Opening Address by Minister Desmond Lee at the BCA-REDAS Built Environment and Property Prospects Seminar
Jan 15, 2024
1. Good morning, and a warm welcome to the BCA-REDAS Built Environment and Property Prospects Seminar 2024.
2. I will cover a few areas in my presentation this morning.
a. First, I will start by sharing the property outlook for 2024.
b. I will then provide a demand forecast for the Construction sector for this year.
c. And third, I will update you on the public sector’s efforts to transform the Built Environment sector, and announce some changes to our public procurement framework.
Property Outlook
3. Let me start off with the property outlook for 2024.
4. Over the last four years, unprecedented disruptions caused by the COVID-19 pandemic led to tightness in supply in the housing market.
5. At the same time, we saw strong demand for housing.
a. Some of it was due to the pandemic – people were worried about the delayed completion of BTO flats, and therefore decided to turn to the resale market.
b. Some of this demand was because of demographic changes in our society, and smaller household sizes.
i. For example, more young couples and singles choosing to live on their own instead of with their parents or families.
ii. Some couples also decided to bring forward their BTO applications.
c. This resulted in rising HDB resale and private housing prices, and high BTO application rates.
6. To address this supply-demand imbalance, we did a few things.
7. On the demand side, we introduced a range of measures to promote a sustainable property market, including increasing the Additional Buyer’s Stamp Duty last year.
8. At the same time, the Government worked with Built Environment stakeholders like yourselves on the supply side, to quickly ramp-up new supply of BTO and private housing, and overcome the impact of COVID-19.
a. For instance,
i. we managed infection outbreaks,
ii. brought in workers in a safe and controlled manner,
iii. and ensured that no single part of the construction value chain was disproportionately impacted by the pandemic.
b. This enabled construction activities to return to almost pre-COVID levels, in 2023.
c. Because of these efforts, we completed around 43,000 housing units in 2023:
i. around 21,400 HDB flats
ii. and 21,300 private housing units.
iii. This is the largest number of homes completed across both the HDB and private markets in a given year, since 2018.
iv. It has been quite remarkable, considering that the Built Environment sector was just emerging from a pandemic.
9. We are starting to see these efforts bear fruit, with both the private and public residential markets showing signs of moderating.
10. Demand is beginning to stabilise, and transaction volumes across both markets have come down.
a. For instance, the total number of private housing transactions and HDB resale transactions have fallen by about 13% and 4% respectively in 2023, as compared to the year before.
b. BTO application rate among First Timer families for all flat types was 1.9 in 2023, which was much lower than pre-COVID-19 rate of 3.7 in 2019.
11. The rate of increase in property prices has also moderated.
a. Based on the 4th quarter flash estimates for 2023, the private residential price index increased at a slower pace of 6.7% in 2023, compared to 8.6% in 2022.
b. Similarly, HDB resale prices increased by 4.8% in 2023, less than half of the increase of 10.4% in 2022.
c. The proportion of resale flat buyers who paid Cash-Over-Valuation (COV) has also reduced significantly in 2023:
i. It has halved from almost 30% in the 4th quarter of 2022 to about 15% in 4th quarter of 2023.
ii. Of those paying COV, the median COV amount paid has remained relatively stable at about $30,000.
d. Overall, the majority of resale flat buyers did not have to pay any COV.
12. We expect this moderation to continue. As PM Lee highlighted in his New Year’s message, we should be prepared for our external environment to be less favourable in the upcoming years.
a. Global economic activity is projected to ease further into 2024,
i. with geopolitical uncertainties continuing to weigh on the global economy.
ii. Singapore will not be immune to these effects.
b. In addition,
i. our domestic mortgage rates are currently at between 3.7% and 4.4%
ii. and are expected to remain high for an extended period.
iii. This will impact existing home owners, prospective home buyers, as well as firms that are over-leveraged, or have too much debt.
