Interview: B. Jugder
What can construction companies do to remain competitive despite the economic downturn?
B. JUGDER: For too long, the market has been dominated by real estate developers that double as construction companies, and vice versa. However, both tasks require different skill sets. When only one company buys land, and invests in infrastructure and new buildings, there is a natural tendency to inflate prices for the end-user, contributing to a real estate bubble. Therefore, we should move towards a system where these two functions are separated. If construction companies act as contractors and focus solely on construction, they will be able to provide a more specialised and cost-effective service. Indeed, there are currently around 1000 large and small players in the industry. If some of them were to unite, sharing their workforces, expertise and equipment, they could take on more complex projects, benefitting the sector as a whole.
To what extent are current levels of demand sufficient to absorb all of the new housing supply that has come on-line over the past year?
JUGDER: While among the many buildings that have gone up recently, some are standing empty, this imbalance between supply and demand is more an issue of affordability than anything else. People, especially those on the lower-end of the socioeconomic spectrum, want apartments, but the ones that are currently being built are unaffordable for the majority. This is a function of the ongoing real estate bubble. Good-quality, lower-income housing could be built at reasonable costs if the development and construction functions are separated and efficient construction companies are used. The government is currently contracting out two such projects that are able to offer housing at very low prices.
As a country, we also need to work on developing our domestic capacity in building materials, which will decrease the need for expensive imports, further bringing down the price of construction. Thanks to government support through the price stabilisation programme and exempted duties on building material technologies, we have already made considerable progress. This can be seen particularly in terms of cement, reinforced concrete (with rebar) and other materials, such as windows, doors and plastic pipes. Continued support will result in further price decreases in the coming years.
If passed, what kind of impact will the construction law have on the development of the industry?
JUGDER: I believe that the new construction law will have a positive impact on the industry once it is passed, as it encourages the development of independent, high-quality contracting firms. By removing the most excessive burdens of the current licensing and permitting regime, and replacing them with a system in which contractors are wholly responsible for their work during the construction period (including the cost-based risks associated with that work), the law will allow for market forces to incentivise improvements in quality and safety standards among providers. Contractors will have to constantly monitor and check their quality of work to ensure that they are delivering the best work possible to their clients or they will no longer be able to effectively compete in the marketplace. This move is long overdue and will send a positive signal to the public that local construction companies are up to international standards and norms.
In addition to this, the law looks to define which firms are suitable for which jobs. The new classification system will sort projects into specific categories based on the type of expertise required to build them. For instance, companies that build roads are not qualified to construct thermal or nuclear power plants, and vice versa. This will allow for increased specialisation among firms, promoting higher overall quality of construction throughout the sector as a whole. In the long term, local construction firms may even be able to compete for projects abroad. For these reasons, it is my firm hope that the new law will be passed and adopted in the spring session of Parliament, if not beforehand.
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