Friday, July 25, 2008

Govt defers projects worth $1.7b (A good example of reduction of crowding out effect?)

Move to ease pressure on building costs
(ST 23 July 2008, by Joyce Teo, Property Correspondent)

THE Government is deferring another $1.7 billion of public sector construction projects to ease pressure on red-hot building costs in the next two years.

This is the third time since November that public projects have been postponed amid high demand for building contractors and materials.

A total of $4.7 billion of public sector projects will now be pushed back to 2010 and beyond, the Building and Construction Authority (BCA) said in a statement.

'That's good news,' said the chief executive of property firm Overseas Union Enterprise, Mr Thio Gim Hock. 'Construction costs have more than doubled in the past year. It's hard to find contractors to bid for a job. When I tender, a lot of them decline because they are too busy.'

The latest move means projects such as the Jurong General Hospital will be deferred to 2010, although the hospital will still be ready and open as scheduled by 2015.

Other delayed projects include less urgent improvement works, but public housing and upgrading programmes will not be affected.

Public projects put on hold
Some of the $1.7 billion worth of projects to be postponed:
  • Jurong General Hospital
  • Improvement works to selected schools
  • Upgrading of sports facilities in some educational institutions
Earlier projects postponed include:
  • National Art Gallery
  • National Addiction Management Centre
  • A section of Changi Prison Complex
  • Several institutional projects such as student hostels and hawker centres
  • Extensions to the Asian Civilisations Museum and the Peranakan Museum, and the
  • Communicable Disease Centre
The move will allow construction resources to be used to ensure the timely delivery of big projects such as the integrated resorts, Marina Bay Financial Centre and the Downtown MRT line. Most should be finished by late next year.

The BCA also said that the resources freed up then can be used later for the deferred projects, ensuring a better spread of construction resources beyond next year.

Market experts said on average, costs have risen 20 to 35 per cent in the past year.

Mr Seah Choo Meng, executive chairman of construction consultancy Davis Langdon & Seah, was upbeat about the latest move. 'It will not bring costs down but it will lessen the pressure on existing resources.'

Singapore could now be among the world's most expensive nations in terms of construction costs, though this is not likely to last, said Mr Jackson Yap, CEO of developer cum construction firm United Engineers.

The total value of construction projects here is forecast at $23 billion to $27 billion this year, compared to $24.5 billion last year, and is set to stay high next year, BCA said. It is a far cry from 2003 and 2004, when the figure was just $10 billion.

Last November, the Government took what was then a rare step of deferring $2 billion worth of projects. Then in February, it deferred another $1 billion worth of projects.

Dr Chua Hak Bin, Asian strategist at Deutsche Bank Private Wealth Management, is not convinced the latest deferment is needed as building growth has eased.

'Construction orders will likely continue coming off, given a softening residential and commercial property market,' he said, adding that the Government may need to consider bringing forward deferred projects in a slowdown.

Some private projects, particularly residential, may also be delayed, said Mr Seah. 'While this year's rate of escalation in construction costs is expected to be in the double digits, it may be affected by the potentially weaker economic outlook in the region.'


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