Building A New Strategy For Growth
Despite a gloomy outlook, there are still opportunities out there for local construction companies.
Weighed down by weak demand for residential property and office space, the construction industry players must adopt new technologies and seek out new markets, said experts at a conference to discuss the challenges facing the sector.
While the industry grew by a better than expected 1.8 per cent in Q1, 2016, Singapore-based firms still face considerable risks.
"We are dealing with a market that is very buoyant. It can flip from negative to positive in a very short time. There is a lot to be concerned about," said Dennis Lee, who is part of the Risk Advisory team at accounting firm RSM. He was speaking at the "DBS-RSM Industry Spotlight Seminar Series: Building & Construction" on May 25.
He cited half empty retail malls and office buildings, and delays in construction of new MRT lines as signs of a depressed market for construction. Other risks include a strong Singapore dollar and growing competition from markets in the Philippines, Thailand and Vietnam, among others.
But it is not all gloom. In January, the Building and Construction Authority (BCA) said that the amount of construction contracts to be awarded in 2016 is expected to be between S$27 billion and S$34 billion, with the public sector to drive about 65 per cent of this demand.
While public sector construction is expected to surge in 2016, even this piece of good news comes with a caveat.
"These are big projects but not necessarily with big margins. It is very competitive, especially with foreign firms coming in. The pie is bigger but everybody is hungry," said Mr Lee.
With demand for infrastructure rising due to the Government's Smart Nation vision, he advised firms to take on more projects in this space in order to build a track record as an infrastructure builder.
"The challenge is whether local players can transform and how they can retrain or re-skill their workers," he said.
Going abroad is another option for Singapore-based companies, but they have to be prepared to deal with financing structures, rules and regulations that are different from what they are used to back home.
Finally, he urged local builders to keep abreast of new technologies that are emerging in the industry to help boost productivity. These include driverless trucks, drones and 3D printing.
"This is already being done overseas. This is the future, you don't want to get left behind."
Construction companies here can tap on industry regulator BCA's productivity funds that can be used to help them adopt more efficient and technologically advanced construction methods. The BCA's goal is to improve the industry's productivity by an annual average of 2-3 per cent by 2020.
Several of these methods are focused on doing as much work as possible offsite to improve productivity on the site. "There is a cost when adopting new technologies which we can help with," said See Toh Chee Fung, Executive Manager at BCA.
Construction companies here should also take advantage of growing demand for infrastructure needs in the region to grow their business, advised Mr David Wong of International Enterprise (IE) Singapore.
"There are a lot of opportunities in the region. The Singapore market will mature in the next decade and transition into a maintenance and renovation kind of market," he said. "It is important to look abroad while companies still have a war chest and financing."
In the area of financing new projects, DBS Bank can offer a whole host of banking products to support the business of construction companies.
These range from term loans and overdraft to bankers guarantee and accounts receivables financing. The bank also works with insurers MSIG and Manulife to offer their customers products such as insurance bonds, workers compensation insurance and key man insurance.
"We have worked with clients to offer them the entire suite of banking products for them to complete their projects. We also add value in terms of insurance solutions," said Desmond Choo, managing director at DBS SME Banking.
He noted when assessing a potential customer for financing, the bank would look at factors such as the firm's track record in doing similar projects in the past, cash flow projections, financial reports and the experience of the management team. DBS even has a loan restructuring team that can help clients who run into problems get back on track. "Our goal is to nurse our customers back to health."
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