DAVIS LANGDON & SEAH Hong Kong

QUARTERLY CONSTRUCTION COST REVIEW

HONG KONG

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CONTENTS

Overview

Approximate Building Costs in Hong Kong

General Trend of Building Works Tender Prices in Hong Kong

Labour Index & Average Daily Wage of Workers Engaged in Public Sector Construction Projects

Material Index & Average Material Prices

Usable Floor Areas Completed / With Consent to Commence

Gross Value of Construction Work Performed

Approximate Building Costs for Major Cities in China

Approximate Building Costs for Major Cities in Asia

Statistical data are compiled from sources deemed reliable but accuracy is not guaranteed. All rights reserved. Reproduction of this data, in whole or in part, is permitted providing the source is quoted.

Quarterly Construction Cost Review

2nd Quarter 2008

OVERVIEW
In the 10 years prior to 2008, construction prices in Mainland China escalated at a fairly moderate rate. The only exception was an approximate 12% surge in prices in 2003-2004, when the year-onyear growth rate in construction activities jumped from 16% to 26%. This growth increased demand for, and prices of, construction materials. The moderate rise over these 10 years was a consequence of reduced material and equipment costs brought about by increased production in China and a seemingly unlimited supply of construction workers. In contrast, over the same period the overall economy in China was expanding at double-digit rates each year. However, since the 4th Quarter 2007, tender prices of construction projects have shown a sudden surge whilst the Consumer Price Index has also hit an 11-year high.
Year-On-Year Change 30% Fixed Asset Investment Construction & Building Services Installations (C&BSI)

showed that the average material and labour costs in the first half of 2008 increased by 16.5% and 13.3% per annum respectively. In particular, the year-on-year changes in prices of steel products ranged from +29% to +49% in June 2008. Regional figures deviate slightly but generally follow the same trend. The statistics confirmed that construction prices, led by increases in material costs, have been escalating at unprecedented rates. Looking at the demand side, fixed asset investment in construction and building services installation works has been growing steadily at a rate of 25% per annum in the last 5 years, despite control measures introduced by the Central Government to cool the economy. However, the trend is showing signs of flattening and, following the world-wide credit crisis, the construction market may well slow down faster than expected.
Index
350

25%

C&BSI Volume Growth (%)

300

20%

Projected C&BSI Price Index (Year 1990 = 100) from Published Data of National Bureau of Statistics

15% C&BSI Price Index Change

250

10%

5%

200

0% CPI Change -5%

150

-10% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source : National Bureau of Statistics of China

100 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

The Price Index of Construction and Building Services Installations published by the National Bureau of Statistics of China (*), showed a yearon-year increase of 12.4% for the 1st Quarter and 16.7% for the 2nd Quarter, 2008. It also

Looking forward, we expect that the upward trend in construction prices in China is approaching its peak and will tend to level off in 2009.
*
The quarterly indices only became accessible to the general public for the first time in April 2008.

APPROXIMATE BUILDING COSTS IN HONG KONG

2ND QUARTER 2008

BUILDING TYPE

COST (HK$/m2 CFA)

SPECIFICATION

DOMESTIC Low cost housing, high rise ....................................... Average standard apartments, high rise .................... Luxury apartments, high rise ..................................... Terraced houses ........................................................ Luxury houses ........................................................... 7,150 - 7,580 11,400 - 12,250 13,500 - 15,950 16,750 - 18,800 23,750 up

1. Low cost housing based on Hong Kong Housing Authority Non-standard Cruciform Block design. 2. Average standard apartments to be 30 - 50 storeys, 600 - 1,000 ft2 per flat. 3. Apartments and houses include airconditioning, kitchen cabinets and home appliances, but exclude fitting out works and loose furniture.

