SINGAPORE (May 13): The expansion of the construction sector for the first time in 10 quarters has provided relief to Singapore’s GDP. The sector grew 1.4% in the first quarter of the year, following a surge in non-residential developments as well as a reduced sluggishness in the residential property market segment, the Monetary Authority of Singapore (MAS) indicated in its latest half-yearly economic review. Certified payments for industrial projects had also increased nearly 58% y-o-y between October 2018 and February 2019, owing to the ramping-up of new projects such as semiconductor fabrication plants and data centers, MAS said.
Jumping on the bandwagon is Equinix, a US-based IT-solutions MNC. In January, it set up a fourth data centre in Singapore, in collaboration with Mapletree Industrial Trust. Its existing data centres here occupy a total of 41,400 sq m. Its new US$85.3 million ($116.1 million) facility will have an initial capacity of 1,400 cabinets across 4,220 sq m of co-location space, and will be operational in 4Q2019. It is believed to offer more than 17,000 jobs. Social media giant Facebook is also set to have its 11-storey data centre here. The 170,000 sq m facility, which cost more than $1.4 billion, is the company’s first in Asia and will be located in Tanjong Kling.
The establishment of these projects was instrumental in boosting Singa-pore’s ailing economy last year. Economist Song Seng Wun of CIMB Private Bank says such developments are great for Singapore, as they will “ensure we stay relevant to the world”. “Our attractiveness comes from our brand name, rule of law and neutrality. In the light of uncertain macroeconomic conditions, it is good that we attract such talent; it will give us greater certainty of continued economic growth,” he adds.
Song’s comments come as the overall economy experienced a drop in growth between 4Q2018 and 1Q2019, following several quarters of above-potential growth. The moderation resulted largely from weaknesses in trade-related clusters, particularly in electronics-related production and manufacturing — sectors that have historically been major growth drivers for Singapore.
Advance estimates released by the Ministry of Trade and Industry (MTI) show that Singapore’s economy grew 1.3% y-o-y in 1Q2019, down from 1.9% in 4Q2018. The contribution of the manufacturing sector to GDP growth has waned in the last six months, reflecting the maturing of the global electronics cycle and economic slowdown in China. Other global macroeconomic events such as the US-China trade war and uncertainties surrounding Brexit have also been weighing down the traditionally export-driven economy.
Against this backdrop, MAS expects GDP growth to come in slightly below the mid-point of the 1.5%-to-3.5% forecast range in 2019. There is thus a greater need for Singapore to turn inward and depend more on its domestic economy to propel growth. Apart from the construction sector, consumer services such as digitalisation are expected to stay on a recovery path.
Improving infrastructure systems for job creation
Riding the wave of increased construction is the government’s move towards developing the local infrastructure systems — both under- and overground. Smart buildings and smart infrastructure of the future serve not only to improve the services and user experience but also to create jobs both during the interim construction period and in the longer term, when the projects are fully operational.
The most recent of such developments is the $9 billion investment plan to grow Singa-pore’s two integrated resorts (IRs). This will see Marina Bay Sands adding a new entertainment arena and hotel tower, and Resorts World Sentosa extending Universal Studios Singapore to include two new attractions — Minion Park and Super Nintendo World. This additional investment serves to “upgrade and rejuvenate” the IRs and is nearly two-thirds the initial investment of $15 billion made in 2006.
The expansions will create up to 5,000 jobs, according to a joint release issued by MTI, Ministry of Home Affairs (MHA) and Ministry of Social and Family Development (MSF).
With several countries developing their own IRs — a recent one being the $34 billion facility in Hainan, China — there is a dire need for Singapore to differentiate itself to continue attracting tourists. “We may not be the cheapest, but we can definitely compete based on the experience we provide. The enhancement of the two IRs will serve to achieve that,” says Song.
