BMI View: Real growth for the construction industry has significantly exceeded government estimates in H112 due to a surge in residential and non-residential building activity. As such, we have revised up our construction real growth forecasts to 8.6% in 2012 (previously 5.1%). Looking at 2013, we expect construction activity to slowdown, but to a reasonably robust level due to the large pipeline of infrastructure projects and the launch of another round of quantitative easing in the US. Real growth for the construction sector in 2013 is now forecast to reach 4.9%, compared to a previous forecast of 3.5%.
Construction activity in Singapore has once again surprised on the upside. Latest data from the Ministry of Trade and Industry (MTI) showed that real growth for the construction industry was 8.3% year-on-year (y-o-y) in Q112 and 10.1% y-o-y in Q212, higher than the estimates of 6.9% and 5.3% projected by the MTI in July 2012 respectively. This very bullish performance by the construction sector is believed to have continued in Q312, where advanced estimates from the MTI showed that construction real growth reached 8.6% y-o-y in Q312.
|Surprise On The Upside Again|
|Singapore Quarterly Construction Industry Value Real Growth By Date Of Release From MTI, % chg y-o-y|
According to the MTI, this significant revision in the H112 estimates was because new construction data showed that the sector 'registered higher certified progress payments from private sector industrial and residential projects'. This is in line with our views on Singapore's construction sector.
Residential Sector: We had expected residential building activity to pick up aggressively in 2012 . This has definitely taken place, with housing starts for private residential buildings growing by 29.7% in Q2 2012, according to the Singapore Urban Redevelopment Authority. Combined with a major boost in public housing activity - in February 2011, the Singapore government announced that it will spend SGD10bn (US$8.0bn) on affordable housing over the next 10 years - the residential building sub-sector is expected to remain as a major growth driver for the broader construction sector in 2012.
|Singapore - Residential Housing Starts, By Sector|
Infrastructure Sector: We have long-held the view that the transport infrastructure sector would see a boost in activity in 2012. This is because the urban railway projects awarded by the government in 2011 - namely the 21km Downtown Line Stage 3 and the Tuas West Extension project - have already started construction works. As we had only seen minimum progress in these projects in 2011, we had expected their construction works to hit top gear in 2012.
Non-Residential Sector: We had also expected activity in the non-residential building construction sector to remain relatively robust in 2012 . Since our October 2011 analysis of Singapore's construction sector, we highlighted that the non-residential sector saw the signing of several large-scale commercial construction agreements in 2011.
While in line with our general expectations, this significant revision in the H112 data has therefore prompted us to revise up our forecasts for the construction sector, with real growth for the sector reaching 8.6% in 2012 (from a previous forecast of 5.1%). This revision is primarily due to our residential and non-residential building construction forecasts, with real growth for the sub-sector revised up to 9.0% in 2012 (from a previous forecast of 4.5%). Meanwhile, we are maintaining our infrastructure forecasts, with real growth reaching around 7.2%.
|2012 Improvement On Track|
|Singapore Construction (and Subcomponents) Industry Value Data|
2013 Outlook Boosted By Infrastructure
We have also revised up our construction real growth forecasts for 2013, from 3.5% to 4.9%. This is primarily due to the infrastructure sector. We believe that activity in the sector will continue to be relatively robust in 2013 as there are growing signs that the Singapore government will continue to spend in the infrastructure sector to boost the country's productivity . We have noticed pertinent progress with several large-scale, infrastructure projects in recent months and these projects could boost construction activity in 2013 and beyond.
Therefore, taking account these events, we have revised up our short- to medium- forecasts for the infrastructure sector. Real growth for the sector expected to reach 7.1% in 2013 (previously 5.7%) and average 4.2% between 2014 and 2017 (previously 3.6%).
|Supported By Large Pipeline|
|Singapore Transport, Energy And Utilities Infrastructure Industry Value, SGDbn|
Building Activity Dampened By Non-Residential
As for the residential and non-residential buildings construction sector, we believe that the sector would underperform against the infrastructure sector over the short- to medium- term. Real growth for the buildings sector is forecast to reach 4.3% in 2013 (previously 3.0%) and average 3.3% between 2014 and 2017 (previously 2.6%).
This underperformance is because we expect non-residential building activity to be dampened by poor global economic activity . Feeble external demand continues to undermine Singapore's manufacturing sector ( see our online service, October 12, 'Economy Contracts, But MAS Holds Off On Easing') and this is already dampening building activity. According to the MTI, the double-digit growth seen in Q212 was not repeated in Q312 because the construction sector saw 'a decline in private sector building activities'. With global economic activity set to remain weak over the coming years, we do not expect a major recovery in demand to boost non-residential building activity in 2013.
QE3 A Residential Tailwind
The upward revision in our buildings construction forecasts is therefore due to the residential buildings sector. We believe that the third round of quantitative easing by the US Federal Reserve could increase the demand for speculative investments in Singapore such as real estate. This could in turn, drive property developers to increase their building activity to meet demand. Combined with the government's attempt to significantly increase the supply of public housing, this could boost activity.
|Trending At Record Levels|
|Singapore - HDB And Overall Property Price Indices|
At present, the demand for housing in Singapore remains robust despite several attempts by the government to curbing speculation in the real estate market. Housing prices continue to trend at record levels even though the government has barred interest-only loans for some housing projects, stopped allowing developers to absorb interest payments, imposed additional taxes on foreigners and companies buying properties, curbed the supply of studio apartments, and more recently, capped the maximum tenure for new residential property loans at 35 years.