Economics

Q3 2019: Asia Pacific Construction and Infrastructure Survey

E xpectations mixed as uncertainty increases

• Respondents continued to paint a mixed picture of construction workloads in Q3

• South Asia and Australia/New Zealand (Australasia) appear to be fairly upbeat
• Political uncertainty a drag on activity in Hong Kong and Malaysia

Participants in the Asia-Pacific Construction and Chart 1: Total Workloads

Infrastructure Survey are signalling a fair degree of
dispersion in conditions during Q3 of 2019. Chart 1
Sri Lanka
shows that, while overall workloads are said to have 12-month Total
50 India
Workload New Zealand
broadly increased over the past three months, the Expectations
China Australia
uplift in workloads was not universal. Respondents in (Net Balance, %)
Singapore
Malaysia continued to report a slowdown in activity, 35
while those in Singapore reported little change in Asia Pacific
workloads from Q2. Meanwhile, contributors from
Hong Kong noted that the ongoing political unrest has 20

hampered construction activity.

Workloads are generally expected to increase over Malaysia 5
the next year, led by a robust outlook in Australasia.
-25 -10 5 20 35 50
The pace of activity growth is anticipated to accelerate
Hong Kong
in South Asia and China. Expectations for increased -10
government support may be boosting this outlook.
-25
Total Workloads (Net Balance, %)

Chart 2: Private Workloads The Indian government announced a package to

support the economy at the end of Q3, while an
20 Net Balance,% upcoming election in Sri Lanka could free up some
Private Commercial fiscal stimulus. In China, there has been continuing
10
Private Industrial discussion as to whether the government will upgrade
Private Residential
infrastructure spending to offset the negative effects of
0
the trade dispute with the United States.
Private workloads a drag
-10
Similar to Q2, private workloads generally remained
soft. This appears to align with the property cycle
-20 in most regions and points to construction activity
slowing alongside real estate investment. Construction
-30 activity on private commercial sites was more upbeat
in Australasia. This was particularly acute for Sydney,
-40 Melboune and the North Island of New Zealand where
Asia Pacific Australasia East Asia South Asia Southeast Asia commercial and industrial property appears to still be

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 Q3 2019: Asia Pacific Construction and Infrastructure Survey rics.org/economics

undergoing an expansion, albeit slightly more modest

Chart 3: Current Conditions than in previous quarters.
Private workloads were more downbeat in East Asia,
25 Net Balance,%
New Business Enquiries
particularly in China, Hong Kong and South Korea.
20 New Workloads Respondents in Japan were slightly more upbeat as
15
Repair & Mainenance Workloads construction in preparation for the 2020 Olympics
supports additional workloads. Southeast Asia was the
10 most diverse region. Similar to total workloads, activity
5 in Malaysia was more subdued whereas respondents
0
in Vietnam and Cambodia were more upbeat.

-5 Infrastructure workloads robust

-10 Similar to previous quarters, contributors continued
-15
to report robust infrastructure workloads in Q3. As
shown in Chart 4, survey participants expect work on
-20
infrastructure projects to increase at a similar pace (in
-25 net balance terms) to what was seen in Q3 over the
Asia Pacific Australasia East Asia South Asia Southeast Asia
next twelve months.
The exceptions once again were Malyasia and Hong
Chart 4: Infrastructure Workloads Kong, though conditions in Malaysia have improved
somewhat in recent quarters. Although thre appears
70
to be some continued policy uncertainty following the
12-month change in government in 2018, some respondents
Infrastructure Singapore
Workload Sri Lanka
appear slightly more optimistic. In Hong Kong, some
Australia
Expectations 50 New Zealand survey participants commented that the protests
(Net Balance, %) India China have resulted in increased repair and maintenance
Asia Pacific workloads on the MTR and other infrastructure.
30 Margin Pressure remains
Chart 5 shows that margins remained under
10 pressure across Asia-Pacific, though much less so in
Malaysia
Australasia, as respondents in Western Australia and
-30 -10 10 30 50 70
on the North Island of New Zealand noted no changes
Hong Kong -10 in profit margins during the third quarter.
Unsurprisingly, payment delays also increased. Longer
delays were particularly noticeable (in net balance
-30
Total Infrastructure Workloads (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
Chart 5: Profit Margins margins, particularly in Sri Lanka and Hong Kong
as respondents reported a net decline in headcount
during Q3.
60 Net Balance,%
Profit Margins
Cost of Materials
Increased material costs appear to be a major factor
40 Payment Delays putting pressure on margins, particularly in China, Sri
Headcount Lanka, Australia (New South Wales) and New Zealand
(North Island). A full breakdown is available on page
20
5, but respondents expect total material costs in South
Asia as well as New Zealand to increase at 4% or
0
more over the next year.
The outlook for profit margins is slightly more mixed,
-20
as respondents in Hong Kong and Southeast Asia
expect margin pressure to persist for at least the next
-40
twelve months. However, respondents in China and
Australasia forsee a modest expansion in margins over
-60 the next year, while South Asian firms are expected
Asia Pacific Australasia East Asia South Asia Southeast Asia

