Developers' terms 'pushing up building costs'

Industry boss says onerous demands and labour shortage make life tough

PUBLISHED : Tuesday, 02 September, 2014, 4:03am
UPDATED : Tuesday, 02 September, 2014, 4:39am

Hong Kong builders say increasingly onerous demands and "unfair" contractual terms imposed by developers have contributed to a sharp rise in costs that have helped make the city the most expensive place in the world for construction.

Soaring wages and strong demand due to massive public building projects had long been blamed for pushing up costs, but Thomas Ho, president of the Construction Association, said the industry was also suffering as developers shifted responsibilities to their contractors.

He said some developers demanded exceptionally long warranties - in some cases as much as 50 years after completion - and insisted maintenance services be provided for 18 or even 24 years, rather than the usual 12.

Some also demanded that contractors bear the risks and costs of delays, without any option to seek compensation from developers.

More worryingly, Ho said, some developers were passing more design-related work on to contractors, an activity some building companies were unfamiliar with.

"This will increase the risks borne by the contractors and will lead to higher costs. The risks should be shared by various parties," he said.

A survey by British consultancy EC Harris last year found that Hong Kong had surpassed Switzerland and Denmark to have the world's highest construction costs, with regional rival Singapore far behind.

The association fears rising costs - bolstered by massive government infrastructure projects and public and private-sector homebuilding - could harm the sector in the long run.

Labour costs rose 27 per cent in the past three years while material costs rose 24 per cent, an analysis commissioned for the association in June showed.

The study, by University of Hong Kong real estate and construction expert Professor Steve Rowlinson, showed that labour typically accounted for 20 to 25 per cent of the cost of construction, against 40 to 45 per cent for materials. The rest goes on management, insurance, overheads, risk contingencies and statutory requirements.

Ho repeated the association's warning that the industry faced a serious and mounting labour shortage, leaving it short of at least 10,000 workers. The industry has sought an easing of the laws on recruiting workers from overseas, which Ho described as too restrictive and inflexible to deal with sudden demand.

He said workers with experience of dealing with concrete had seen their pay increase by as much as 70 per cent in the last three years.

Ho said the government should return the HK$400 million per year it receives from the industry in retraining levies in the form of subsidies that would allow new employees to receive on-the-job training, instead of paying for them to take courses in construction.