Asia to benefit from falling construction costs
By Wong Siew Ying,
SINGAPORE : Construction costs in Singapore have come down by about 10 per cent in recent weeks and experts said these could fall by a further 15 per cent by mid-2009.
This will make the country more attractive to investors, and could give the industry in the region a boost over the next two years.
Property prices in the United States and Europe have fallen some 30 per cent over the last two years as foreclosure sales went up.
But buyers are not flocking into those markets, and observers said they are turning instead to Asia.
Ku Swee Yong, director, Marketing & Business Development, Savills, said: “In the next five years, your returns (from investing in the US and Europe) are going to be 2 per cent per annum, that is not a good buy. So I believe investors would, over the next two years, all start to look into Asia…we could be generating growth of about 10 per cent per annum for the next five years in terms of capital values and yields.”
Relatively lower construction costs are also making Asia more attractive.
Material costs - which make up 10 per cent of total construction cost - have fallen due to slowing demand and falling oil prices.
For example, construction firms said steel bars now cost about S$1,100 per ton, compared to S$1,700 per ton in August.
Meanwhile, concrete prices fell from S$125 per cubic metre to S$115 per cubic metre over the same period.
Sand prices also dropped from S$60 per ton to S$50 per ton, and observers expect rentals of large equipment like cranes to drop by 50 per cent too.
But observers said Singapore’s construction sector is also affected by labour costs.
Desmond Hill, president of Singapore Contractors Association, said: “Manpower cost in 2006 and 2007 went up by between 20 and 30 per cent, that is fairly substantial for contractors. Hopefully we will see a tapering of these costs by (the) middle of next year into 2010.”
Lenders are expected to be more willing to finance projects in light of lower material costs.
But the cost savings may not be passed down to home buyers.
Falling construction cost is also unlikely to persuade developers to start on projects which have been previously held back due to weak market sentiment.
Karamjit Singh, managing director of Credo Real Estate, said: “Developers with inventory have bigger problems to grapple with…So it is not going to trickle down to home buyers so early at this stage. Material costs have come down, but from feedback that we have received from developers, pricing by contractors has not really come down to (a) great extent.”
Still, the general opinion is that construction cost will definitely fall, after surging too quickly by some 30 per cent in the past year.
And industry players said prices will come down regardless of whether the Singapore government rolls out more public sector projects. - CNA/ms
Source : Channel NewsAsia - 02 Dec 2008
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