Download the regional reports
View the summaries of regions across Asia Pacific
Data from the RICS Construction and Infrastructure Survey indicates that construction activity was broadly driven by infrastructure workloads during Q2 of 2019.
Respondents noted that infrastructure workloads outpaced total construction workloads in India, New Zealand, China, Australia, Thailand, Sri Lanka, Singapore and Malaysia. Contributors in Japan also noted a robust increase in infrastructure workloads, while those in Hong Kong reported little change in activity. Meanwhile, conditions were said to be more subdued in Macau and South Korea.
The prevalance of infrastructure supporting construction workloads aligns with governments more generally increasing fiscal outlays to support economic activity. Several economies appear to be entering the later stages of the current economic cycle, and growth is expected to slow over the medium term. This dynamic is already evident in several regional real estate markets.
Survey participants reported a general pullback in private construction building activity in Australia, Macau, Singapore, Malaysia and South Korea in Q2. Private sector activity in Thailand, China, Sri Lanka, and to a lesser degree Hong Kong, was relatively sluggish. Reported workload levels in these markets appear to match the phase of their respective property cycles. Using Australia as an example, the housing market is widely seen as going through a period of consolidation, and residential workloads appear to be undergoing a period of adjustment as supply moves back in line with demand.
Meanwhile, commercial workloads in Japan, India and New Zealand were said to have increased during the second quarter. Perhaps unsurprisingly, commercial real estate in these markets is still seen as being at the peak of their cycle, with supply-demand characteristics that tend to be more supportive of growth in rents and capital values.
Despite mixed current activity, workloads are expected to increase to some degree across most Asia-Pacific markets over the next year, with the exception of Macau and South Korea. However, once again infrastructure workloads are expected to increase at a faster pace than non-infrastructure workloads (in net balance terms) in every market apart from Macau.
This difference appears to be particularly acute in Japan, where infrastructure outlays have increased head of the Tokyo 2020 Olympics, India, where the NDA government has consolidated power following its election victory in Q2, and Australasia where governments (both state and federal in Australia) have increased infrastructure outlays.
However, data shows that construction costs are also expected to rise alongside workloads. Both India and Sri Lanka are expected to see a fairly sharp rise in nominal costs, though these markets also generally experience higher levels of inflation which helps to limit the increases in real terms. Inflation is expected to be a little more muted in China and New Zealand, however, and both of these markets are still expected to experience relatively high cost increases. Japan, to a lesser degree, also falls into this category.
Respondents across Asia Pacific generally reported some degree of deterioration in profit margins during Q2. The exceptions were Thailand and Japan where contributors noted little change in profit margins. Over the next twelve months, survey participants expect a robust pace of margin expansion in China, India, Japan, Sri Lanka and Thailand, while margins in Australia and New Zealand are expected to expand at a more modest rate (in net balance terms). Margins in Hong Kong, Malaysia and Singapore are expected to remain stable, while further deterioration is expected in Macau and South Korea.
However, there is a suggestion that some of these expectations may be overly exuberant. In net balance terms, costs are expected to increase at a faster pace than workloads across Asia-Pacific, though the two are more evenly balanced in India and China.
Although construction costs are generally expected to rise, some components are expected to rise at a quicker pace than others. Data shows that labour costs are expected to rise more than the cost of materials in South Korea, Singapore, Macau,
Thailand, China and India. In Japan the opposite is true, while in Malaysia, Hong Kong, Australia, New Zealand and Sri Lanka labour and material costs are expected to rise at a similar rate over the next year.
There is some explanation for this. A majority of respondents in several countries have reported labour shortages as a constraint on activity in Q2. In Japan, China and Hong Kong this was a shortage of general labour, while respondents in Thailand, Malaysia and some parts of Australia (Victoria and South Australia) highlighted more of a shortage of skills.
The expectation is that companies are expected to pay a significant premium for skilled labour over the next year. On average, the cost of skilled labour is expected to rise 50% more than the cost of unskilled labour over the next twelve months. This ranges from 17% and 18% in Sri Lanka and India (respectively) to 74% in Japan and Macau. Interestingly, there may be some structural factors suppressing unskilled labour as a majority of contributors in Japan and Macau both highlighted a general shortage of labour, and only 36% in Japan noted a shortage of skills.
Disparities within particular countries were evident as well. New Zealand was a good example of this. A greater share of respondents on the North Island highlighted a shortage of labour and skills versus those from the South Island (68% and 74% versus 39% and 50%). As a result, the cost of skilled labour on the North Island is expected to rise 5.6% over the next year (versus 3.6% for unskilled labour) while on the South Island the cost of skilled labour is only expected to rise 3.8% (versus 2.6% for unskilled labour). Similar discrepancies were also reported in China and India.
Across Asia Pacific, BIM managers, quantity surveyors and skilled tradespeople were highlighted as the skills most in demand. In no country did a majority of respondents highlight a shortage of building surveyors or civil engineers. However, a majority of respondents from the North Island of New Zealand and the state of Telangana in India noted a shortage of building surveyors, as did a majority in the state of Sarawak, Malaysia highlight a shortage of civil engineers.
Traditionally, construction tends to be a local industry, however, international players are increasingly gaining access to international finance, particularly on “big ticket” infrastructure projects and Grade A buildings. The industry feels the ripple effect of global market forces but tends to oscillate mostly to local dynamics.
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.
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.