Construction firms cautiously optimistic as demand picks up, but labour crunch and cost pressure persist

/ EdgeProp Singapore |
Khoo: In general, the cost of construction materials is expected to increase by 5%-8% this year, on top of a 15% increase in 2021. (Picture: Samuel Isaac Chua/The Edge Singapore)
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SINGAPORE (EDGEPROP) - Ongoing labour shortages and higher costs of construction materials are persistent challenges that the construction industry faces this year, according to a market report by international project management consultancy Turner & Townsend.
The consultancy notes that sentiment among construction firms in Singapore this year is one of cautious optimism, on the back of a wider economic recovery and a consistent pipeline of public- and private-sector projects.
However, the consultancy says that the uncertainties surrounding supply chain issues and inflationary pressures are heightening the level of risk that project stakeholders are exposed to.

Construction outlook nearing pre-pandemic levels

According to Khoo Sze Boon, managing director, Singapore & Vietnam at Turner & Townsend, construction activity in Singapore is approaching pre-pandemic levels. The sector ended 2021 with a strong showing, clocking in construction demand worth $29.9 billion, he says. This is a 42% increase compared to the year before.
Public-sector investment projects such as infrastructure and residential developments made up about 60% of the overall workload last year.
SG construction demand outlook graph - EDGEPROP SINGAPORE
This year, the private sector is expected to continue to account for close to 40% of the workload, says Khoo. It is still too early to tell if the latest round of property cooling measures implemented in December 2021 will dampen demand for private residential projects this year, he says.
“Most construction firms in Singapore went into 2022 with the intention of getting most of their projects off the [project timeline] delays that plagued them over the past two years,” says Khoo. “For the construction firms, this frees up their capacity to take on new projects this year.”
He adds that the projects that faced construction delays in 2020-2021 are now on track to be completed on schedule. These constitute about 80% of the total number of ongoing construction projects in Singapore. The remaining projects that still face some delays are a mix of infrastructure and building construction projects, he says.
Based on data from the Building and Construction Authority, the overall construction demand for the whole of 2022 is forecast to reach between $27 billion and $32 billion. This amount reflects projects that are expected to be awarded this year rather than progressive payments towards ongoing projects, says Khoo.
Research by Turner & Townsend estimates that public-sector construction demand this year could range from $16 billion to $19 billion, compared to $17.8 billion that was recorded in 2021. Meanwhile, private-sector projects could clock in at $11 billion to $13 billion this year, compared to $12.1 billion last year.
This year, most construction firms are feeling cautiously optimistic with more capacity to take on new projects, says Turner & Townsend. (Picture: Samuel Isaac Chua/The Edge Singapore)
“Based on our interactions with construction firms in Singapore, the sensing is that most firms are more keen to pursue business opportunities this year. But I think the pandemic experience has changed the way stakeholders [in the built environment] engage with contractors and vendors,” says Khoo.
He adds that the capacity of most firms is still quite stretched, therefore most construction companies are likely to be more selective when evaluating which projects to take on this year.

Persistent cost pressure

Strict border controls during the height of the pandemic in Singapore in 2021 meant that the construction sector suffered from restrictions on the flow of migrant workers into the country. This was a contributing factor that subsequently led to project delays and increased labour costs.
The government stepped in with a worker retention scheme in September 2021 that “somewhat mitigated” the labour situation, Turner & Townsend says. But the scheme ended in February this year.
“In 2022 and beyond, it will take time to manage the overall shortfall in resources [in the construction sector], with labour shortages likely to persist for the foreseeable future,” the consultancy notes in its market report.
However, Khoo notes that in general, the supply of migrant labour has improved in recent months, which has helped to alleviate the labour pressure that construction firms are facing. “Overall, the [labour] situation is certainly better compared to last year,” he says.
Singapore’s construction market is in a precarious position due to the country’s dependence on imports of all construction materials. Khoo notes that global supply-chain challenges are still present amid increased global demand, while supply shortages and supply-chain bottlenecks continue to push up the costs of key construction materials.
“In general, for the whole of 2021, we saw an upward trend in the cost of construction materials of about 15%, based on a basket of key construction materials that we track. But this year, we are projecting an increase of approximately 5% to 8%,” says Khoo.
For example, the cost of steel bars jumped 36.7% from $808.52 per tonne in December 2020 to $1,105.5 per tonne in December 2021. Likewise, the cost of cement climbed from $85.7 per tonne in December 2020 to $97.5 per tonne in December 2021, which was a 13.8% increase.
According to Khoo, this is likely to translate into an increase in the baseline cost of construction in Singapore over the next few months. “Pre-Covid, a mass-market residential development might project construction costs of about $260 to $280 psf. But based on the upward trend in the cost of construction materials, we could see the baseline construction costs go up to about $300 psf, depending on the site and type of project,” he says.
construction demand infographic - EDGEPROP SINGAPORE

Transforming the industry

For the construction sector to effectively tackle these challenges, the industry needs to move towards a more collaborative stance between contractors and other stakeholders and clients such as developers and architects, says Khoo.
Traditionally, contractors would start to be more heavily engaged with a project during the construction phase, and this occurs after the client has worked on the design of the development with architects and other consultants.
However, Khoo says that this needs to evolve into a more collaborative contracting approach where all stakeholders, including builders and contractors, are actively involved in all parts of the development process.
This will help to better manage risks in a more equitable manner between stakeholders. Over the long term, such an approach will build up the resilience of the local construction sector to withstand market volatility, he says.
Looking ahead, Khoo says that much of the groundwork to ensure the construction industry can thrive in the long term is laid out in the Industry Transformation Map, the government’s plan to change the built environment industry, which includes the construction sector, into one that adopts technologies to make the sector more integrated.
Another goal of the transformation map is to train 80,000 new professionals for the built environment industry. This focus on capability development within the construction sector is vital to ensure a better pace of adoption of digitalisation and technology, and the wider use of more productive construction methods, in the local industry, says Khoo.

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