Private building projects are expected to decrease due to less benign economic conditions and an increased supply completed housing projects and offices.
- Singapore's public construction segment, which accounts for more than 60% of building activity, will continue to expand in the coming years, supported by government investment in transport infrastructure. However, private building projects are expected to deterioate, due to less favourable economic conditions and an increased supply of already completed private housing projects and offices. In this segment competition is expected to increase, and players will try to maintain their top lines by lowering margins.
- Mainly small and medium-sized businesses active in the private construction sector are already suffering from profit margin contraction due to lower demand, coupled with higher labour and rental costs. In 2017 companies will struggle to meet working capital requirements as margins are continuously squeezed.
- Singapore´s construction businesses are heavily reliant on banks for loans and project funding. Despite a more difficult outlook for the Singaporean banking sector as a result of the slowdown in China and a less favourable domestic economic outlook, bank lending remains non-restrictive to the construction sector for the time being.
- Payment duration in the industry is 60-120 days on average. Payment experience has been bad over the past year, with non-payment notifications mainly coming from Malaysian construction businesses active in Singapore. In contrast, non-payments from Singaporean businesses are less of a problem.
- The protracted default rate in the construction industry is above average. It is expected that insolvencies in the construction sector will increase by about 5% in 2017. Last year the number of businesses in Singapore liquidated after encountering financial trouble was the highest in 11 years, mainly due to slower economic growth of the city state. At least it seems that local banks are more prone to accept restructuring options available, as opposed to resorting to liquidation.
- While our underwriting stance is generally open for businesses related to public sector construction , we are more cautious about the private building segment.