A positive sign came from the 35% uptick of public engineering contracts awarded.
The construction sector has been on standby as its contribution to the GDP declined in the last few years, but there might finally be a light to the end of the tunnel thanks to the property market.
DBS Equity Research said the construction sector has been lacklustre in the past few years. Singapore construction GDP has been falling since 2009, and it shrank the most in 2017. In each of the three quarters in 2017, Singapore Construction GDP shrank by 6-7% YoY, the most severe in seven years.
Though construction demand has been healthy, averaging at about $30b since 2010, keen competition has led to lower tender prices, thus affecting profitability.
Moreover, as at August 2017, the total projects awarded, both from the private and public sectors amounted to only $12.63b, way below the $28-35b projected at the beginning of the year. The shortfall was mainly due to the underperforming public sector.
However, a stable demand for construction can be seen ahead and is projected to hit $26-35b in 2018 to 2019, similar to the $28-35 range in 2017. The strong demand from the public sector in 2017 is mainly from projects like the second phase of the deep tunnel sewerage system, North-South Corridor, Circle Line 6 and the public housing projects.
Construction of some of the projects like the fourth desalination plant and tourist attractions and recreational facilities at Mandai Lake had begun at end-June this year.
Other key infrastructure projects in the pipeline include Jurong Regional Line, Cross Island Line and the development of Changi Airport Terminal 5.
The Building & Construction Authority’s (BCA) business expectations of the construction sector for 2H2017 have improved slightly from 1H2017.
Larger A1 and A2 building contractors’ outlook remain weak whilst small- and medium-sized building contractors’ outlook improved from 1H2017. Civil engineering contractors’ outlook remains largely similar to 1H2017 as larger A1 contractors are more optimistic.
The BCA has been paying greater attention to small and medium firms, which form the majority of contractors here, in recent years, aimed at mitigating cost challenges, improving productivity, and raising their competitiveness in the global playing field.
The $800m Construction Productivity and Capability Fund, which firms can also tap into to purchase or lease equipment, implement process-improvement plans, adopt new technology and/or develop their workforce, is one key initiative. Approximately 90% of these funds will go to small and medium-sized firms.
Here's more from DBS Equity Research:
Whilst there is no lack of construction projects in Singapore, keen competition from the foreign contractors has resulted in competitive bidding and lower tender prices.
A sustained recovery in tender prices would be beneficial to contractors. With net margins in recent years squeezed to sub 2%, profitability could become a key focus for companies going forward.
Based on BCA’s quarterly data for contracts awarded, the 9M2017 value of $17b represented a 20% YoY decline. Only the public and private industrial segments and public commercial sectors showed growth while the rest of the segments declined.
One positive, however, came from 3Q2017’s number, which showed a 35% YoY uptick, boosted by the award of public civil engineering projects. Meanwhile, private residential contracts awarded were down 17% YoY in 3Q2017 and fell 10% YoY for 9M2017.
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