Building projects busting budgets

Aug 14, 2008
Building projects busting budgets
Shortage of construction workers and materials causing costs to shoot
up by as much as 50%
By Francis Chan

SOME building projects in Singapore are facing cost blowouts of 30 to
50 per cent above their original budget as higher construction costs
bite hard.

The continuing shortage of construction workers and building
materials has left project bosses with little choice but to pay
upfront for the far higher costs or abandon the project.

Anecdotal evidence suggests that building budget blowouts are far
bigger than official figures indicate.

One project that has been hit by higher building costs is the Khoo
Teck Puat Hospital in Yishun.

The chief executive of Alexandra Hospital, Mr Liak Teng Lit, who is
overseeing the construction project, said some parts of the project
face cost hikes of 30 to 40 per cent. The original total cost of the
project was $400 million.

Another project that has been hit is Safra's Jurong clubhouse. Costs
for the project have shot up 30 per cent since its groundbreaking
ceremony in February last year. Its original budget: $30 million.

And earlier this month, the Health Ministry announced that it would
provide Ren Ci charity with additional funding of 'up to $9.3
million' for its new hospital at Irrawaddy Road.

This was to help cover the hike in construction costs for the medical
centre - now set to cost up to $42.4 million.

Although Ren Ci declined to comment on the issue, previous reports
indicated that the initial budget for the project was $30.8 million.

One of the biggest cost increases reported this year involves the
Singapore Island Country Club (SICC). The club was reported in June
to have sought club members' approval to increase its budget to
construct a new clubhouse from $60 million to $90.3 million - a
whopping 50 per cent rise.

The Building and Construction Authority reported that construction
costs rose 20 to 30 per cent last year.

A statement by National Development Minister Mah Bow Tan last month
said a rise of another 3 to 5 per cent was recorded in the first
quarter of this year.

Mr Goh Ngan Hong, president of the quantity surveying division at the
Singapore Institute of Surveyors and Valuers (SISV), said: 'Based on
leading quantity surveyor firms and general industry feedback,
construction cost was estimated to have increased by about 20 to 30
per cent in 2007.'

He added that costs were 'estimated to have increased by another 10
to 15 per cent by mid-2008'.

Market watchers and most industry players such as property
developers, contractors, suppliers and construction-related firms
that The Straits Times spoke to broadly agreed with SISV's figures.

However, a number of projects surveyed by The Straits Times painted a
bleaker picture.

Project bosses cited the escalating cost of essential construction
materials, including sand, concrete, steel and other base metals.
Another problem is the lack of construction industry manpower.

'This spike in basic plant, equipment, materials and labour costs is
affecting construction project budgets,' said the executive director
of the Singapore Contractors Association, Mr Simon Lee.

He said such cost increases would inevitably cause delays in the
completion of contracts, which was 'not good for business'.

The construction cost hikes have affected big and small projects
alike.

The Marina Bay Sands and Resorts World at Sentosa integrated resorts
have also fallen prey to cost hikes.

Marina Bay Sands was recently reported to have blamed soaring prices
of building materials for its cost rising from an estimated US$3.6
billion ($4.9 billion) to US$4.5 billion. And last November, Resorts
World at Sentosa bumped up its budget to $6 billion from $5.2
billion.

The Singapore Manufacturers' Federation (SMa) took a more contrarian
view of construction costs.

'Although raw material and labour prices have risen significantly
over the past two years, costs or selling prices of most construction-
related materials... have by and large not risen more than 15 per
cent year-on-year,' said Mr Alan Lee, chairman of the SMa's building
products and construction materials industry group.

When asked what measures the construction industry may put in place
to tackle the problem of rising costs, the SISV said: 'Passing the
higher costs to the property purchasers and other consumers - this
seems to be the likely case.'