Another project is the development of an underground sewage superhighway — traversing 100km across western Singapore. Slated for completion in 2025, the labyrinth of pipes will comprise 40km of deep tunnels and 60km of link sewers. In this system, waste water will be conveyed to centralised water reclamation plants for treatment and recycling via gravity. This is the second phase of the project — the first phase, serving the eastern parts of Singapore, was completed in 2008. The development will cost $6.5 billion, with $2.3 billion devoted to a total of 19 tunnel boring machines that will be deployed to dig deep underground. Environment and Water Resources Minister Masagos Zulkifli says this is “a significant water infrastructure” that will bring about economic benefits such as the vacating of about 150ha of land, which can be used for other projects.
A macro project, the Draft Master Plan 2019 unveiled on March 27 by URA, is very important too, Song says. “This city state is only 720 sq km. So, policy planners have to really think hard about how to use this limited space to ensure Singapore stays relevant to the world.”
Real estate and investment services company Colliers, in a note on Draft Master Plan 2019, calls it “forward-looking, exciting and comprehensive, with varied initiatives that could further spark physical rejuvenation, enhance sustainability, support economic transformation and foster closer community ties”.
Colliers points out that there is a 19% increase in the base gross plot ratio (GPR) in Raffles Place around Battery Road, Collyer Quay and Market Street — from 12.6 times in the Master Plan 2014 to 15 times in the Draft Master Plan 2019. Sites include The Arcade and HSBC Building (owned by CapitaLand Commercial Trust). Elsewhere, there is an uplift of 25% in GPR in some sites in the Shenton Way area such as AXA Tower (owned by Perennial Real Estate Holdings) and International Plaza, from 8.4 times to 10.5 times. On Orchard Road, there are also increases in the GPR for selected sites, generally 12% to 14% higher than the Master Plan 2014. The lift in GPR could spur the redevelopment of some older buildings.
Lastly, the relocation of Singapore’s ports from the Tanjong Pagar Terminal to the mega-port in Tuas is another big project. The multibillion-dollar project will increase the port’s capacity to 65 million twenty-foot equivalent units, from 40 million TEUs today. It will boast features such as automated yard cranes and port equipment to raise productivity and reduce labour costs, and will be able to cater for mega-vessels and the complex needs of shipping alliances. Trade and Industry Minister Chan Chun Sing says in a Facebook post, “We see strong potential for the long-term growth of our ports. We will have to use even more and better technology to help us to meet the new capacity required while creating better jobs for our port workers.”
The Building and Construction Authority projects that the total demand for construction (that is, the value of contracts awarded) will range between $27 billion and $32 billion, comparable to the $30.5 billion awarded last year. The projected outlook is based on sustained public sector construction demand, which is expected to reach between $16.5 billion and $19.5 billion, or 60% of this year’s projected demand. In addition, BCA expects a steady improvement in construction demand over the medium term. Demand is projected to reach between $27 billion and $34 billion a year in 2020 and 2021 and could increase to between $28 billion and $35 billion a year in 2022 and 2023.
Impact on employment
The heightened demand for such services will also have a positive impact on the labour market. “With more infrastructure, there will be better labour force participation,” says Song. MAS’ estimates showed that Singapore workers enjoyed a 3.5% increase in their pay in 2018 — higher than the decade average of 3.2%. The central bank said, however, that a looming economic slowdown should dampen the pace of wage increases.
MAS noted that the labour market continued to recover in 2H2018, with overall employment growing at a faster pace than the preceding six months. Job replacements were fairly broad-based across the modern services, domestic-oriented and trade-
related cluster. Overall for the year, retrenchments declined, job vacancies rose and the resident unemployment rate fell 0.2 percentage points to 2.9%. MAS expects the labour market to remain firm despite moderations in economic growth.
Song says the slew of infrastructure developments that the government is launching will pave the way for job creation in several sectors. “While there is a threat of jobs being replaced by automation, I am optimistic that the expansion of current industries will provide more opportunities,” he says.
This story appears in The Edge Singapore (Issue 881, week of May 13) which is on sale now. Subscribe here