13. At the same time, we expect a large supply of housing to come onstream:
a. we completed about 43,000 homes in 2023,
b. and remain on track to complete another 28,000 homes this year
c. and 24,000 homes next year:
d. making a total of close to 100,000 private and public homes between 2023 and 2025.
14. In sum, housing prices are unlikely to sustain the momentum they have seen in the past three years.
a. So, I encourage buyers to be prudent in their purchases to avoid over-extending themselves.
Construction Demand Forecast
15. Let me now turn to the Construction sector.
16. I spoke earlier about our strong pipeline of residential projects this year and in the coming years. This will translate into steady demand for the construction sector.
a. For 2024, BCA estimates that the total construction demand will be between $32 billion and $38 billion in nominal terms, an increase from 2023 figures.
i. The upper bound of this estimate is higher than the preliminary demand of $33.8 billion in 2023.
b. This is in part due to an increase in tender prices.
i. If the estimate is normalised to real values,
ii. BCA expects that the 2024 construction demand would still be lower than pre-COVID, or 2019 levels.
17. Public sector demand is expected to contribute about 55% of total construction demand or between $18 billion and $21 billion.
a. On top of the construction of more BTO flats, agencies are expected to continue with upgrading projects, like the Home Improvement Programme, as well as public infrastructure works, like MRT construction and road enhancements.
b. Private sector demand is expected to contribute between $14 billion and $17 billion.
18. For the medium-term outlook from 2025 to 2028, the projected annual construction demand is expected to be between $31 billion and $38 billion per year.
a. The public sector will continue to be the main demand driver.
i. Upcoming developments include Changi Airport Terminal 5,
ii. the Cross Island MRT Line
iii. as well as the redevelopment of Alexandra Hospital
iv. and various schools.
b. These investments to our physical infrastructure will allow us to realise our vision for Singapore as a vibrant global city and an endearing home for all.
Public Sector Efforts to Transform the BE Sector
19. Let me now turn to our efforts to transform the Built Environment sector.
20. I had said earlier that there remain risks on the horizon. We must therefore intensify our efforts to make our Built Environment sector more resilient, even amidst a more challenging operating environment.
21. The Government is fully committed to leading by example as the major driver of construction demand.
22. At present, public sector projects already need to meet higher productivity and sustainability standards. For instance:
a. Under the Productivity Gateway Framework,
i. public sector agencies must show an improvement of at least 30% in site productivity over their respective 2010 levels,
ii. surpassing the 25% target we had set for the wider industry.
b. And under GreenGov.SG,
i. all new public sector buildings
ii. as well as existing buildings undergoing major retrofit
iii. are required to achieve the Green Mark Platinum Super Low Energy standard.
23. As part of the refreshed BE Industry Transformation Map,
a. we are also pushing for a broader mindset shift in the way that we work together on projects,
b. for example, through the adoption of collaborative contracting.
24. This contracting approach overcomes conventional contracting challenges by providing a framework that allocates risks more equitably and aligns incentives of project parties towards shared project goals.
a. Thus far, at least ten public sector projects have either piloted or are planning to pilot these provisions.
25. Some government agencies, like HDB, JTC and LTA, will also be piloting the NEC4 contract form in their upcoming projects.
a. This encourages project parties to work together to not only resolve issues proactively but explore innovation and new construction methods.
26. Beyond these efforts, we have been also adjusting our public sector standard contracts to be more collaborative.
a. For example, we have introduced clauses that allow contractors to recover part of the additional costs that arise due to pandemics.
b. This aims to ensure more equitable risk sharing so that the sector is more able to withstand emerging challenges.
27. We will be making even more adjustments to our existing frameworks to make it easier for industry partners to work with our agencies.
28. I am therefore glad to announce that the Government has successfully completed a review of our Standard Consultancy Agreement (SCA).
a. This review is part of our regular effort to ensure that our procurement approach remains fair and progressive.
i. It was conducted in collaboration with the relevant Trade Association and Chambers (TACs),
ii. including SIA, ACES, IES, SISV and SPM,
iii. as well as various consultancy firms.
b. Together, we have developed a suite of enhancements to drive healthier practices between our public sector developers and their consultants.
