Building sector to grow 3.2%, but risks abound: Fitch

The residential and non-residential building sectors will expand by 3.2 per cent this year and 2.3 per cent next year, thanks to a strong pipeline of planned projects, said a report yesterday.

But it noted risks like trade tensions and the possibility of a recession within the next few quarters.

The Fitch Solutions Macro Research report raised its 2019 growth forecasts for the overall building sector from 3 per cent previously to the 3.2 per cent noted yesterday.

It cited a pipeline of projects now under planning and construction coming through from last year.

In particular, the faster pace of growth will be driven by residential buildings, which Fitch now predicts to grow at 3.2 per cent this year and 1.5 per cent next year.

This is a marked change from its previous forecast that this sector would shrink by around 0.7 per cent each year.

It noted that about $9 billion worth of private and public residential building contracts were awarded last year - almost double the $4.8 billion of commercial and industrial contracts awarded.

The Government has been announcing new build-to-order Housing Board projects, with six in the first half of this year and another five scheduled by year end.

After 11 consecutive quarters of decline in the number of home units planned and under construction, there has been a rebound since the fourth quarter of 2017, Fitch noted.

Likewise, the non-residential sector has seen a slight rebound in the pipeline of office, industrial and retail space over the same period.

But Fitch made a downward revision in its growth outlook for the overall building sector for next year - from 2.6 per cent to 2.3 per cent.

This is because of a slight drop in the number of newly planned residential units and the property cooling measures taking effect.

"We anticipate a drop in demand as a result of these measures, which will slow down the pace of the rollout of property projects from 2019 onwards," Fitch said.

"(We) forecast Singapore's economy to grow by 2.2 per cent in 2019", it added, warning that the trade war will eventually "have negative impact on growth".

Fitch also cited the possibility of a recession in the United States, which will have global implications, including a slowdown in trade that will affect the Singapore economy.

"Hence, fears of an impending slowdown may further suppress demand for residential buildings, and also, with business confidence expected to fall, growth of the non-residential building (segment) will also be exposed to significant downside risks," it noted.

Falling mortgage growth here this year is an early indication of a possible slowdown in the growth of the residential building sector.

"This is a possible signal that demand for housing is waning, a phenomenon likely linked to the effects of cooling measures, as well as fears of recession," Fitch said.

Fitch Solutions Macro Research is a unit of Fitch Group.

A version of this article appeared in the print edition of The Straits Times on July 11, 2019, with the headline 'Building sector to grow 3.2%, but risks abound: Fitch'. Print Edition | Subscribe