Resolving manpower shortage ‘critical’ to managing pressure of current backlog

The immediate focus to resolve the manpower shortage issues is critical so that the pressure of the current backlog can be better managed and eventually resolved. In tandem, there is a need to accelerate the key initiatives under the Construction Industry Transformation Map (ITM) which aims at improving productivity and also instilling a more collaborative mindset and culture amongst the key project and industry stakeholders. These include the adoption of Design for Manufacturing Assembly (DfMA) technologies, Integrated Digital Delivery (IDD) and also towards a more collaborative contracting/ partnering approach. It requires a paradigm shift in the mindset of all key stakeholders within the Built Environment sector and a continuous effort to push and support the upskilling of the work- force at all levels.

The Singapore economy expanded by 1.3% in 1Q2021 on a y-o-y basis, an improvement from the 2.4% contraction in 4Q2020. Growth drivers in the economy are primarily manufacturing, finance and insurance as well as wholesale sectors.

Performance of the construction sector continues to be weighed down by declines in both public and private sector construction works. Although the construction sector contracted by 23.1% y-o-y, it showed gradual signs of improvement from the preceding quarters. While the global economic outlook remains uncertain, the Ministry of Trade & Industry Singapore has maintained the 2021 GDP growth forecast at 4% to 6% citing that recovery will be uneven across sectors.

About $5.7 billion of construction contracts were awarded in the 1Q2021, a marginal decline of 0.1% from the previous quarter. More than 60% of the awarded projects were from the public sector, largely driven by public residential, institutional and others and civil engineering projects. It is anticipated that the public sector will continue to lead the majority of the work demand for the remaining quarters of this year.

Current market sentiments, especially investments from the private sector, continue to appear low. Although private sector work demand is anticipated to remain subdued this year, the recent moderate increase in the supply of private homes from confirmed sites under the Government Land Sales (GLS) programme for 2H2021 is likely to push for more private sector construction activities in 2022, from the low base in 2020/2021. One of the more sizeable sites included in the GLS 2H2021 is the 1 million sq ft Gross Floor Area (GFA) Marina View white site which could potentially yield about 905 private residential units, 21,500 sq ft GFA of commercial space and 540 hotel rooms. Given the continued market uncertainties, it remains unclear if there will be more applications from investors/developers for the purchase of land parcels currently available under the GLS 2H2021 reserve list, especially some of the sizeable plots such as the Kampong Bugis Master Development site and Woodlands Avenue 2 white site.

Construction output (certified progress payment), on the other hand, rose marginally by 5% compared to 4Q2020, largely due to the resumption of more construction activities. However, the recent border restrictions on the entry of foreign work- ers from South Asia implemented in April/May has slowed down onsite construction activities. This will certainly affect the construction output for the coming quarters.

Tender prices have been extremely volatile and are expected to remain this way for the rest of this year. The construction industry is still facing significant manpower shortages, supply chain constraints and productivity concerns. Recent border restrictions further add to these challenges. Higher labour and material costs are expected over 2021/2022.

More recently, a surge in prices for steel reinforcement, copper, other raw/commodity materials and oil are also key drivers impacting construction costs. We are also seeing significant cost increases in M&E works due to the unavailability of skilled labour related to these trades.

To help ease the effects of the recent border restrictions on the entry of foreign workers from South Asia, construction companies are able to recruit workers from China without having to enrol in Overseas Testing Centres for skill certification. This temporary relief scheme took effect on May 7 and will last for six months. In addition, starting in July, a small number of workers from India are allowed to be brought into Singapore under a pilot programme led by the construction, marine and process sectors. However, this programme will be carried out on a small scale and in a calibrated manner as there are continued uncertainties in the labour market conditions due to the ongoing Covid-19 situation globally and regionally.

At the beginning of 2021, we anticipated that tender price escalation for this year could increase in the range of 6% to 10%. The forecast was based on the considerations that the construction industry is slowly gaining momentum with the vaccination programme being progressively rolled out and the number of Covid-19 cases from the dormitory has been contained at a relatively low level. Based on recent tender re- turns, we continue to see volatile tender pricing and we observe that contractors are also selective on tender opportunities. For 1Q2021, the BCA Tender Price Index for Building Works has shown an increase of 4% compared to the last quarter.

Barring any further unforeseen circumstances, we anticipate tender price escalation for this year could exceed the upper bound of the earlier forecast range, possibly in the range of 10% to 15%.