29. The intended outcomes of these enhancements can be broadly categorised as follows:
30. First, a clearer definition of what the scope of services are, so that agencies and consultants are aligned upfront in their understanding of the consultants’ roles and responsibilities.
a. For example, agencies will be expected to specify the details of the base set of services required, and highlight non-standard services.
i. This will ensure that consultants can accurately size the expected effort and price their tender bids accordingly.
31. Second, maintain fair and timely remuneration, commensurate with the scope of work provided.
a. For example, we will make clear that consultants can request for fee adjustments for additional services required by agencies during a project. BCA will also update the rates used to compute the fee adjustments.
b. This will encourage more sustainable practices amongst consultants and support their talent attraction and retention.
32. Third, a more balanced allocation of risk, especially to address unanticipated events.
a. For example, we will grant consultants cost-sharing for significant construction delays, where the delays are due to issues beyond consultants’ control.
b. This is in line with the collaborative contracting principles that I’ve mentioned earlier.
33. BCA is working to finalise the proposed amendments to the SCA and we intend to roll this out later in the year.
34. In tandem, we have also relooked how we evaluate public sector consultancy tenders under the Quality Fee Method (QFM) framework.
35. BCA had previously enhanced the QFM framework in 2018 and 2020 to address the issue of fee diving by consultants.
a. These enhancements to the QFM framework have reduced the percentage of tenders awarded to low outlier bids
i. from 48% in 2017 to 23% in 2022
ii. – a significant improvement.
36. Notwithstanding this, we want to do more.
a. We hear our TACs' concerns that aggressive bidding behaviour can have knock-on effects and impact salary competitiveness for BE consultants.
b. At the same time, there is a need to keep the quality of consultants involved in public sector projects high.
37. As such, we will be enhancing the QFM to place greater emphasis on quality.
a. For instance, we will increase the number of projects shortlisted by merit, rather than ballot.
b. We will also make changes to enhance the differentiation in quality scores assigned by agencies.
c. BCA is finalising these proposed enhancements and we will implement them in the coming months.
38. In addition, we plan to enhance the framework for suspending poor performing consultants from tendering for public sector projects.
a. We will give firms time to improve their performance. The increased suspension threshold will only be implemented a year from now, in 2025.
39. Finally, we will explore how to further encourage sustainable bidding behaviour by piloting a revised fee-score approach for selected projects.
a. The pilot approach aims to narrow the range of bids that attain the maximum fee score to discourage fee diving.
i. There will also be a mechanism for disqualifying fee bids that fall below a certain threshold.
40. Taken together, these moves aim to support our BE consultants and encourage more sustainable business practices.
a. BCA will share more details about these changes to the SCA and QFM in upcoming circulars.
b. Do also subscribe to the BCA Telegram channel for timely updates.
41. Let me take the opportunity to thank all our TACs and industry stakeholders for providing your valuable feedback and working with us on these initiatives.
Call to Action - Private Developers
42. I also encourage our private developers to consider playing a bigger role in BE sector transformation. As service buyers, you set the direction for all other project parties.
43. I am glad that some private developers have already come onboard.
a. For instance, four private sector projects have adapted the public sector’s standard provisions for collaborative contracting for their own use.
44. I encourage more developers to take the lead in championing transformation and consider incorporating these practices into your projects too.
a. Some of these moves may seem challenging initially as they incur higher costs, and stakeholders throughout the value chain will need time to make process adjustments.
b. However, transformation is crucial as in the long term, it will ultimately result in a more resilient, dynamic, and innovative sector, which will benefit you down the road.
Conclusion
45. To conclude, the Government remains firmly committed to the stability of the property market and supporting all BE stakeholders in our transformation journey. I look forward to your continued support.
46. Thank you.