2 © RICS Economics 2019 Q3 2019

 Q3 2019: Asia Pacific Construction and Infrastructure Survey rics.org/economics

to see a more robust expansion in margins despite

foreseeing a 6.2% increase in total construction costs Chart 6: Factors Constraining Activity
over this period.
Constraints geographically diverse
Weather Conditions
Chart 6 shows that there was not one specific factor
cited as constraining activity across Asia Pacific.
In Australia the main factor cited was competition, Shortage of Skills
while contributors in New Zealand continued to cite
shortages of both labour and skills. Asia Pacific
Shortage of Materials
Respondents from China highlighted several factors, Australasia
including competition, financial constraints, a lack
of demand, regulations, and labour shortages, Shortage of Labour
East Asia
though 83% also said that higher material costs were
South Asia
restricting activity. In South Asia, most respondents
cited financial constraints as the main drag on activity, Planning and Regulation Southeast Asia
and in Sri Lanka specifically, almost 90% also cited
increased costs of materials.
Insufficient Demand
In Southeast Asia competition was the main factor
cited as restricting activity, though in Malaysia
specifically, financial constraints and a lack of demand Financial Constraints
were also cited as constraints.
Skilled labour premium set to rise Cost of Materials
As shown in Chart 7, the cost of skilled labour is
Share of
expected to rise at a quicker pace than unskilled labour Competition respondents,%

Chart 7: Labour Cost Expectations - Next 12 months 0 20 40 60 80 100

across Asia-Pacific over the next year. The premium

Sri Lanka appears to be particularly acute in China, Singapore
and Hong Kong, suggesting that the skills gap is
slightly wider in these markets.
China
Interestingly, New Zealand is expected to see the cost
of labour, both skilled and unskilled, rise at a faster
India 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
New Zealand 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
Asia Pacific
more than what is expected for Delhi CNCR (4.8%),
Karnataka (4.1%) or Shanghai (4.6%).
Australia In terms of what skills are in demand, Quantity
Surveyors and BIM managers appear to be the two
Skilled Labour professions where respondents report a shortage.
Singapore
Unskilled Labour
In China, Sri Lanka and New Zealand there also
appears to be a shortage of skilled tradesmen, while
Malaysia survey participants in New Zealand also highlighted a
shortage of project managers.

Hong Kong
Point Forecast, %
0 2 4 6 8

3 © RICS Economics 2019 Q3 2019

 Q3 2019: Asia Pacific Construction and Infrastructure Survey rics.org/economics

Comments from Survey Participants in Asia Pacific

“The construction market “Changes in high tech “Rising raw material costs
was experiencing a product exports will impact and labor shortages are
slowdown, primarily due to construction investment.” constraints.”
cash flow but is improving -Ehime Prefecture, Japan
now.” -Seoul, South Korea

-Delhi CNCR, India

“The impact of Sino-US

trade warfare on material
prices and the impact
of monetary policy and
exchange rate fluctuations
on credit costs and material
price costs are major recent
uncertainties.”
-Zhejiang, China

“Forthcoming elections and

political uncertainty are
affecting sentiment.”
-Western Province, Sri Lanka

“General business
confidence is low and
holding back future work.”
-Hong Kong SAR

“A more prudent spending

by new government
compared to the
predecessor has led to
extreme caution.”
-Kuala Lumpur, Malaysia

“General market sentiment “A reluctance to the “Low margins and greater

is cautious with an implementation of BIM in insolvencies. Non risk
expectation of the downturn the construction industry is balanced contracts
in the larger economy.” proving a challenge.” imposing pressure on
contractors.”
-Singapore -New South Wales, Australia
-North Island, New Zealand

