Rocketing labour costs loom for UE E&C

The fat $400m orderbook may be at risk.

According to OCBC, going into 2013, it expects the outlook for UE E&C to be fairly mixed. While the group has a strong order-book (estimated S$400m) and a good pipeline of residential development projects, it also faces increasing manpower costs and a potential supply glut in the EC market – which could lead to some margin compression over FY13-14F.

Here's more from OCBC:

UE E&C is highly dependent on foreign workers due to the limited supply of domestic construction labour force. As the government tightens the foreign labour supply, the group may have to grapple with higher manpower costs and find ways to increase its productivity (although it may not be possible to automate certain labour-intensive construction activities).

This may result in higher manpower costs and lower profit margins.

According to media reports1, the EC market could be facing a potential supply glut as the government intends to roll out a record number of EC sites.

By end-2013, some 5,600 units are expected to come on stream. This translates into an annual average supply of 4,500 units compared to an average take-up of 3,300 units.

In terms of pricing, the government may introduce measures to rein in the escalating EC prices. Noting a news report that an EC penthouse had recently been sold for S$1.77m, MND Minister Khaw said that EC developers, in exercising the flexibility in pricing and design, should heed the EC policy’s spirit.

He also said that ECs were conceptualized for Singaporean families earning within S$12,000 a month, to enable them to own a condominium-style home at below market prices.