Home prices, rental rates likely to keep rising amid construction cost pressures

Supply chain disruptions and the war in Ukraine are among factors that have driven up the cost of construction materials. ST PHOTO: ONG WEE JIN

SINGAPORE – An extra $2 million – that is how much main contractor Unison Construction has forked out in the past two years to meet the soaring cost of steel rebar alone for one ongoing construction project.

Yet its contracts director Goh Boo Kui is thankful, as the hit to the firm’s bottom line could have been far worse, had it not earlier signed a fixed price contract for $700 a tonne and already secured a large quantity of steel from another supplier.

The cost of steel has almost doubled to $1,300 this year, on the back of high energy prices, supply chain disruptions and the war in Ukraine.

“If I didn’t hedge (against the increase), we would have paid $8 million to $10 million more,” Mr Goh told The Straits Times. “That would have wiped out all of the profits.”

Persistent construction sector woes with rising costs could mean that home prices and rental rates are likely to keep rising this year despite reduced residential demand due to last December’s property cooling measures, said analysts.

In other words, the housing market could shift from demand-driven price increases seen last year to cost pressures playing a larger role in the trajectory of home prices in the coming months, said OrangeTee & Tie senior vice-president of research and analytics Christine Sun.

The same factors that have pushed up the cost of steel have also driven up the price of copper, concrete, cement and bricks, noted Mr Michael Murphy, a director at multinational consultancy Linesight.

Besides the volatility of raw material prices, the availability and cost of labour are also significant factors that affect Singapore’s construction sector, he noted.

Last week, ST reported that the twin factors of rising material costs and labour shortage had impacted the home renovation sector, which has seen a spike in consumer complaints over delays and poor workmanship.

Despite the gradual reopening of borders this year, industry players said it is likely to take months before the sector has the workers it needs.

Of the six construction firms interviewed by ST, five said they are not at full strength yet despite progressively hiring more workers after borders reopened.

THL Construction’s workforce is still down by about 30 per cent from before the Covid-19 pandemic, said its director Ian Teo, and the reopening of the land border between Singapore and Malaysia on April 1 has not done him any favours in the short term.

The reopening of the Causeway and Second Link has led to an exodus of skilled Malaysians returning home, rather than an injection of new blood.

Similarly, for companies that rely on South Asian workers, new hires are mostly replacing those going on home leave or leaving Singapore for good. These new workers also often lack skills and need to be trained, which takes time.

Koon Seng Plumbing and Trading’s project manager, Mr Wong Yang Cheng, said he expects to continue facing manpower shortages in the next two quarters as he intends to reward his long-serving workers with extended home leave.

Wee Chwee Huat Scaffolding and Construction’s managing director Edward Wee said he gave bonuses of $500 to $1,000 as an incentive for workers who stayed behind after borders opened up, to ensure he had enough workers to do the job.

Industry-led schemes, such as the pre-departure preparatory programme, which involves quarantining workers in their home countries before they enter Singapore, have made the hiring process much smoother, said Kuan Aik Hong Construction’s assistant general manager Daphne Wong.

Firms said a game changer is that fully vaccinated work permit holders no longer need to apply for approval to enter Singapore as at Sunday, so long as they have secured a slot at an onboarding centre here. This opens the door to a wider return of workers from countries such as Bangladesh and India.

“God has answered our prayers,” said Wee Chwee Huat Scaffolding and Construction operations manager V. Manimaran.

The Ministry of Manpower said in advance estimates last week that the growth in work permit holders in the construction sector accounted for the bulk of the expansion in non-resident employment in the first quarter this year. This was also the case in the fourth quarter of last year, as employers back-filled their workforce in sectors like construction, it added.

In the meantime, construction firms said they have tried to find ways to cope with fewer workers.

For instance, Kuan Aik Hong Construction trained its existing workers in multiple skill sets and hired workers from non-traditional countries, such as Sri Lanka.

Companies have also turned to less labour-intensive methods, such as Design for Manufacturing and Assembly (DfMA), which involves prefabricating structures in an off-site facility before assembling them on site, saving time and manpower.

Last year, about 44 per cent of building projects by gross floor area adopted DfMA, up from 40 per cent in 2020. The Government aims to hit 70 per cent adoption by 2025.

More planning is also being done in the early stages of a construction project to reduce labour, cost and time, firms said.

For instance, precast components can be incorporated in the first design, said Kori Holdings chief executive Hooi Yu Koh.

For existing projects, however, it is difficult to change methods or designs midway, said Mr Goh.

Prefabrication facilities, which are mostly located in Malaysia, are also facing their own manpower crunches, noted Ms Wong.

Prefabrication is also not feasible for landed property as each project is different, said Mr Teo, who is also president of the Micro Builders Association, Singapore (MBAS).

Construction firms say more planning is being done in the early stages of a project to reduce labour, cost and time. ST PHOTO: LIM YAOHUI

Thankfully, association members have been helping one another by loaning workers to those in need, he said. “The only way is to try to complete the job faster, but this is difficult because we are short of manpower,” he added.

For most public projects, contractors have been partly shielded from the rising material costs thanks to fluctuation clauses that allow contract sums to be adjusted.

The Housing Board has also supplied more concrete-making materials at protected prices and extended the period of protection against steel price fluctuations.

But Mr Goh said these do not cover the increased costs of other materials, such as aluminium, which has also doubled in price since the start of the pandemic.

Private projects also may not have such protections, with contractors reliant instead on the goodwill of the developer or client.

“We are still carrying the burden of most of the additional costs,” he said.

Mr Wong said it was fortunate that many projects were given extensions of time, while temporary Covid-19 legislation protected contractors from being sued for the inability to fulfil contracts due to Covid-19. But government support, which has kept heads above water, is ending.

Relief for the inability to perform contracts ended in February this year, as did relief that allowed for costs incurred due to Covid-19 delays to be shared.

Relief allowing for contract sums to be adjusted due to higher manpower costs will end next month, as will foreign worker levy rebates.

Meanwhile, the Building and Construction Authority has said that the granting of broad-based extensions of time in March for delivering on public-sector construction contracts will be the final one, though firms can still request extensions with detailed substantiation up till the end of the year.

Mr Goh said that the next few months to a year will still be very tough for the construction sector, and he expects that there will be more businesses going under or closing shop.

“Developers will have to understand and give us more time to complete the work,” he added. “Of course, it also doesn’t bode well for home buyers.”

“Source: [Home prices, rental rates likely to keep rising amid construction cost pressures] © Singapore Press Holdings Limited. Permission required for reproduction”

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