Complete Property Market Updates of Singapore

April 30, 2008

$1b Sentosa hotels deal goes to S’pore-Japan joint venture

Filed under: 1 — Propertymarketupdates @ 4:05 am

A SINGAPORE-JAPAN joint venture has been awarded a $1.05 billion contract to build three hotels on Sentosa Island, to date the juiciest plum dished out by the integrated resort.

Kajima-Tiong Seng beat several other companies to build the five-star hotels, officials from Resorts World at Sentosa announced yesterday.

The hotels, which are expected to provide over 1,000 rooms, will be the centrepiece of a $6 billion development on the resort island that will include a casino and a theme park.

The contract is the resort’s biggest to date and brings the value of deals awarded to $2 billion.

Kajima-Tiong Seng is a tie-up between Japanese-led Kajima Overseas Asia and local Tiong Seng Contractors which also built the St Regis Singapore. The firm will also construct the Sentosa resort’s main thoroughfare, Festive Walk.

The three hotels are the latest in a string of big construction projects handed out here. They include a $400 million contract to Sembawang Engineers and Constructors to build another massive resort nearby called the Marina Bay Sands’ North Podium. It is expected to feature a casino, theatres and a retail arcade.

But the hefty construction contracts may not be all good news. They could add more pressure to an industry already stretched by a manpower crunch and the rising costs of raw materials, said Knight Frank’s director of consultancy and research Nicholas Mak.

Construction overheads have gone up 40 per cent in the past two years and are expected to climb another 15 per cent to 20 per cent this year. They have been driven by steep increases in the prices of steel and concrete.

The spikes have already forced big projects like the two integrated resorts to revise their cost estimates.

Last November, Resorts World upped its budget from $5.2 billion to $6 billion.

Marina Bay Sands has also had problems keeping to its projections. Last August, its parent company said that costs are expected to rise by up to US$1.4 billion (S$1.89 billion) – a significant increase on the original US$3.6 billion price tag.

Today’s construction industry is red hot, eclipsing even the heyday of 1997. Over $24.5 billion in contracts were awarded last year, up 46 per cent from the $16.8 billion awarded in 2006 and just above the $24 billion in the boom year of 1997.

Economists have forecast that the industry will grow between 10 per cent and 25 per cent this year, fuelled by developments like the two integrated resorts and the Downtown MRT line.

Government plans to defer about $3 billion in public sector projects to ease pressure on industry costs is also unlikely to make much of a dent.

Construction cost consultancy Rider Levett Bucknall was reported as saying that the move ‘is expected to have a limited impact on relieving construction demand as it will represent around 10 per cent of annual demand’.

Contractors said that aside from raw material costs, labour is their other big headache as ‘wages for workers are off the charts now’.

Staff poaching is a huge problem with companies making up for their shortage by offering workers from rival firms up to $800 more a month.

One contractor who declined to be named said: ‘Every three to four months, we have to revise our pay. If we cannot keep up, the workers will leave.’

Source : Straits Times – 24 Apr 2008

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