Innovative thinking

25 April 2008

Construction activity in the small city-state Singapore was once synonymous with rapid growth but the sector has been in doldrums since the Asian economic crisis of the late 1990s. Latest government figures suggest construction output declined -0.8% during 2005 but this is less than previous years and prospects look good for a return to growth in 2006.

“The total value of construction orders in 2005 grew to SG$ 11.3 billion (US$ 7.25 billion) which is an increase of +10% over 2004,” said Singapore Contractors Association executive director Simon Lee. This level of activity is more significant than it may seem at first glance when you consider that Singapore occupies an area of just 692 km2 and has a population of less than 4.5 million.

“The main impetus to growth in 2005 came from the private sector but the gains were tempered by a slight decline in civil engineering construction orders from the public sector,” said Mr Lee.

Central to the expectations for growth are several government led casino-style integrated resort projects. The contract for the first at Marina Bay should be awarded this summer and bidding for the second on Sentosa Island is also due to start around then. It has been estimated that the casinos' construction alone could add +1.8% to the country's GDP over the next five years.

“The Integrated resorts are expected to give the construction industry a big kick when they get underway,” said Jon Button who is director for the Singapore operations of contractor Gammon. “Just the speculation about the work helped revive the industry during 2005 and we are expecting that to continue through this year.

“The residential sector certainly had an upturn last year, particularly at the luxury end of the market where a lot of apartments were selling off-plan. Apartments at The Sail at Marina Bay – which at 60 storeys will be the tallest residential tower in Singapore – were all sold before construction started.”

Part of the renewed vigour in Singapore's construction industry has been its ability to attract new industries, and as a result investment and new construction work, into the country. There are a growing number of pharmaceutical, petrochemical and semi-conductors businesses moving to Singapore.

“Even overseas universities are looking to set up campuses in Singapore, including Australia's University of New South Wales, which will bring in foreign research investment. The government is thinking long term and looking to diversify the range of industries based in Singapore in a bid to reduce the impact of any future regional recessions,” said Mr Button.

The attraction of Singapore to outside investors is obvious when you look at the government's plans for infrastructure investment. A number of new roads and improvements as well as the Circle Line mass rapid transport (MRT) system are already under development and there are plans for more roads and extensions to other MRT lines.

“The construction sector will also be boosted by the Housing Development Board's planned upgrading projects for residential estates,” said Mr Lee. “Also other recent land sales are likely to lead to more private construction and commercial development in the near future.”

At the moment all the infrastructure investment is being funded by the country's electronic road pricing and the monthly auction of licences to buy vehicles. But according to Mr Button, public private partnership (PPP) could be used in the near future. “PPP is a new concept to Singapore but the government has said that any future public sector projects over SG$ 50 million (US$ 31 million) must be considered under the PPP route,” he said.

But whatever the route to funding, Mr Lee is confident that 2006 will be a positive one for the construction industry. “Overall the construction industry is in a period of upturn and I expect it to continue for the foreseeable future,” he said.

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