New survey puts China fifth in regional cost table and Hong Kong third

China’s booming construction sector ranks fifth in the East Asian league table of building costs, reveals a newly published survey of the world’s fastest growing economic region. The cost of building in China - the fastest growing major economy in the world - is comfortably behind those of its more developed neighbours, but there are signs of skills shortages that could inject inflationary pressure into the system.  These costs remain a fraction of the building costs in Western countries such as the UK.

Japan’s construction industry faces the highest costs, which are 39% greater than third placed Hong Kong. Costs in China’s frenetically expanding construction sector are just 45% of Hong Kong’s, whose building sector was used by the study as the base index. 

Average index of costs/m2 of building relative to Hong Kong

* The table shows a matrix of costs/m2 of building relative to Hong Kong; Hong Kong is used as the base index because it has the largest sample.

The Asia Building Construction Survey is published by BCIS (The Building Cost Information Service of the Royal Institution of Chartered Surveyors). It analysed construction costs across Asian economies – China (excluding SARs), China – Hong Kong SAR, India, Japan, Malaysia and Singapore. It also looked at China – Macao SAR, Sri Lanka and Thailand.

Risks

The survey identified common risks across the region. Those reported by respondents were: 

• impact of political/regulatory decisions;
• economic fluctuations;
• rising materials costs, particularly metals and oil, but also often primary construction materials like cement, sand and aggregate;
• labour shortages resulting in higher wages – particularly of skilled workmen and professionals;
• shortages of sub-contractor and plant resources.

Hong Kong

In general the picture is one of improvement: on balance 8% more survey respondents to BCIS’ Asia Construction Survey 2007 reported overall output rising rather than falling, whereas last year the situation was reversed – a net balance of 9% reported overall output falling. 

Building and construction investment is said to have reversed its decline and increased by 5.3%.

However, BCIS’ survey reveals a divided picture: the private housing, commercial offices and retail/leisure sectors are buoyant, while construction output in the public housing, healthcare, other public works, industrial/manufacturing, civil engineering and process engineering sectors remains down.

Hong Kong’s private sector activity, coupled with a construction boom in nearby Macao and other Asian markets, has been driving up the cost of labour (particularly skilled labour) and materials. Some firms are beginning to worry that high interest rates may impact on the property market and the current cost of private housing is perhaps not supportable.

Given the demand for skilled labour and professionals in other parts of Asia, a fall in the local Hong Kong construction market could lead to people movement.

Andrew Thompson, International Development Director, BCIS said:

‘The construction boom in neighbouring Macao and China generally means that Hong Kong could face increased skills shortages if key workers migrate to take on roles in these regions.’

The full report is available directly from BCIS and is priced at £100.00 (RICS members and HKIS members are eligible for a 10% discount, order a copy online or T +44 (0)870 333 1600 (select option 2 for BCIS) quoting item code 17209. There is free postage and packaging for orders from the UK