Building boom: Construction sector to be robust in 2012

Up to S$28b worth of construction contracts up for grabs in the next two years.

According to OCBC, the Housing & Development Board announced plans to roll out more public housing units. For Build-To-Order flats alone, around 25,000 units will be introduced into the market.

Here’s more from OCBC:

Good construction demand in 2011. The past year has been good for the construction sector. Total construction contracts handed out up to October totalled S$27.4b, exceeding the total amounts in both 2009 and 2010. Growth was similar to 2010, and is a result of increased demand for construction services from the private residential segment.

Due to limited roll out of new public housing units previously, and rapid growth of the country's non-Singapore resident population, private residential developers started building more aggressively in 2010. Many construction players benefitted from this boom, and this led to an expansion in order books and earnings.

Decline in private construction likely, but public activity should pick up slack. Following two years of building boom, recent government measures intended to rein in the property market will cause developers to tread cautiously in the near term. Therefore, we expect the pace of construction demand to slow in 2012.

However, this slack is likely to be picked up by demand from the public housing segment - as the Housing & Development Board announced plans to roll out more public housing units. For Build-To-Order flats alone, around 25,000 units will be introduced into the market. In addition, with the bearish global economic outlook, we believe the government is likely to increase infrastructure spending to help beef up domestic economic activities. As it stands, the government has already committed to big infrastructure projects such as the North South Expressway. While the drivers of construction demand will change, the overall impact will not mean a big drop in construction activities and prospects are in generally still healthy.

Prospects remain healthy. The Building and Construction Authority estimates around S$21b-S$28b of construction contracts will be up for grabs in 2012 and 2013. This implies that construction demand will moderate slightly as compared to 2011 (YTD CY11's total construction contracts stands at S$27.4b), but will still be robust. We believe there will be enough jobs in the coming two years, and therefore, remain positive on the sector.