The Singapore construction sector is headed toward a detrimental market crash.
Experts from the Ministry of Trade and Industry and BMI Research expect housing prices to bottom out by 2018. And that means difficult times are ahead for people working in the construction industry in Singapore.
What’s causing this sharp decline in the construction sector? What can you do to keep your local construction company afloat in these challenging times?
Keep reading to learn how we got to this point, what the threats are to your business, and what you need to do to protect yourself against this economic downturn.
Growth of the Singapore Construction Sector Over the Last Decade
While the rest of the world was in the midst of a global downturn, Singapore had a budget surplus in 2011, at 0.7 percent of its gross domestic product.
Between 2007 and 2011, the construction sector in Singapore grew by a CAGR of 11.6 percent, and was worth £14.6 billion. By the third quarter of 2012, the country had an unemployment rate of less than two percent.
Because of these unprecedented conditions, the Singapore construction industry was predicted to see a massive boom between 2012 and this year, projected to continue growing at an average of about 4.88 percent per year.
However, during the year to end-Q2 2012, when adjusted for inflation, Singapore’s private residential property price index fell by about 3.3%, which was a massive turnaround from Q2 in 2010, which saw a price increase of 38.2%.
And things only continued to decline from there.
The Decline of Growth in the Singapore Housing Market
After a 60 percent surge in housing prices between 2009 and 2013, prices have declined 9.4 percent over 11 consecutive quarters, marking the longest consistent decline on record, according to the Urban Redevelopment Authority.
Despite optimistic projections toward the end of that period, the real growth of the housing market in Singapore between 2015 and 2016 was only an average of 2.2 percent.
According to BMI Research, Singapore’s property market can only expect a moderate growth of an average of 2.8% annually between 2017 and 2019.
The Ministry of Trade and Industry found that the Singapore construction sector expanded by only 2.5% year on year in Q2, meaning a real growth of only 1.8% for the first half of last year.
The Private Sector
According to the report from the Ministry of Trade and Industry, the sharp decline in growth of the public construction sector over the past several quarters can be largely attributed to the private contracting sector, especially with regards to residential and non-residential buildings.
Even as Singapore’s government allocated £240 million in rail and road infrastructure in 2012, private contracts for construction development increased by 30.9% year over year. In the same period, public construction contracts declined by 16.8%.
So while a large amount of money was invested in infrastructure by the Singapore government, private developers have taken advantage of the demand.
But even though this provided a temporary boost to the private market, the overall prices are have now taken an 8% drop from the peak price of $2,495 per square foot in Q4 of 2007.
While public Singapore construction is likely to take the hardest hit, private construction is going to feel the effects quite heavily in the upcoming months.
Another major factor in the decline of the Singapore construction sector is the effect of inadequate safety measures and training in the industry.
By the end of the third quarter in 2016, 48 people had been killed while on the job at a construction site.
Of those deaths, the Singapore Workplace Safety and Health Conference found that nine out of ten of those deaths were completely preventable and were due to the companies involved failing to carry out proper risk assessment procedures or put in place the proper risk control measures.
In August, they announced that the workplace fatality rate was still on the rise. They also stressed the need to redesign jobs for elderly workers, citing that 18 percent of the accidents involved workers aged 55 and older.
In December, a company was fined $250,000 for failing to take adequate safety measures for workers on a construction job that resulted in the deaths of two of its employees in January of 2014. The same company was earlier fined $150,000 for similar disregard of the safety of its employees.
Now because of the negligence of some companies, the market is taking on massive fines that could have been invested in properly training workers and prioritizing worker safety.
Restraining the Property Bubble
The government of Singapore has undertaken multiple measures in an attempt to cool the property market and curb loans since 2009, which is expected to lead to a moderate recovery after 2018. But despite much protesting from developers, the measures aren’t likely to be lifted until 2019 at the earliest.
Experts estimate that they want to reach a double-digit price correction that they haven’t quite achieved yet, but market activities in terms of transaction volumes have been gradually rising and pricing has taken a slight increase as well, according to Dr. Chua Tang Liang, head of research at Southeast Asia at JLL.
Unfortunately, while these market cooling measures restrain the property bubble, they also prevent industry growth. Those measures, in addition to a weak demand and heavy supply in the market, are poised to disrupt any possibility of growth for the construction market in Singapore.
What Can Local Construction Companies Do to Help Themselves?
One of the most important steps for local construction companies to protect themselves against the turbulent future of the industry is proper safety training for workers and more stringent risk assessment procedures.
Construction companies are constantly getting hit with safety fines and paying out heavily for workplace accidents and deaths. Not to mention the hit to a company’s reputation if an employee dies while on the job.
The best way to protect a company against potential fines and employee deaths is to make investing in worker safety training a priority from the start.
In response to the two employee deaths that caused GS Engineering & Construction to receive a $250,000 fine, they established a safety innovation school with one lecture room and 16 “experience facilities,” where training programs have been implemented to prevent and deal with accidents that can occur on a construction site.
This commitment to prioritizing safety is expected to drastically reduce the number of workplace accidents, potentially saving them millions spent on fines and lawsuits.
If this trend catches on within the industry, it could lead to another massive boom for the construction sector once prices stabilize and market cooling measures are lifted.
With roadblocks to the Singapore construction sector on multiple fronts, including high supply with weak demand, strict government regulations, and private foreign developers, local construction companies may have a difficult time ahead of them.
But with a focus on proper training for workers and industry innovation, companies may be able to help protect themselves against going out of business in a difficult time.
Is your local construction company working to innovate in these difficult times? Because if they’re not actively working toward training and innovation now, they may not get another chance.