SINGAPORE (May 10): Lewis Ko works at his father’s construction company that has built condos for some of Singapore’s largest developers. However, business has come to an abrupt standstill after the government ordered work at all construction and renovation work in the city state to stop from April 7 after a serious outbreak of Covid-19 among migrant workers living in purpose-built dormitories (PBDs).Ko’s father employs more than 300 workers, out of which 120 were housed at Dormitory@Punggol.
Since the outbreak, four have contract-ed the virus although one has since recovered.“The feedback on living conditions at the dorm wasn’t bad,” Ko says, “but we started to worry after Lunar New Year because of the isolated cases. We tried to control the outbreak and a lot of contractors were taking precautionary measures,” he recalls.
Now, despite his building projects being delayed, the company has to continue paying full salary to his workers and provide alternative accommodation, food and other necessities including internet access.More worryingly, Ko is not sure when his company can start working again. “The dorm issue needs to be solved so workers can go back to work,” he says. One thing for sure though. Once the health crisis blows over, Ko says the workers and dorms will have to practise good hygiene and the dorms have to be cleaned regularly to prevent a similar outbreak.
Held up barely a month ago as the gold standard as an early success story in containing the spread of Covid-19, Singapore now has the highest number of cases in Southeast Asia.The total population of foreign work permit holders in Singapore living in dormitories is 323,000, mostly working in the construc-tion sector.
There are 43 PBDs, which house 3,000 to 25,000 workers each. As of May 4, of the total 18,778 Covid-19 cases reported in the republic, 16,393 cases were from foreign workers living in PBDs. The dorms were built and operated by construction companies such as Wee Hur Holdings, TTJ Holdings, and Lian Beng Group, and also by specialist operators such as Centurion Corp, where Lian Beng owns a 4.5% stake, as well as S11, which operates Dormitory@Punggol. Media reports have highlighted that living conditions are often less than ideal.
Out of the 43 dorms, 25 have been gazetted as isolation areas, according to the Ministry of Manpower (MOM). As of April 30, S11 Dormitory at Punggol reported the largest cluster of infections, with more than 2,400 cases. The second highest cluster of infections is at Tuas View Dormitory, which saw over 1,000 reported cases as of May 4.
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AEIs, REITs and other sectors hit too
To be sure, it is not just essential construction that has suffered. Even non-essential construction like Asset Enhancement Initiatives (AEI) have been halted. This was what happened to Sabana Shariah Compliant Industrial REIT’s largest asset, New Tech Park.
Its Temporary Occupation Permit, originally slated for 2Q2020, has now been pushed back to 3Q2020 after AEI was delayed.“The disruption in regional materials supply chain, foreign workers and the circuit breaker are the main causes for delay. This is assuming of course that the circuit breaker is lifted on June 2,” says Donald Han, CEO of Sabana REIT’s manager.
“With the stringent implementation of the ‘circuit breaker’ measures, companies — especially SMEs — could come under more pressure, which may in turn affect our performance,” adds Han, given many of Sabana REIT’s tenants are SMEs.
Another REIT that has SMEs comprising around 45% of tenants by gross rental income is Mapletree Industrial Trust (MINT). Last July, MINT announced the $243 million re-development of two flatted factories into new high-tech buildings in its Kolam Ayer 2 Cluster. It had also secured a German biotech as a tenant for 24.4% of the new enlarged space of 865,000 sq ft. The plan is is to start construction in 2H2020 and to complete it in 2H2022.
When asked if the circuit breaker measures have affected its redevelopment schedule, Tham Kuo Wei, CEO of MINT’s manager, says that the project timeline remains unchanged as tenants still have another three months to move out. However, there could be an impact on cost. “With workers being held back from work sites, the contract price would be affected, and we are looking at that closely in our contract management,” Tham says.
Aside from the construction sector, other industries have not been spared from the pandemic too. In a results teleconference on April 29, Loh Chin Hua, CEO of Keppel Corp that has interests in offshore and marine (O&M), property, and infrastructure businesses, pointed out that the lockdowns implemented both globally and locally have disrupted its business, in particular but not limited to Keppel Offshore and Marine (Keppel O&M).
“Keppel O&M has some operational disruption, either from supply chain or from restrictions on operations in yards. Our six yards in Singapore are still operational. But with the current circuit breaker and stricter social distancing measures, which we are very supportive of, we have reduced our headcount at our yard significantly in Singapore,” says Loh.
“On March 30, we had about 22,000 to 23,000 workers in total at our six yards in Singapore. Not all are our direct staff, some belong to our subcontractors. Today, we have probably just over a thousand. The reason is, the Government is stricter now on what are considered essential services. For more urgent projects like repairs, we have deployed more people there. Those that are less time critical — like the Newbuild Division — we have fewer people there,” Loh adds.
Labour Day in lockdown
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On May 1, the Singapore government unveiled a suite of additional measures including onsite medical facilities at all purpose-built dormitories, medical posts that will serve factory-converted dormitories housing around 65,000 workers, and 12 mobile medical teams made up of more than 50 medical personnel.
Officials says more than 18,000 beds have been set up for isolation and care, with a fur-ther 23,000 in the pipeline. To date, more than 25,000 foreign workers have been tested.Over the past four weeks, more than 10 milion meals have been delivered and workers have been given online access to purchase items from minimarts.
Access to remittance services is also now available at the dorms and over 410,000 packs containing items such as ther-mometers and hand sanitisers have been distributed. However, MOM Permanent Secretary Aubeck Kam says it will be “some weeks yet” before workers can return to the community.
