Construction costs may rise up to 6% next year due to new regulations

Source : Channel NewsAsia – 29 Jul 2010

Construction costs in Singapore may increase by up to six per cent next year when new government regulations to restrict foreign workers kick in.

According to the new Real Estate Sentiment Index, rising land prices and construction costs are some of the top concerns among developers.

New rules that will kick in this month include an increase in foreign worker levy.

There’ll also be a reduction of man-year entitlement which will restrict the number of foreign workers the main contractor can hire.

On top of that, new noise limits for construction sites will also come into effect in September.

Experts said these changes may also prolong the duration of projects and drive up overall costs.

Industry players are also concerned about volatility in commodity prices and rising cost of crude oil.

Winston Hauw, managing partner, Rider Levett Bucknall, said: “For this particular year, we think there’ll be an increase in the order of three per cent.

“For next year, we expect it to be a little higher, probably in the range of five to six per cent. Construction demand is the key driver in terms of tender price escalation.”

Mr Hauw added that tender prices are moving in tandem with demand volume and may increase by an average of three per cent on year in 2010.

The new quarterly Real Estate Sentiment Index shows that 90 per cent of respondents expressed a moderate to high level of concern about rising land prices while 76 per cent cited the increase in building material costs and labour costs as their chief concerns.

Dr Steven Choo, CEO, Redas, said: “The implications of such an index is that it will provide the market with an idea of how the real estate development players perceive the market so it will benefit the investors.

“It can guide them in their decisions. It can also have implications for policy directions in terms of how the market can be regulated or should be facilitated and of course for the developers themselves, we would like to know what it is that our industry is thinking.”

The new index is jointly developed by the Real Estate Developer’s Association of Singapore and the Department of Real Estate at NUS.

REDAS said the survey also showed that sentiment among developers are still positive but they are expecting market conditions to be less favourable going forward.

For example, the Composite Sentiment Index which measures both current and future sentiment stood at 5.9 out of 10 in the second quarter. That’s down from 6.8 in the first quarter.

The survey also found that in the primary residential market, respondents feel that the price and number of units to be launched are expected to increase riding on current positive sentiments.

For now, Redas said the index will be available to its members through e-bulletins.

For the first and second quarters, they polled some 70 of Redas’ members including developers and industry watchers.