Singapore construction and the financial impact of COVID-19

Like the rest of the world, COVID-19 has had a rippling effect on Singapore’s construction costs. While construction activity remains low, tender prices are expected to increase as the market responds to the new COVID-19 safe re-start measures, supply chain disruption and continuing labour shortages.

By Khoo Sze Boon, Managing Director – Singapore and Cheryl Lum, Director, Head of Data and Research

During the pandemic, Singapore’s government introduced a series of support measures as part of its COVID-19 Act to help enable construction projects to get back on track in a phased approach. However, there remains a significant degree of uncertainty over the severity and duration of the COVID-19 crisis.

While disruption and delays are inevitable, understanding the longer-term impacts on projects once the Act ends in October 2020 is a key industry concern. It remains to be seen if there will be an extension to the prescribed period of the Act.

Economic outlook

The Ministry of Trade and Industry (MTI) has published data that reveals the Singapore economy contracted by 13.2 percent on a year-on-year basis in Q2 2020. While the construction sector contracted by 59.3 percent on a year-on-year basis in Q2 2020, due to the circuit breaker measures which resulted in the suspension of almost all construction worksites, as well as manpower disruptions arising from the additional measures implemented to curb the spread of COVID-19.

For 2020, taking into account the weaker-than-expected performance of the Singapore economy in the first two quarters, the Singapore Government has further downgraded the GDP growth forecast from -5 to -7 percent.

Construction demand outlook

According to data published by the Building and Construction Authority (BCA), construction demand (the total value of construction contracts awarded) in Q1 2020 has declined by 21 percent compared to Q4 2019.

Based on current market sentiments, many new projects are likely to be put on hold as the immediate focus is to continue to work on the resumption of existing projects. Given the severity of the economic downturn, some of the projects previously in the pipeline have been deferred.

The supply of private residential housing from the confirmed sites under the Government Land Sales (GLS) programme for the second half of 2020 has also been reduced, taking into account the fallout from the global COVID-19 situation. Correspondingly, the supply of sites for commercial or hotel-use has been scaled back.

COVID-Safe restart of existing construction projects

Since June, existing construction projects that have been suspended are only allowed to recommence after the contractor (as an employer) can demonstrate its ability to meet the following COVID-Safe restart criteria:

  • COVID-Safe workforce: Workers must observe safe management measures. Those living in dormitories may start work after their dormitories are cleared by the Inter-agency Task Force
  • COVID-Safe worksite: Appoint Safe Management Officers and Safe Distancing Officers as needed
  • COVID-Safe worker: Workers must have dedicated accommodation
  • Accommodation and transport: Dormitories, on-site quarters, HBD units and private residential premises must be cleared

Due to the complexity and nature of construction work involving a large number of workers from various trades and with the current reduced workforce, many construction sites would incur additional costs and time to change and comply with the new criteria before work can be resumed.

In the near to medium term, productivity will inevitably be affected as more time will be needed to plan, implement and enforce these new measures.

Cost escalation forecast

It remains uncertain how long the COVID-19 crisis will last or what this means for future tender prices. However, what is certain is that construction supply chains will need to adapt to the ‘new normal’ way of living and working.

Under normal circumstances, pricing pressures will be reduced due to the lessening of projects and uncertainties in the global economy. However, based on current market sentiments, construction costs may increase due to pricing allowance by the contractors for labour shortages and the implementation of the COVID-Safe restart measures.

As such, for the second half of 2020 and 2021, while construction activity is likely to remain low, tender price trends are anticipated to increase in the range of six to ten percent as the market responds to the new measures imposed, supply chain disruption and labour shortages.

Four key priorities in adapting to the new normal

For now, the focus to comply with the strict safety management measures remains the key priority so that the industry can restart all the existing construction work sites.

Moving forward, it is equally important for the industry to focus on the following key areas to prepare and adapt to the new normal:

1. Accelerate the adoption of labour-efficient construction technologies

With the possibility of further tightening in the number of foreign construction workers, it becomes even more prudent for the industry to accelerate the adoption of more labour-efficient construction technologies and prefabricated initiatives.

For companies that have already been adopting such productive technology initiatives to reduce the reliance of foreign workers, the cost impact will certainly be more manageable.

2. Building design standards for new buildings

Design standards on air-conditioning and mechanical ventilation could be changed and implemented for new buildings. The aim for such change is to boost ventilation in crowded spaces and to improve air quality for situations like public health emergencies.

The operation and long-term maintenance of existing offices and buildings may also need to be reviewed to reduce the transmission risk of future pandemics.

3. Safe distancing measures at the workplace

The current safe distancing measures implemented at the workplace are very likely to stay with us for some time. Therefore, the need to comply with new building design standards, such as safe distancing measures, will also have an impact on design considerations for future workplace – from space planning to the selection of materials and furniture that can withstand frequent deep-cleaning.

4. Digitalisation

Embrace technology to achieve higher productivity as well as upskilling for digital-readiness, to enable efficient switching to telecommuting work arrangements when the need arises.

Further resources

Please visit our COVID-19 response page for all of our resources relating to the impact of COVID-19 on the construction sector.

For further information contact:

Khoo Sze Boon
Managing Director - Singapore