Construction Industry Macro

A comprehensive overview of the industry's economics and rising cost structure

Construction Industry Macro

BCA produces an annual industry forecast, which suggests steady demand for construction in the years ahead. Demand represents the value of new projects awarded, while nominal output is the sum of certified progress payments.

Over the next several years, total demand is projected to remain stable within the S$31 to S$38 billion range. However, more significant annual demand fluctuations are likely at the more granular sector level. For instance, in 2023, commercial grew 108% year-on-year, while civil engineering work demand was down -29% from 2022.

As SCAL President Mr Lee Kay Chai noted at the recent 46th Annual General Meeting, there are notable projects on the horizon in Singapore. These include Changi Airport Terminal 5, a steadily expanding MRT network, expected expansion projects at both the Integrated Resorts, and high ongoing demand in both the university and HDB sub-sectors.

There are, however, persistent economic challenges facing the industry which drive SCAL’s priorities as a voice for the industry with regulators. Principal among these concerns are the steadily rising costs which have outpaced Singapore’s general inflation.

The Tender Price Index, a gauge of construction costs, has risen at an annual compounded rate of 9.8% per year since 2020. These increases have happened in tandem with a 4% decline in Value-Add per Hour Worked in 2023.

With builders’ aggregate revenue (certified progress payments) remaining relatively steady, the rising costs have caused some builders’ balance sheets to be strained.

Despite some recent improvements in 2021 and 2022 (the 2023 data is not yet available), contractors’ average Return on Equity has been eroding since the late 2000s:

To remain competitive, at SCAL’s 2024 Annual General Meeting, Mr Lee urged contractors to upgrade themselves and invest in their people. Digitalization, automation, and methodologies like AMA each offer possibilities for higher productivity and economic returns.

Where a portion of the cost pressures originates from regulatory changes, SCAL regularly advocates for a balanced approach with policymakers. While there are important underlying social and sustainability objectives driving these regulations, it is crucial to ensure that the industry’s financial viability is maintained throughout these transitions.

While the total market size is expected to remain stable, contractors who take the initiative to upgrade are likely to benefit from great market share.