4 © RICS Economics 2019 Q3 2019

 Q3 2019: Asia Pacific Construction and Infrastructure Survey rics.org/economics
RICS Consensus Tender Prices & Construction Costs (Next 12 months)
Tender Tender Construction Construction Construction
Prices Prices Costs Costs Costs
Civil
Building Commercial Residential Total
Engineering
Asia Pacific +2.3% +2.6% +3.0% +2.4% +3.0%

Australasia +3.3% +4.0% +3.5% +2.8% +3.7%

Australia +3.0% +3.9% +3.1% +2.5% +3.4%
New Zealand +3.7% +4.0% +3.9% +3.4% +4.0%

East Asia +0.4% +0.4% +1.5% +1.0% +1.1%

China +2.4% +3.0% +3.5% +2.1% +2.6%
Hong Kong -0.8% -1.0% +0.4% +0.2% +0.3%

South Asia +5.1% +5.1% +5.8% +4.8% +6.2%

India +3.9% +4.0% +4.9% +3.8% +5.4%
Sri Lanka +6.9% +6.6% +7.1% +6.4% +7.5%

Southeast Asia +1.2% +2.2% +2.0% +1.6% +2.1%

Malaysia +0.9% +1.5% +1.8% +1.4% +2.1%
Singapore +0.2% +2.4% +1.1% +0.1% +0.7%

RICS Consensus Labour & Material Costs (Next 12 months)

Labour Labour Material Material Material Material Material Material

Costs Costs Costs Costs Costs Costs Costs Costs
Skilled Unskilled Bricks Concrete Copper Glass Steel Total
Asia Pacific +3.7% +2.2% +2.4% +3.0% +3.3% +2.8% +3.1% +3.2%

Australasia +3.8% +2.5% +2.4% +3.1% +3.9% +3.0% +3.6% +3.3%

Australia +3.4% +2.3% +1.9% +3.0% +4.0% +2.5% +3.2% +2.9%
New Zealand +4.3% +2.9% +3.1% +3.4% +3.8% +3.7% +4.3% +4.0%

East Asia +2.7% +0.7% +1.5% +1.8% +2.0% +1.5% +1.8% +2.0%
China +5.0% +1.9% +2.2% +2.8% +2.7% +1.5% +2.3% +3.3%
Hong Kong +1.4% +0.1% +1.1% +1.4% +1.6% +1.4% +1.5% +1.4%

South Asia +5.7% +4.2% +4.1% +5.0% +5.2% +4.8% +4.8% +5.5%
India +4.8% +3.6% +3.6% +4.5% +4.7% +4.4% +4.3% +4.7%
Sri Lanka +7.1% +5.5% +4.5% +5.8% +6.0% +5.8% +5.6% +6.9%

Southeast Asia +3.1% +2.0% +2.0% +2.7% +3.1% +2.7% +2.6% +2.7%
Malaysia +2.6% +1.9% +2.1% +2.5% +3.3% +2.7% +2.6% +2.8%
Singapore +2.9% +1.1% +1.9% +2.9% +2.4% +2.1% +1.8% +2.0%

5 © RICS Economics 2019 Q3 2019

 Q3 2019: Asia Pacific Construction and Infrastructure Survey rics.org/economics

Information
Construction and Infrastructure Survey Economics Team
RICS’ Asia-Pacific and Middle East Construction and
Infrastructure Survey is a quarterly guide to the trends in the
Tarrant Parsons
construction and infrastructure markets. The report is available
from the RICS website www.rics.org/economics along with Economist
other surveys covering the housing market, residential lettings,
+44(0)20 7695 1585
commercial property, construction activity and the rural land
market. tparsons@rics.org

Methodology Sean Ellison

Survey questionnaires were sent out on 9 September 2019
with responses received until 13 October 2019. Respondents Senior Economist
were asked to compare conditions over the latest three +61 0424 845 725
months with the previous three months as well as their views
as to the outlook. A total of 1010 company responses were sellison@rics.org
received globally. Responses in New Zealand were collected
in conjunction with the Property Council of New Zealand.
Simon Rubinsohn
Net balance = Proportion of respondents reporting a rise in a
variable (e.g. occupier demand) minus those reporting a fall (if Chief Economist
30% reported a rise and 5% reported a fall, the net balance will
+44(0)20 7334 3774
be 25%). Net balance data can range from -100 to +100.
srubinsohn@rics.org
A positive net balance reading indicates an overall increase
while a negative reading indicates an overall decline.
Jeffrey Matsu
Contact details
Senior Economist
This publication has been produced by RICS. For all economic
enquiries, including participation in the monitor please contact: +44(0)20 7695 1644
economics@rics.org
jmatsu@rics.org

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