Headache Over Shifting Sands

Jan 26 2007 (TODAY)

Contractors feel the pinch now, buyers may hurt later

Lee U-Wen
u-wen@mediacorp.com.sg

THEY were warned. As early as September last year, contractors like Mr
David Toh, project director of Ley Choon Constructions, were told that the
price of sand was on its way up. Like good businessmen, they factored a
moderate rise in the cost of sand into their tender quotations.

What they did not expect was Indonesia's blanket ban on sand exports. Now,
instead of this building material costing, say, 20 per cent more, they are
looking at its price doubling. And they alone must pick up the tab.

"There is no way to adjust to the rising costs," said Mr Toh as the impact
of Indonesia's "sand storm" started sinking in. "We have no choice but to
finish the projects and pay the higher price for sand."

They cannot pass on this mounting cost to anyone, because the price is
already determined during the tender process.

But when it is time for the next round of contracts to be signed, Mr Toh
and others like him will make sure that they charge developers for sand
prices that could hover closer to $50 a tonne, compared to the current $20
a tonne. And that is when the buyers, too, may feel the squeeze.

"Consumers must be prepared to fork out more, because developers are not
going to absorb the increases," said real estate firm Propnex's chief
executive Mohamed Ismail.

And so a whole new dynamic will be set into motion, affecting not just the
players in the construction sector, but even the way structures are built
and property is priced.

Singapore imports between six and eight million tonnes of sand each year,
almost all of it from Indonesia.

The Indonesian ban will affect existing projects, which are worth up to
$90 billion, but is not expected to disrupt them.

That is because the Building and Construction Authority (BCA), which
manages the Republic's stockpile of sand, is willing to dip into it to
make up for any temporary shortfall.

But it was likely to price this sand higher than the current market rate
of $20 per tonne.

Mr Tan Tian Chong, director of BCA's technology development division, told
Today: "The stockpile is meant more for emergencies, so the price will go
up. The industry expects it to go up."

The irony is that the impact will be greater precisely because the
construction industry has turned around and the demand for sand is greater
than ever before.

Last year, $16 billion worth of contracts were signed - a 41-per-cent
increase from 2005.

Spotting this trend, the Singapore Contractors Association Limited (SCAL)
wrote to its members last September, pointing out that the price of sand
could rise further. It advised them to factor this in the costing of their
works.

The SCAL said there was "an increased demand for sand in Singapore" due to
the Housing and Development Board's (HDB) stockpiling and the upcoming
integrated resorts.

This year, demand will grow further with $19 billion worth of contracts
expected to be signed.

Now suddenly, the main supply source has been cut off and the scramble for
alternatives has begun.

The HDB is already tapping into other sources of sand in the region. "But
there's always a chance that other countries could also ban the export of
sand, so the industry has to switch to steel," said BCA's Mr Tan.

For those in the construction sector, the timing could not have been
worse. Though it grew by only 1.1 per cent last year, it had started to
gather steam in the second half of the year - growing by 2.6 per cent in
the third quarter and 2.4 per cent in the fourth.

Now, it's back to the drawing board.

But while you may have to pay a little more for your next property and Mr
Toh will not make much of a profit on the four projects he has in hand,
each worth millions, the impact on the economy itself will be limited.

Said Citigroup economist Chua Hak Bin: "I estimate that the construction
sector will contribute about 3.5 per cent to the country's gross domestic
product this year. The fact that the Government has released the stockpile
of sand will provide some breathing space this year, so I feel the impact
will not be that significant."