Kuala Lumpur ranks least expensive among Southeast Asian cities, below Singapore, Manila, Jakarta, Bangkok and Ho Chi Minh City.
Kuala Lumpur is the fourth least expensive city in Asia to build in, according to the International Construction Costs 2018 report published by Arcadis which details and ranks the relative cost of construction in 50 of the world’s major cities. In last year’s annual report from the global Design & Consultancy firm for natural and built assets, the Malaysian capital was the second cheapest.
Hong Kong is the most expensive city in Asia, followed by Macau and Singapore. Overall, San Francisco, New York and Hong Kong were the top three most expensive cities in the world in which to build.
The relative strength of the U.S. dollar is a key factor influencing the positioning of cities in the index this year. The strong dollar places North American cities higher in the index compared to markets where the domestic currency is relatively weaker.
The report is published against the backdrop of a growing global economy in 2018. Following a stronger- than-expected 2017, countries around the world are experiencing an upturn, and this robust economic performance will accelerate the demand for construction around the world.
China’s Belt and Road Initiative is also contributing significantly to global construction demand, with over US$900 billion of planned projects, from gas pipelines in Central Asia to high-speed railways in Indonesia.
As the global economy continues to grow, the construction sector in many cities risk becoming overheated, with costs spiralling ever upwards.
While rising commodity prices may play a small part, it is a lack of skilled and agile labour that is most likely to push up prices and put a squeeze on productivity in many cities, according to the Arcadis report.
Other industries have responded to this challenge by automating production processes, and they are now embracing digital technologies such as the Internet of Things (IoT) to push their productivity even higher. All these solutions are open to the construction industry, and it must be up to them to quickly adapt in order to be able to meet rising demand.
Almost every single stage of the construction process can now be digitized; from design to prefabricated offsite construction to employing IoT technologies. This includes embedded technology that provides operational data once an asset is built, particularly with infrastructure such as smart roads.
All of this technology can generate data to empower the industry to be more efficient and productive while creating a higher-quality product best suited to the end user’s needs.
Investors, clients and end users are increasingly digitally sophisticated, and this should lead to them expecting more digital innovation from the construction industry. Now is the time for the supply chain to respond.
ARCADIS’ INTERNATIONAL CONSTRUCTION COSTS INDEX (ASIA)
CONSTRUCTION OUTLOOK IN KEY ASIAN COUNTRIES
Construction demand in China is expected to see a good growth rate of 6% in 2018 and 5% in 2019. This represents a slowdown in growth compared to previous years. This is predominantly being driven by a gradual withdrawal of government financial support in some sectors to support the economic goal of rebalancing China’s economic growth from fixed investment to consumer demand.
China’s BRI is also contributing significantly to global construction demand, with over US$900 billion of planned projects – this could divert any spare resources into overseas markets.
The construction market has slowed in Hong Kong, but continues to see good levels of demand coupled with constrained capacity to deliver. We expect growth in construction output to increase by 3% p.a. to 2020. This is marginally lower than the growth rate seen since 2005. The residential and infrastructure sectors are anticipated to be the main sources of demand.
The construction industry in Singapore is expected to see relatively slow growth in the near future, reflecting its mature high-quality infrastructure provision and the small size of the market. This contrasts with the opportunities in high-value, long-distance transport and power transmission projects that are gaining traction in neighbouring markets like Indonesia and Malaysia. That said, there is still a good pipeline of infrastructure projects that support the growth forecast.
India’s construction sector will see good growth, expected to be more than 50% over the next 10 years. Growth is being driven by rapid urbanization and industrial development. There are significant and fundamental infrastructure needs, particularly across power, rail and road sectors to connect rural areas. 2017 saw adverse impact from Prime Minister Narendra Modi’s demonetization policy. The attempt to reduce corruption meant that workers without bank accounts could not be paid in cash. This stifled output but is a key part of the initiative to improve transparency and the overall business environment in India. Other policy initiatives around boosting foreign investment, reducing red tape and cutting transaction costs will also all support strong growth in construction demand going forward.