OFFICE / SHOPPING CENTRE Average standard offices, high rise ........................... Prestige offices, high rise........................................... Average standard shopping centres .......................... Prestige shopping centres ......................................... 13,800 - 16,100 18,800 up 14,350 - 17,600 18,900 up

1. Offices based on buildings 20 - 30 storeys high with floor plans minimum 1,000m2 per level. 2. Shopping centres and average standard offices exclude finishes, A/C ducting & light fittings to tenant areas. 3. Prestige offices are fitted with raised floor, suspended ceiling, A/C ducting and light fittings to tenant areas. 1. Flatted factories and industrial-office buildings exclude manufacturing equipment, special services provisions, air-conditioning and electrical distribution system to tenant areas.

INDUSTRIAL Light duty flatted factories, high rise, 7.5kpa (150 lb.) loading ............................................. Heavy duty flatted factories & warehouses, high rise, 15kpa (300lb.) loading................................ Industrial - Office buildings ....................................... HOTEL 3-Star hotels, inclusive of F.F.&E. .............................. 5-Star hotels, inclusive of F.F.&E. .............................. 17,850 - 19,850 24,000 up 8,550 - 9,750 10,350 - 12,800 7,950 - 8,800

1. F.F.&E. includes interior decoration and loose furniture etc. but excludes pre-opening expenses and hotel operation system & equipment costs (e.g. cutlery, crockery, linen, uniform, etc.). 2. Buildings include 1 level of basement.

OTHERS Carparks, above ground ............................................ Primary and secondary schools................................. International schools .................................................. 6,300 - 7,450 10,000 - 10,800 12,450 - 14,000

1. Carparks to be multi-storey. 2. Primary and secondary schools are allowed with standard government provisions. 3. Schools include external works but exclude F.F.&E.

Notes: The costs for the respective categories given above are averages based on fixed price competitive tenders. It must be understood that the actual cost of a building will depend upon the design and many other factors and may vary from the figure shown. The costs per square metre are based on Construction Floor Areas measured to the outside face of the external walls / external perimeter including lift shafts, stairwells, balconies, plant rooms, water tanks and the like. All buildings are assumed to have no basements (except otherwise stated) and are built on flat ground, with normal soil and site condition. The cost excludes site formation works, external works, land cost, professional fees, finance and legal expenses.

Davis Langdon & Seah

GENERAL TREND OF BUILDING WORKS TENDER PRICES IN HONG KONG (Including labour, materials, plant, overheads & profit)
Index
1,600

1,400

1,200

1,000

800

600

400

200

0 70 74 78 82 86 90 94 98 99 00 01 02 03 04 05 06 07 08 09

Year

ASD BWTPI ASD BWTPI (as at the 4th Quarter)

DLS TPI DLS TPI (as at the 4th Quarter)

Year 1998 Quarter Index ASD TPI (Base = 100, at Year 1970)
Q1 Q2 Q3 Q4 1,103 1,054 1,065 1,034 1,024 1,031 1,025 989 959 873 858 844 862 842 807 721 687 742 692 733 720 723 722 681 685 712 704 701 711 716 718 697 714 730 751 789 821 859 906 998 1,118

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

DLS TPI (Base = 100, at Year 1970)

Q1 Q2 Q3 Q4 1,295 1,259 1,227 1,207 1,185 1,164 1,148 1,130 1,079 1,057 1,040 1,020 990 960 945 935 915 890 875 840 855 878 895 895 940 952 933 930 945 955 963 970 970 980 985 990 1,020 1,074 1,175 1,150 1,239 1,360

Source: Competitive tenders received by Davis Langdon & Seah Hong Kong and the ASD Building Works Tender Price Index (BWTPI). Notes: 1. The index measures the trend of general builders works only. Special works and Mechanical and Electrical Services would have to be considered separately. 2. All indices were published quarterly. For reference purpose, only indices from 1st quarter of 1998 and onwards are given in details, whereas indices of Year 1970 - 1997 are shown with their 4th Quarter figures.

