Hong Kong’s Construction Conundrum

As the construction sector looks to turn a positive corner in Asia, Hong Kong looks at ways to reduce industry costs in order to fully capitalise

An Arcadis report has revealed that Hong Kong remains the most expensive city in Asia for construction works, while also divulging the wider continent’s domination over current high-value projects in the global industry.

The annual Arcadis International Construction Costs Index placed Macau and Singapore just behind Hong Kong, contrasting with Bangalore, Kuala Lumpur, Jakarta, Ho Chi Minh City, Taipei, Bangkok and Manila who were all among the world’s cheapest cities for the sector.

This vast chasm and alarming divide at both ends of the spectrum is further enforced by the fact that only New York remains more expensive in the global charts than Hong Kong, leading to the global management consulting Company exploring the reasons for such a gap.

A foremost factor appears to be a severe labour shortage in the city which underpins the high contributory costs within construction projects, but there are signs of improvement in the offing too, as it looks to try and emulate many of its Asia-Pacific counterparts in future Indexes.

Hong Kong markets are now stabilising at peak activity level, while ongoing and upcoming mega public infrastructure projects, such as the Zhuhai-Macau bridge link and the large-scale housing programme that totals 480,000 units over 10 years, are expected to sustain Hong Kong’s construction industry workload at its current level. The Report also found that three of the top ten highest value construction projects in 2017 are located in China.

Initiatives and solutions

The annual Arcadis index, which analyses the relative cost of construction across 44 major cities, also noted that a slowdown in the global economy - led by China and in resource economies such as Brazil and Saudi Arabia - points to wider changes affecting the world’s construction markets over the coming months..

For Hong Kong however, there remains optimism in the knowledge that an insular reform could result in the same economic leniencies that are being seen in the likes of Kuala Lumpur and Jakarta at present.

Francis Au, Country Head for Hong Kong and Macau at Arcadis commented: “The rise of labour costs in the construction industry is mainly caused by the ageing workforce and labour force shortages. This issue is challenging to solve because solutions based on migrant labour are not acceptable to the local population.

“In order to stabilise the rise in construction costs, it is essential for the Government and the construction industry to look into investing in initiatives and solutions that could increase industry productivity.

Asia Ranking

World Ranking

City

1

2

Hong Kong

2

5

Macau

3

15

Singapore

4

17

Tokyo

5

21

Seoul

6

27

Brunei

7

35

Shanghai

8

38

Manila

9

39

Bangkok

10

40

Taipei

11

41

Ho Chi Minh

12

42

Jakarta

13

43

Kuala Lumpur

14

44

Bangalore

 

Whilst economic growth levels in emerging Asian economies such as Malaysia, Indonesia and Philippines are way in excess of the developed world, growth rates in established hubs such as Hong Kong and Singapore are similar to those in North American and European cities.

Meanwhile, growth rates in many Asian construction markets have eased significantly over the past 18 months, mainly due to the peak in commercial and residential development rates. Looking forward, expansion at around five-seven percent a year is the best prospect for many construction markets in Asia.

And with this in mind, the likes of Hong Kong, Macau and Singapore will be looking to capitalise on the sector revival in order to turn its culture back from an emerged to an emerging outlook.

Alan Hearn, Arcadis’ Head of Buildings Solutions, Asia concluded: “The future of the construction industry in Asia is looking bright. However, we believe that the construction industry drivers for the future will change.

“Four out of the 10 highest value construction projects in 2017 are located in Asia. Among them are One Belt One Road (OBOR) initiatives and the Delhi Mumbai Industrial Corridor. Megaprojects like these are mainly funded by public-private partnership (PPP) and will continue to fuel the development of the construction industry in Asia.”

The 10 highest value construction projects in 2017

Project/programme

Location

Value (USD) (bn)

1.     One Belt One Road

China to Central Asia

150

2.     Delhi Mumbai Industrial Corridor

Delhi to Mumbai, India

90

3.     Dubai Al Maktoum Airport

Dubai, UAE

33

4.     Grand Paris Express

Paris, France

30

5.     Hinkley Point C

Somerset, UK

22

6.     Hudson Yards

New York City, United States

20

7.     Jeddah Economic City

Jeddah, Saudi Arabia

20

8.     Crossrail

London, UK

20

9.     Beijing Daxing International Airport

Beijing, China

13

10.  Chengdu Tianfu International Airport

Chengdu, China

11