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News & opinion

11 NOV 2019

Expectations mixed as uncertainty increases

Sean Ellison

Sean Ellison

Senior Economist, Asia Pacific



Participants in the Asia-Pacific Construction and Infrastructure Survey are signalling a fair degree of dispersion in conditions during the third quarter of 2019.

Looking back: Read the Q2 2019 summary

While overall workloads are said to have broadly increased over the past three months, the uplift in workloads was not universal. Respondents in Malaysia continued to report a slowdown in activity, while those in Singapore reported little change in workloads from Q2. Meanwhile, contributors from Hong Kong noted that the ongoing political unrest has hampered construction activity.

Workloads are generally expected to increase over the next year, led by a robust outlook in Australasia. The pace of activity growth is anticipated to accelerate in South Asia and China. Expectations for increased government support may be boosting this outlook.

The Indian government announced a package to support the economy at the end of Q3, while an upcoming election in Sri Lanka could free up some fiscal stimulus. In China, there has been continuing discussion as to whether the government will upgrade infrastructure spending to offset the negative effects of the trade dispute with the United States.

Private workloads a drag Similar to Q2, private workloads generally remained soft. This appears to align with the property cycle in most regions and points to construction activity slowing alongside real estate investment. Construction activity on private commercial sites was more upbeat in Australasia. This was particularly acute for Sydney, Melboune and the North Island of New Zealand where commercial and industrial property appears to still be undergoing an expansion, albeit slightly more modest than in previous quarters.

Private workloads were more downbeat in East Asia, particularly in China, Hong Kong and South Korea. Respondents in Japan were slightly more upbeat as construction in preparation for the 2020 Olympics supports additional workloads. Southeast Asia was the most diverse region. Similar to total workloads, activity in Malaysia was more subdued whereas respondents in Vietnam and Cambodia were more upbeat.

Infrastructure workloads robust

Similar to previous quarters, contributors continued to report robust infrastructure workloads in Q3. Survey participants expect work on infrastructure projects to increase at a similar pace (in net balance terms) to what was seen in Q3 over the next 12 months.

The exceptions once again were Malyasia and Hong Kong, though conditions in Malaysia have improved somewhat in recent quarters. Although there appears to be some continued policy uncertainty following the change in government in 2018, some respondents appear slightly more optimistic. In Hong Kong, some survey participants commented that the protests have resulted in increased repair and maintenance workloads on the MTR and other infrastructure.

Taxi in Hong Kong
Survey participants commented that the protests in Hong Kong have resulted in increased repair and maintenance workloads

Margin pressure remains

Data shows that margins remained under pressure across Asia-Pacific, though much less so in Australasia, as respondents in Western Australia and on the North Island of New Zealand noted no changes in profit margins during the third quarter.

Unsurprisingly, payment delays also increased. Longer delays were particularly noticeable (in net balance terms) around Beijing and Shanghai in China, as well as Karnataka and Maharashtra in India. Headcounts did not appear to have as much of an effect on margins, particularly in Sri Lanka and Hong Kong as respondents reported a net decline in headcount during Q3.

Increased material costs appear to be a major factor putting pressure on margins, particularly in China, Sri Lanka, Australia (New South Wales) and New Zealand (North Island). A full breakdown is available on page 5, but respondents expect total material costs in South Asia as well as New Zealand to increase at 4% or more over the next year.

The outlook for profit margins is slightly more mixed, as respondents in Hong Kong and Southeast Asia expect margin pressure to persist for at least the next 12 months. However, respondents in China and Australasia forsee a modest expansion in margins over the next year, while South Asian firms are expected to see a more robust expansion in margins despite foreseeing a 6.2% increase in total construction costs over this period.

Constraints geographically diverse

There was not one specific factor cited as constraining activity across Asia Pacific. In Australia the main factor cited was competition, while contributors in New Zealand continued to cite shortages of both labour and skills.

Respondents from China highlighted several factors, including competition, financial constraints, a lack of demand, regulations, and labour shortages, though 83% also said that higher material costs were restricting activity. In South Asia, most respondents cited financial constraints as the main drag on activity, and in Sri Lanka specifically, almost 90% also cited increased costs of materials.

In Southeast Asia competition was the main factor cited as restricting activity, though in Malaysia specifically, financial constraints and a lack of demand were also cited as constraints.

BAME workers
The cost of skilled labour is expected to rise at a quicker pace than unskilled labour across Asia Pacific

Skilled labour premium set to rise

The cost of skilled labour is expected to rise at a quicker pace than unskilled labour across Asia-Pacific over the next year. The premium appears to be particularly acute in China, Singapore and Hong Kong, suggesting that the skills gap is slightly wider in these markets.

Interestingly, New Zealand is expected to see the cost of labour, both skilled and unskilled, rise at a faster pace over the next year than other developed markets. The rate of expected labour cost inflation is close to that of India which may point to a more general shortage of labour in New Zealand. This is particularly true on the North Island, where the expected 4.9% increase in cost for skilled labour over the next year is more than what is expected for Delhi CNCR (4.8%), Karnataka (4.1%) or Shanghai (4.6%).

Read what Auckland Council's Chief Economist had to say about construction skills shortages

In terms of what skills are in demand, quantity surveyors and BIM managers appear to be the two professions where respondents report a shortage. In China, Sri Lanka and New Zealand there also appears to be a shortage of skilled tradesmen, while survey participants in New Zealand also highlighted a shortage of project managers.

About the survey

The RICS Asia Pacific and Middle East Construction and Infrastructure Survey is a quarterly guide to the trends in the construction and infrastructure markets. Respondents are asked to compare conditions over the latest three months with the previous three months, as well as their views as to the outlook.

The report is available along with other RICS market surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.

Sean Ellison

Sean Ellison

Senior Economist, Asia Pacific



Sean is responsible for the RICS Economics team’s research into the Asia-Pacific property sector, identifying market risks to the sector and analysing economic events and their effects on real estate.

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