LABOUR INDEX & AVERAGE DAILY WAGE OF WORKERS ENGAGED IN PUBLIC SECTOR CONSTRUCTION PROJECTS
Index
160

140

120

100

80 1996 1997 1998 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year
Year Quarter
Q1 Q2 Q3 Q4

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Index

(Base = 100, at June 1995)

149 150 152 153 152 153 154 154 152 152 152 151 150 150 149 148 147 146 146 143

Figures below are quarterly average of the monthly indices 143 140 140 138 137 136 133 132 131 133 134 136 137 135 131 130 129 128

Selected Trade Dec 07

General Workers Concretor Bar Bender and Fixer Carpenter (formwork) Plumber Plasterer Painter and Decorator Electrical Fitter (incl. Electrician) Bricklayer Drainlayer Metal Worker Joiner Construction Plant Mechanic Glazier Bamboo Scaffolder Structural Steel Erector Asphalter (road construction) Mechanical Fitter Source: Note: Census & Statistics Department 566 915 1,071 951 782 817 742 680 853 786 786 879 706 799 1,036 891 713 686

Average Daily Wage (HK$) Jan 08

566 924 1,077 968 792 824 747 672 854 810 795 914 725 838 1,050 890 713 695

Feb 08
569 948 1,073 988 779 806 741 686 826 821 793 896 722 864 1,028 898 706 670

Mar 08
568 933 1,067 987 785 803 741 679 816 815 775 868 725 812 1,034 898 679 684

Apr 08
571 924 1,061 988 779 783 710 665 813 792 750 817 735 705 1,024 862 707 674

May 08
562 931 1,056 985 767 802 728 667 815 808 733 784 762 813 1,022 909 768 681

The labour indices cover public sector construction projects only and reflect the change in wage cost borne by main contractors of public sector construction projects. Owing to the special arrangments widely adopted in the construction industry, the wage cost data probably also include elements like service charges and administration overheads borne to ensure that tasks are handled by the workers/companies with the appropriate skills. Hence, the labour indices may not reflect the wage received by workers in the construction industry.

Davis Langdon & Seah

MATERIAL INDEX & AVERAGE MATERIAL PRICES

Index
400

Portland cement (ordinary) Timber formwork

Sand GMS pipes

Steel reinforcement

300

200

100

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Selected Material

Unit Dec 07

Average Material Price (HK$) Jan 08

5,809 6,656 517 3,475 63 48 42 57 12,240 120 166 96 37

Feb 08
6,538 7,634 518 3,481 63 51 *** 58 13,328 123 *** 96 37

Mar 08
7,896 8,406 524 3,607 64 57 44 58 14,713 131 *** 97 37

Apr 08
8,457 8,629 532 3,622 64 60 46 76 15,029 136 *** 93 38

May 08
8,910 9,347 536 3,628 64 61 46 80 15,364 139 *** 93 39

Mild Steel Round Bars (6mm-20mm) High Tensile Steel Bars (10mm-40mm) Portland Cement Hardwood Plywood (19mm thick) Concrete Blocks (100mm thick) Aggregates (All grades) Sand Galvanised Mild Steel Angles Homogeneous non-slip floor tiles (200 x 200mm) UPVC lined GMS pipes (20mm x 5.5m long) Clear Sheet Glass (5mm) Emulsion Paint Source: Note: Census & Statistics Department

t t t m m
3

5,847 6,346 530 3,475 63 45 41 57 11,159

2

m2 t t t m

118 166 92 37

No. m
2

litre

*** denotes that data are not released in order to safeguard confidentiality of information provided by individual firms.

