Hong Kong construction costs expected to remain flat for rest of the year

Strong Hong Kong dollar, low oil prices, falling retail prices and strong supply of labour expected to lower overall building costs

PUBLISHED : Tuesday, 18 October, 2016, 11:04am
UPDATED : Tuesday, 18 October, 2016, 7:12pm

Hong Kong construction costs are expected to remain flat for the rest of this year, but market watchers believe it unlikely record home prices will ease anytime soon, as the city remains the costliest place in Asia to develop property.

A report by London-based consultancy Arcadis, which has offices in Hong Kong and other parts of Asia, attributed the flat building costs in the city “macroeconomic factors including the strong Hong Kong dollar compared to the yuan, low crude oil prices, decreasing CPI and retail sales, and the benefits of lowered input costs in contractors’ tenders”.

But despite the favourable conditions, it said Hong Kong building costs remain among the highest in Asia with high-rise apartments fitted to a high standard now costing US$4,240 to US$4,940 per square metre compared with US$2,135 to US$3,165 per square metre in Singapore and US$1,591 to US$1,961 per square metre in Seoul.

Labour costs are also a factor keeping construction price inflation steady in Hong Kong.

Although median monthly earnings have been stable for trades such as plasterers, painters and welders, wages for concrete specialists, steel benders and carpenters continue to increase incrementally, Arcadis said.

After a brief spike in the unemployment rate of construction workers in the first quarter of 2016, the rate has lowered, suggesting wages will continue to rise if shortages are created.

Thomas Lam, head of valuations and consultancy at Knight Frank, said the cost of land and construction costs are the two determining factors in deciding return levels on projects.

“Labour costs are a critical component, affecting the eventual construction cost,” he said.

Developers have to continue offering attractive salaries to lure the best construction workers, said Lam.

“If construction costs stay flat they are unlikely to drag down home prices. The rapid increase in land cost is becoming the major concern among developers now,” he said.

But he added a previous labour shortage in the construction sector has now eased as some infrastructure developments in Hong Kong were deferred and as major developments in Macau have completed.

“Some of those workers will return to Hong Kong and slightly improve labour supply here,” he said.