Saturday, August 16, 2008

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Inflation Impact on Singapore: Increase Construction Costs Bad for Developers

SOME building projects in Singapore are facing cost blowouts of 30 to 50 per cent above their original budget as higher construction costs bite hard.

Please note that increase in construction cost is due to the building of the IRs that suck all the resources from the local construction scene. Industry watchers expect costs to taper once the IRs are completed.

Contrary to popular beliefs, increase in construction costs is bad for the construction companies and also for the developers.

Imagine developer lauches a project. Building will often take some time after the launch. The 20% downpayment will be used in the cash flow to fund the building costs. There is often a time lag between launches and actual building. Now with the sales already made, and costs escalating, it will affect the profitability of the projects.

Developers, especially the smaller ones will delay the building until more units are sold. This is to minimize the loans from the banks for the building costs. However, they cannot delay indefinitely as there is a pressure on the TOP date.

However, in this weak market, sales are slow and costs are increasing and TOP coming, this increases the pressure on cash flow on the developers. This is happening to the projects on the market now, with TOPs in 2010 or 2011.

Guess what will they do?

Posted by Anonymous in the Singapore Property Forum

May also want to read:
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Property Price Index Graph Plotter & Online Property Valuation
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HDB Resales: West Sees Highest Price Increase


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