USABLE FLOOR AREAS COMPLETED / WITH CONSENT TO COMMENCE

000m2
1,200

1,000

800

600

400

200

0 96 97 98 99 00 01 02 03 04 05 06 07 08

Year
Area completed Area with consent to commence - First submission Area with consent to commence Area with consent to commence - Major revision

Year Quarter Usable Floor Area 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Total usable floor area completed (000m2)

Q1 Q2 Q3 Q4 690 666 689 482 492 766 498 822 355 408 234 479 275 351 312 417 318 378 678 586 253 425 454 455 324 451# 590 356 292 388 259 288 232 322 333 502 225 271 126 407 183

Total usable area with consent to commence (000m2)

Q1 Q2 Q3 Q4 First submission Major revision First submission Major revision First submission Major revision First submission Major revision 472 601 407 659 718 174 749 550 689 203 528 430 493 355 170 370 229 418 368 356 291 194 142 201 376 72 338 69 431 69 187 81 136* 58* 100 53 195 88 255 141 165 86 290 257 52 168 120 129 317 173 249 191 130 129 355 107 301 218 205 94 275 124

Source: Notes:

Census and Statistics Department and Buildings Department 1. As from January, 2003 onwards, statistics by Buildings Department on Consent to Commence are published with 2 sub-divisions, viz First Submission and Major Revision. The 2 sub-divisions are added together to compare with past data. Figures marked with * have been revised as per Hong Kong Monthly Digest Statistics, June Edition. Figure marked with # includes units of the Hunghom Peninsula, which were converted from Private Sector Participation Scheme to private buildings (Total 81,900m2), as per Hong Kong Monthly Digest of Statistics, June Edition.

2. 3.

Davis Langdon & Seah

GROSS VALUE OF CONSTRUCTION WORK PERFORMED

(HK$ Million)
40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0 82 86 90 94 98 99 00 01 02 03 04 05 06 07 08 09

Year
Gross value quarterly performed Gross value quarterly performed (yearly average)

Year Value Performed Quarter / Index

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Gross Value Quarterly Performed (HK$ Million)

Q1 Q2 Q3 Q4 Year Total : 32,439 31,161 31,255 31,582 126,437 31,099 29,615 30,419 30,940 122,073 28,649 27,717 27,080 30,540 113,986 26,888 27,416 25,740 25,956 106,000 24,775 25,681 24,827 23,749 99,032 23,068 22,912 23,162 24,030 93,172 23,229 22,343 22,612 22,667 90,851 21,973 22,464 22,302 23,492 90,231 22,247 22,983 22,744 24,893 92,867 24,130*

* Provisional

Source : Note :

Census and Statistics Department All value performed were published quarterly. For reference purpose, figures from 1st Quarter of 1998 and onwards are given in details. Those quarterly totals for the period Year 1983 - 1997 are, on the other hand, average on yearly basis.

APPROXIMATE BUILDING COSTS FOR MAJOR CITIES IN CHINA

2ND QUARTER 2008
REGION BUILDING TYPE DOMESTIC Average standard apartments, high rise ........... Luxury apartments, high rise ............................ Terraced houses ............................................... Luxury houses .................................................. OFFICE / SHOPPING CENTRE Average standard offices, high rise................... Prestige offices, high rise .................................. Average standard shopping centres ................. Prestige shopping centres ................................ INDUSTRIAL Light duty flatted factories, high rise, 7.5kpa (150 lb.) loading .................................... Heavy duty flatted factories and warehouses, high rise, 15kpa (300lb.) loading ....................... Single storey conventional factory with structural steel roof ................................... 1,075 1,175 N/A N/A N/A N/A N/A N/A 520 N/A N/A 490 N/A N/A 455 1,915 2,410 2,050 2,425 N/A N/A 1,680 2,440 950 1,200 1,050 1,250 765 1,090 955 1,110 700 960 735 1,075 1,515 1,885 2,280 3,045 1,140 1,440 N/A N/A 560 720 605 795 495 675 455 670 475 555 410 570 (USD/m2 CFA)
HONG KONG MACAU SHANGHAI BEIJING

