Rises in salaries and material costs, and pricey luxury fit-outs, have driven the costs of new residential projects higher in recent years, says Hong Kong surveying firm Davis Langdon & Seah.
Research by the firm showed the cost of building mass residential flats averaged HK$1,627 per square foot in the first quarter of the year, up 7.7 per cent on the same quarter last year.
The biggest increase in building costs was in the luxury housing sector, where costs were HK$2,819 per sq ft in the first quarter, up 8.4 per cent from HK$2,601 a year ago.
According to its Tender Price Index, construction costs for 2011 were up 9.1 per cent on the previous year, and the surveying firm forecasts that by the end of the third quarter they would be up a further 7.9 per cent from the same period last year.
Antony Man Chi-chuen, immediate past chairman of the quantity surveying division at the Institute of Surveyors, said the increase was due to rising prices and salaries. Because of the dollar peg, he said: 'Hong Kong has to pay more to buy construction materials. Also, the industry had to raise the salary of workers by double digits to attract young people.'
With major projects ahead for the city in the next five years - including building a third runway - companies were unlikely to be under pressure to cut their profit margins and prices to win building contracts, Man said.
Meanwhile enhancements made by developers to flats in recent years were also driving costs higher.
'They upgraded their building quality and created a luxurious image for their projects as the market became more competitive,' Joyce Kwock, an analyst at Credit Suisse, said. 'You can see the furnishings of mass residential projects in recent years are much better than Hang Lung Properties' The Long Beach in Tai Kok Tsui and The Harbourside in Kowloon Station built 10 years ago.'
Man said developers might spend up to HK$200,000 per flat on high-end appliances and fittings to fetch a premium price. They also spent heavily to sell projects as luxury developments, with promotion costing HK$300 to HK$500 per sq ft.