BT : Construction costs could rise faster: DLS

Business Times - 14 Apr 2010

Construction costs could rise faster: DLS

Rise in foreign workers' levy, commodity prices among factors that may raise costs

By ARTHUR SIM

(SINGAPORE) Construction costs could rise this year more than the 3-5 per cent forecast because of a combination of new factors, says quantity surveyor Davis Langdon & Seah (DLS).

In a report released yesterday, DLS says factors such as the increase in the foreign workers' levy and reduction in man-year entitlement, announced in March, could add between one and 2 per cent to construction costs.

New iron ore pricing that has become apparent this month is likely to push up the price of steel, which could add another 1.5-2 per cent to constructions costs.

DLS forecast in January that construction costs could rise 3-5 per cent. It expected construction tender prices to remain stable in the first two quarters of 2010 and start to rise in the second half.

It has since found that while construction costs remained relatively stable in the early part of Q1, they started to increase towards the end of March.

For instance, the price of steel reinforcement bars, which fell to about $750 a tonne at end-2009, had risen to about $900 a tonne in March. And now iron ore prices have surged again, and the price has gone up to $950-$1,000 so far.

DLS said just how much further the price will climb - and whether it will surpass the $1,744 a tonne peak in July 2008 - is uncertain at this stage.

Based on the current price of $950 a tonne, the cost impact works out to an increase of 0.8-1.2 per cent for a typical residential development tendered in late 2009-early 2010, DLS said.

Apart from the price of steel, DLS says the uptrend in commodity prices in general will lift construction costs faster than expected.

While commodity prices are recovering from a low base, the price of copper hit US$7,880 a tonne this month and is edging closer to the recent peak of US$8,700 per tonne in April 2008. Copper is also up 150 per cent from its trough price of about US$3,000 a tonne in December 2008.

The price of aluminium has increased about 65 per cent to US$2,205 a tonne, from the trough price of US$1,329 in February 2009.

DLS estimates that commodity prices in general could add 1.5-2 per cent to construction costs.

Looking at rising oil prices, DLS says these could raise plant and machinery costs and add 0.5 to one per cent to construction costs.

A new policy measure that will affect costs are restrictions on construction activity on Sundays or public holidays for construction sites within 150 metres of residential and noise-sensitive areas. This could add 0.5 per cent to construction costs, says DLS.

Based on all of these factors, DLS now expects construction cost to rise more than 5 per cent this year, 'the actual level depending on the prevailing tendering climate'.

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