GUANGZHOU/ SHENZHEN

HOTEL Resort hotels, inclusive of F.F.&E. .................... 3-Star hotels, ditto ............................................. 5-Star hotels, ditto ............................................. OTHERS Carparks, above ground ..................................
Exchange Rate Used : US$1 =

N/A 2,415 3,075

N/A 2,689 3,445

1,350 1,080 1,650

N/A 1,050 1,688

N/A 940 1,385

880

659

385

415

310

HK$7.80

MOP8.03

RMB6.86

RMB6.86

RMB6.86

Notes : The costs for the respective categories given above are averages based on fixed price competitive tenders. It must be understood that the actual cost of a building will depend upon the design and many other factors and may vary from the figure shown. The costs per square metre are based on Construction Floor Areas measured to the outside face of the external walls / external perimeter including lift shafts, stairwells, balconies, plant rooms, water tanks and the like. All buildings are assumed to have no basements (except otherwise stated) and are built on flat ground, with normal soil and site condition. The cost excludes site formation works, external works, land cost, professional fees, finance and legal expenses. The standard for each category of building vary from country to country and do not necessarily follow those of Hong Kong. Fluctuation in exchange rates may lead to changes in construction costs expressed in U.S. dollars.

Davis Langdon & Seah

APPROXIMATE BUILDING COSTS FOR MAJOR CITIES IN ASIA

2ND QUARTER 2008
REGION BUILDING TYPE DOMESTIC Average standard apartments, high rise ... Luxury apartments, high rise..................... Terraced houses ....................................... Luxury houses........................................... OFFICE / SHOPPING CENTRE Average standard offices, high rise ........... Prestige offices, high rise .......................... Average standard shopping centres ......... Prestige shopping centres ........................ INDUSTRIAL Light duty flatted factories, high rise, 7.5kpa (150 lb.) loading ............................ Heavy duty flatted factories and warehouses, high rise, 15kpa (300lb.) loading ............... Single storey conventional factory with structural steel roof ........................... 1,170 1,425 N/A N/A 460 530 630 1,040 N/A N/A 490 N/A 430 470 2,005 2,335 1,750 2,190 1,331 1,717 1,414 1,959 760 1,130 830 1,010 694 941 774 861 610 920 520 570 890 1,160 865 1,120 805 1,100 570 780 1,900 3,065 2,265 2,775 1,496 1,737 1,956 2,339 470 1,020 340 960 757 1,110 552 920 635 840 N/A 495 780 1,000 465 515 750 1,030 570 1,090 (USD/m2 CFA)
SINGAPORE SEOUL

KUALA LUMPUR

BANGKOK

JAKARTA

BRUNEI

MANILA

1,020

903

490

630

280

440

405

HOTEL Resort hotels, inclusive of F.F.&E.............. 3-Star hotels, ditto ..................................... 5-Star hotels, ditto ..................................... OTHERS Carparks, above ground ..........................
Exchange Rate Used : US$1 =

2,445 2,555 3,505

2,424 2,275 2,950

1,360 1,590 2,240

2,018 1,304 1,866

1,290 1,050 1,510

1,390 1,710 2,060

1,310 1,240 1,630

840
S$1.37

554
KRW1,050

310
RM3.20

309

280

560
B$1.4086

405
PHP43.50

BAHT33.31 IDR9,265

Notes : The costs for the respective categories given above are averages based on fixed price competitive tenders. It must be understood that the actual cost of a building will depend upon the design and many other factors and may vary from the figure shown. The costs per square metre are based on Construction Floor Areas measured to the outside face of the external walls / external perimeter including lift shafts, stairwells, balconies, plant rooms, water tanks and the like. All buildings are assumed to have no basements (except otherwise stated) and are built on flat ground, with normal soil and site condition. The cost excludes site formation works, external works, land cost, professional fees, finance and legal expenses. The standard for each category of building vary from country to country and do not necessarily follow those of Hong Kong. Fluctuation in exchange rates may lead to changes in construction costs expressed in U.S. dollars.