Construction sector growth expected to slow over next 3 to 4 quarters

Source : Channel NewsAsia - 2 Sep 2008

The construction sector has been a pillar of Singapore’s economy over the past two years, supporting it with on-year growth of close to 20 per cent every quarter.

But the sector’s pace of growth has slowed from the 24 per cent rate seen in the fourth quarter of last year to below the 20 per cent mark for the first three months of 2008.

Analysts said they expect the sector to continue slowing over the next three to four quarters, once the full impact of the global economic slowdown is felt.

The sector has been doing well despite general softening in the economy. But analysts said that is because the sector lags behind the overall economy.

Vishnu Varathan, regional economist, Forecast, said: “We have seen the construction sector holding up very well, even though growth in the other sectors slowed perceptibly in the second quarter. But this is actually not based on underlying demand in construction not tapering off.”

He noted that property prices are starting to cool, putting pressure on revenues. Furthermore, construction costs have gone up by about 50 per cent or more in the past two years, keeping developers on the sidelines.

Chia Ngiang Hong, group general manager, City Developments, said: “For new projects that we are planning to launch in future, we will continue to monitor the construction industry closely and make sure that we award them at the right opportune time.”

But City Developments also thinks that a cooling is in order. Mr Chia said: “I’m quite hopeful that by the second half of next year, when some of the very major projects are completed, the pace of increase should moderate. And that is when we see construction costs coming to (a) more realistic level.”

The construction sector continues to slow this year, with on-year growth at 17.4 per cent in the second quarter, down from 22.4 per cent a year ago.