Property developers face a double whammy this year of rising construction costs and falling revenue from the slowdown in property sales and drop in home prices.
'We're shocked after seeing the tender bids submitted by construction firms for our projects,' the head of the Hong Kong business unit at developer HKR International, Chan Chi-ming, said, citing an increase of almost 50 per cent on last year.
'The bids were around HK$3,000 per square foot for an average-quality project and we don't know how to redo our budget. Last year it cost around HK$2,000 to HK$2,100 per square foot - and we thought that was already quite expensive.'
Based on the tender bids HKR received, Chan said construction costs had now almost doubled from the HK$1,600 to HK$1,700 per square foot seen for medium-quality flats in 1997.
Measured by the tender price index published by surveying firm Davis Langdon & Seah, average construction costs for residential towers rose by 8 per cent in 2011 alone to HK$1,777 per square foot, excluding clubhouse.
Explaining the big difference between the costs Chan cites and the index figure, a former president of the quantity surveying division at the Institute of Surveyors, Antony Man Chi-chuen, said the latter was based on the average cost of building high-rise homes of all price ranges.