Gain in building approvals belies enduring downturn

Photo by: Heng Chivoan

Construction labourers continue work Tuesday on a new conference hall being built on Phnom Penh's Koh Pich. Although construction project approvals climbed 7 percent up to the end of August this year, the IMF and construction materials producers say the slump continues.

(Post by CAAI News Media)

Friday, 02 October 2009 15:01 Soeun Say and Nathan Green

Despite a small rise in construction approvals during the first eight months of this year, analysts say the sector is still suffering from the economic crisis.

A7 percent gain in construction approvals over the first eight months of the year suggests a recovery may be imminent in the property sector, but other data showed the construction industry is still feeling the impact of the economic downturn.

According to figures released by the Ministry of Land Management, Urban Planning and Construction this week, 1,499 construction projects worth a combined US$1.61 billion got the green light from government officials through to the end of August 2009, up from 1,396 projects worth $1.51 billion in the same period last year. The number included 357 projects worth $470 million approved in July and August.

“This is a good sign that our construction sector is still growing, despite the global economic crisis,” said Lao Tip Seiha, director of the ministry’s Construction Department.

However, the ministry did not track how much money had actually been invested in the sector, nor which of the approved projects had started construction, Lao Tip Seiha said.

According to May estimates by the United Nations Development Programme, more than 30 percent of construction projects “may have been placed on hold” this year due to the global downturn.

In a briefing on the state of the economy last week, the International Monetary Fund (IMF) also said the construction sector had seen a contraction this year amid the economic downturn.

“New project approvals are down sharply, and if you look closely at the import data, the import of construction materials has also been contracting since late last year,” David Cowen, deputy division chief in the IMF’s Asia and Pacific Department Bank, said last Wednesday. “Bank lending to the property sector is also down.”

IMF Resident Representative John Nelmes said the decline in project approvals referred to foreign investment approvals, which are traditionally seen as a proxy for construction sector activity in the absence of reliable industry or government data. The IMF predicted that foreign direct investment inflows would fall to $490 million this year from $815 million in 2008, largely as result of reduced spending in major construction projects.

“Unfortunately, there are no monthly data on actual construction sector activity, so one has to supplement the approvals data with other indicators, such as imports of construction materials, which are down about 35 percent year-on-year so far this year,” Nelmes said. “Steel imports are about 25 percent lower.”

A downturn in sales has also been reported by brick makers. Sun Rises Brick Factory Executive Director Lay Seng Hoeun said the construction sector was sourcing between 70 and 80 percent fewer bricks from his factory this year compared to the height of the building boom in early 2008.

He said he had dropped production from 170,000 bricks a month, all of which were sold, to around 160,000 every two months. Stocks were piling up despite the lower production levels, he said.

Prices slide with demand

Prices had also dropped from between $600 and $700 for 10,000 bricks to around $200 this year, he added.

He said other nearby factories in Kandal province’s Mouk Kampoul district were facing a similar problem.

Ministry figures show 2,156 development projects worth $3.191 billion were approved over the full year 2008, down 0.64 percent on 2007, when 1,942 projects worth $3.211 billion were approved. Ministry approval is required only for projects over a certain value, with the bulk approved at municipality or provincial level.

According to the UNDP, construction projects increased in value from a total of $500 million in 2003 to more than $3.2 billion in 2007. The average project cost over the same time period increased from $157,000 to $1.65 million as developers began building high-rise apartments and office buildings.