Hong Kong’s slide down ranks of cities with highest global construction costs to boost developers

Hong Kong moved down two places in the ranks of cities with the highest average cost of construction globally in 2018, according to international project manager Turner and Townsend. The city’s average cost of construction rose by just 1 per cent, contributing to a slip from third place in 2017 to fifth last year.

The average construction cost had risen by 6.2 per cent in 2017, placing Hong Kong behind only London and Zurich. Last year, affected by the US-China trade war, it stood at US$3,749 per square metre.

The slower growth rate is expected to boost developers and builders amid a climate of uncertainty.

“This is good news for developers, particularly mid to small sized ones, as the city’s housing market has become dormant since last year. They are not sure where it is heading, even though we have seen signs of recovery recently,” said Vincent Cheung, managing director of Vincorn Consulting and Appraisal.

“The decline in average construction cost is mainly due to the price of building materials. Steel, for example, has been falling as the global economic climate sours,” Cheung added.

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At the current price of US$2,092 per tonne, the cost of steel is down by 1 per cent year on year, according to Turner and Townsend. The Trump Administration’s trade war has stifled Chinese exports and flooded the Asian market with cheap steel, leading to lower prices.

“As the largest global producer of steel, the tariff impact [on China] affects steel exports across Asia,” said Mark Richards, managing director of Asia real estate at Turner and Townsend.

Increased volumes of steel in Asia, “due to a lack of export opportunities in the US”, might result in a downward trend in steel prices, he added.

Hong Kong is third most expensive place for building costs, according to global survey

Construction costs usually account for 20 per cent of the price of an apartment. However, slower growth in average cost is not expected to filter down to homebuyers.

“We have always heard developers complain about higher construction costs driving up their input costs and, together with soaring land prices, that results in expensive homes,” said Alvin Cheung Chi-wai, associate director at Prudential Brokerage.

“However, as long as they see strong demand, they won’t set lower prices even if costs are coming down. They only care about making as much profit as possible,” he added.

Home prices in Hong Kong have risen by about 4 per cent in the first quarter this year, according to an estimate by local property agency Ricacorp, following rallies in stock markets in the city and mainland China and a dovish stance on interest rates by central banks.

A straw poll conducted by the South China Morning Post between March 22 and 25 showed that more than half of market observers believed a correction in home prices was over.