More public sector projects put on hold to ease squeeze

July 23, 2008
More public sector projects put on hold to ease squeeze
Move will free up resources for integrated resorts, other key projects
By UMA SHANKARI

(SINGAPORE) The government will postpone construction of another $1.7
billion worth of public sector projects - on top of some $3 billion
worth that have already been put off - as it looks to manage rising
construction costs.

With this move, the government is deferring a total of $4.7 billion
worth of public sector construction projects to 2010 and beyond.

'The additional deferment will allow the existing construction
capacity and resources to be channelled towards the timely delivery
of some big projects such as the integrated resorts, Marina Business
Financial Centre and the downtown MRT line,' said regulatory body
Building and Construction Authority (BCA) in a statement yesterday.

Most of these projects are expected to be completed around end-2009.
The construction resources freed up at that time would then be
available for the deferred public sector projects, therefore
achieving a better spread of construction resources and activities
beyond 2009, BCA said.

Projects postponed in this round include the main building of the
proposed Jurong General Hospital and upgrading works at schools.

Developers and analysts BT spoke to were hopeful that the
government's response could help to slow down the increase in
construction costs.

Construction costs shot up some 20 to 30 per cent in 2007. And in the
first quarter of this year, building costs rose by another 3-5 per
cent, Minister for National Development Mah Bow Tan said in a
statement.

The building boom also means that contractors were in short supply,
with some private developers here reporting difficulties in hiring
contractors and sub-contractors.

The new postponements could therefore be helpful in keeping the
sector on a more sustainable growth path, said Citigroup economist
Kit Wei Zheng.

'Anecdotal evidence suggests that some contractors may have even
refused to take up contracts, because of concerns that rising costs
would wipe out initially projected profits or even result in losses,'
he said.

However, there were some concerns that the reduction in government
spending was coming at a time when the sector, and the overall
economy, is seeing a slowdown.

'To some extent, given the downside risks to growth, one would have
thought that perhaps the government may have contemplated boosting
construction demand to shore up growth,' said Mr Kit.

But he added that with the sector suffering from capacity
constraints, it is not clear that GDP growth would have received a
significant boost even if the government had increased construction
demand.

Chua Hak Bin, chief Asian strategist at Deutsche Bank Private Wealth
Management, similarly pointed out that the outlook for the
construction sector is 'not as rosy as it was a year ago'.

Growth in the construction sector is tapering off. Growth slowed to
16.9 per cent in Q1 2008 and then to 15.2 per cent in Q2 2008. By
contrast, in Q4 2007, the sector grew by 24.3 per cent.

Dr Chua, however, said that the new deferments could help reduce
current supply bottlenecks.

Before yesterday's move, the government had announced two rounds of
construction postponements for public sector projects, in November
2007 and February 2008. Projects put off included the Ministry of
Health's National Addiction Management Centre and part of the Changi
Prison Complex.

For the whole of this year, construction demand is likely to come in
within current estimates of $23-$27 billion, BCA said.