due to the residential en-bloc fever. Ms Christine Li, director of research at Cushman and Wakefield, said: "The low supply in the office/hotel market over the next three years could also encourage some developers to look at commercial development sites. This will help to sustain the construction pipeline in the private sectors moving forward."

For private residential projects, BCA projected construction demand to be worth around S$3.6 billion this year, on the back of the recent spate of en-bloc sales. Demand for private commercial projects could hit S$2.5 billion this year, backed by upcoming office development projects at Central Boulevard and Harbour Drive.

Overall, the BCA expects construction demand to increase over the next five years. Mr Lee said Thursday that construction demand is expected to hit about S$35 billion by 2022.