Impact on construction sector
The Monetary Authority of Singapore (MAS) in its Macroeconomic Review has placed GDP growth this year at –4% to –1%. According to the MAS Macroeconomic Survey, the construction sec-tor contracted by 10.6% q-o-q on a seasonally adjusted annual basis in 1Q2020. Construction activity will be disrupted in 2Q2020 because of the circuit breaker but could see some re-cover in the second half, MAS says. Fitch Solutions, on April 28, revised its forecast of the Singapore construction sec-tor. From a full year contraction of 3.2% seen in early April, Fitch now expects this sector to contract by 10.2% instead.
In FY2019, the sector had expanded by 2.8%. “Construction activity is still expected to gradually recover in H2 2020, but will not return to 2019 levels this year,” says Fitch.Contractors, who are a mainstay of the local construction sector, are likely to bear the immediate impact of the costs of the circuit breaker measures.
Meanwhile, building supplies from Malaysia have also been disrupted because of the movement control order (MCO). For instance, Ko’s company gets precast concrete, prefabricated prefinished volumetric construction modules, carpentry such as doors and electrical fittings from Malaysia.“To be sure, not everybody is in the same boat. The problem with supply chains is they are very interconnected so if anyone in the supply chain goes under, everyone else will be affected,” Ko says.
“Then there is also the financial strength of the company, and the health and safety of the workers to consider. The workers need to earn money to send home but we are all bleeding cash and have no cash flow. I hope more support to the industry can be given, similar to the aviation sector,” he says.
Operators versus employers
Centurion, an owner and operator of dorms, declined to comment although two of its four dorms — Westlite Toh Guan and Westlite Mandai — have been gazetted as isolation areas. In its presentation to shareholders at its AGM on April 27, Centurion acknowledges that there are “cost increases” to deal with due to operational disruptions and precautionary measures from the outbreak.
Nonetheless, analysts covering this stock are dialing back their expectations. On April 29, Ngoh Yi Sin, analyst at CGS-CIMB Research, slashed her target price on the stock from 58 cents to 45 cents. She estimates an earnings per share drop of 5.9% this year as Centurion will suffer a drop in from its student dorm business, especially in the UK and US. In addition, the planned expansion of the workers’ dorm segment as well as rental hikes have been put on hold.
Keppel Corp, on the other hand, is seeing impact in a different area. Both of Keppel Corp’s dorms have also been gazetted as isolation areas — Acacia and Cassia@ Penjuru. The difference between Keppel Corp and Centurion is that the workers at Keppel Corp’s dorm are its own employees.
“We view migrant workers as a very important part of our workforce, so it is very important that we look after them well,” Loh says. In contrast, Centurion sees the workers are a source of revenue as they are charged on a per bed basis.
According to Loh, the management team at Keppel O&M has been in regular contact with the workers. “It’s not just about providing food which I agree is very important. We also need to provide channels for them to speak to their families using SIM cards and also with Wifi. More importantly, we have to reassure them that they will get paid. but the priority is for them to get well,” he adds.I
Indeed, Keppel Corp is widely acknowledged in the industry as running two very good quali-ty dorms. Each unit in the dorms have two bed-rooms which share a sitting room. The dorms also have a games room, a supermart and various recreational facilities for the workers.
The first Covid-19 case at Keppel Shipyard was reported March 30, says Loh. “We were very quick in putting about a hundred of our colleagues and co-workers, who were deemed to be in close contact with the infected employee, on leave of absence. That expanded very quickly to 1,200 workers by April 6. Over time, we have put almost 4,000 workers on leave of absence. This was on our own accord before any intervention by MOH because safety of our workers comes first,” Loh adds.
Keppel Corp also did its own contact tracing and put those who were in close contact with any suspected cases on leave of absence. The group also tried to segregate its workers into different blocks, different floors, and different rooms.
Switching off the circuit breaker
Ko says it is difficult to predict when Singapore’s circuit breaker measures could be lift-ed given the problems surrounding the dorms have to be solved first. “Even when the circuit breaker is over, productivity and capacity will be reduced,” he adds.
Fortunately for Keppel Corp, the group has had some experience of exiting the pandemic in China. During the lockdown period in January and February, construction had come to a standstill. Keppel O&M also operates a yard in Nantong which is now 100% operational.
China returns slowly to normalcy
The property development business in China is gradually returning to normalcy too. Keppel Land, the property arm of Keppel, recently launched its Wuxi Waterfront Phase 6 project and sold 164 units at the same pricing as 2019.
“I am reluctant to say that we have recovered and are back to where we were before. I think the recovery in some of the markets may take a bit longer. But certainly, the land bids that have been put in as well as the launch prices have been quite encouraging, including our own over the weekend,” Loh says of China.
While there could be some delays in project completion, Loh does not expect average selling prices in China to go lower than in previous years. However, revenues will be recognised later. “From the sales that we have, we do not see — at least for China — permanent diminution of our margin,” Loh says. As for Keppel O&M’s projects, Loh says there is plenty of opportunities to “catch up”.
“Many of our businesses in Singapore are still active at providing essential services, whether it is the supply of water, power, gas, even connectivity like M1 or data centres. That’s because these are all considered critical or essential ser-vices,” Loh points out. The government’s Job Support Scheme has been helpful to Keppel as it has 5,000 workers in Singapore that are Singaporeans and PRs, says Loh.
“But of course, there’s nothing like having the topline back, so we are also looking forward to eventually when we are able to, as a whole country, bring the pandemic under control, and we are able to start relaxing some of the measures and allow us to go back to work. I think that is probably what most companies and industries are looking for: The ability to actually generate the topline,” adds Loh.
