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Propped up by government support last year, construction sector could see more exits in 2021

Propped up by government support last year, construction sector could see more exits in 2021

Source: Business Times
Article Date: 22 Feb 2021
Author: Rae Wee

Difficulties continue to mount amid the pandemic and the worst of the impact may not yet be reflected.

As government relief measures taper off, more exits can be expected in Singapore's construction sector - a sector that was hit hard by the Covid-19 pandemic but where the worst of the impact may not yet be reflected.

A total of 1,951 construction companies exited the sector last year, according to data analysis firm Handshakes's study of information from the Accounting and Corporate Regulatory Authority (Acra).

This consists of companies that faced compulsory winding up, were struck off, or wound up voluntarily.

The number of exits is lower than for 2018 and 2019 - when 2,178 and 2,306 companies exited the sector, respectively.

"I believe the calm in the exit numbers is largely attributable to the reliefs from the Singapore government and the government's efforts to support the construction industry," said Derek Loh, a partner at TSMP Law Corporation.

The Covid-19 Temporary Measures Act 2020 provided temporary relief for those unable to perform contractual obligations as well as specific relief for contracts affected by construction delays.

A S$1.36 billion Construction Support Package was also announced as part of the Fortitude Budget last year.

These measures will come to an end this year, added Withers KhattarWong partner Spring Tan. "Those companies who did not manage to get their act together will not survive."

Looi Ming Ming, partner at Eldan Law, suggested that it would be good for the government to "recognise the loss of productivity brought about by the safe distancing and testing measures, and provide more extensions of time, and additional ex-gratia payment contributions to contractors".

Covid-19 has also disrupted the supply of labour and materials to the construction sector.

Sim Chee Siong, partner at Rajah & Tann Singapore and senior accredited specialist in building and construction law, said smaller players may have to exit the sector due to a "cash flow crunch contributed largely by significant fluctuation in costs".

Difficulties continue to mount. The Ministry of Manpower recently announced that all newly arrived work permit and S Pass workers in the construction, marine and process sectors from higher-risk countries or regions will be subjected to an additional seven-day testing period.

Meanwhile, economic stimulus by governments in the region is raising demand for some building materials.

Based on the Building and Construction Authority's January 2021 construction price update, preliminary figures show high tensile steel bars of 16-32mm were priced at S$809 per tonne in December - a 13.3 per cent year-on-year increase.

DBS Group Research attributed rising steel prices to higher input costs - from strong iron ore and coking coal prices - as well as a tighter market situation on the back of improving demand from steel-consuming industries.

TSMP's Mr Loh expects raw material prices to continue rising. In the United States, the new administration has control of Congress and can "initiate a construction-based stimulus programme to renew America's ageing infrastructure and to build new climate change-related infrastructure".

But Yvonne Foo, partner at Harry Elias Partnership, is hopeful that prices will readjust in the second half of 2021.

Because longer term supply contracts may have been harder to secure, contractors retain the opportunity to renegotiate prices when the current contractual term is over.

Handshakes's analysis of Acra filings also found that the installation of building automated systems for remote monitoring has grown significantly.

The average revenue increase from FY2018 to FY2019 was 89.4 per cent - the largest among sub-sectors with at least 10 filings. Companies in glass and glazing works reported the sharpest decrease in revenue - falling 28.2 per cent on average.

The study is part of the BT-Handshakes Data Series, a collaboration between The Business Times and Handshakes to provide insights on various business sectors of Singapore using data from Acra.

In the recent Budget 2021, intentions to accelerate the industry's transformation through digitalisation were announced. These may bode well for the sector but Rajah & Tann's Mr Sim said: "It will take time to implement those plans across the industry and implement the same in the current work processes."

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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