Construction Costs fall worldwide
Thursday, 20 August 2009How much does it cost to build apartments in Moscow?
How do labour rates in Australia compare with Singapore?
How much is concrete in South Africa?
This week we are pleased to provide our Annual Survey of International Construction Costs. International construction cost data has been compiled by Turner & Townsend offices worldwide allowing us to analyse the effect of the downturn around the globe.
This time last year many construction markets were described as "overheated", with construction costs rising faster than general inflation.
How quickly things change. Few people realised that the unfolding sub prime crisis in the United States would cause the worst global downturn in 80 years.
In July 2009 conditions are nothing like a year ago. Construction markets are now described as lukewarm as best. Construction costs are flat or falling in most regions. There are very few areas where construction costs are still increasing faster than general inflation.
The fuel that drives the global economy is short term finance. With the failure of the sub-prime mortgage market in the United States and collapse (or near collapse) of numerous major banks, the short term money market dried up almost overnight.
Like Australia, construction costs worldwide have fallen over the last twelve months in response to lower construction volumes and difficult conditions. Governments around the world have had to implement stimulus packages to boost the economy and to keep local construction markets afloat.
The scale of the global stimulus is enormous. For example so far the US has pledged $787 billion, China $586 billion, Europe 200 billion Euros and Japan $100 billion.
Worldwide stimulus packages has been effective in averting an even worse downturn, by stimulating consumption and promoting construction, and as we write this in August 2009 conditions appear to be improving. Most regions appear to have "bottomed out" in terms of economic growth, and the question is whether the recession will be V shaped, U shaped (or worse still W-shaped).
Building costs have fallen substantially in China in the last twelve months, in some cases up to 28% reflecting the weaker market with lower margins and preliminaries. Wages are still increasing. Trade rates are mixed with steel and concrete down but other trades up compared with 2008. Imports of iron ore and copper appear to be increasing through stockpiling at cheap prices but also to assist with a ramping up of steel production for infrastructure projects. This in turn will stimulate the revival of other economies in the region including Japan, Korea and Australia
The UK has been particularly badly hit by the global financial crisis with numerous job losses across the economy from finance to retail and a severe downturn in construction. The UK government will invest £22 billion on new roads and £26 billion into new rail projects to help boost the ailing economy.
In Ireland construction costs have fallen in some cases by as much as 20%. Building material prices are static or falling, and wages are lower than 2008 indicating a squeeze on subcontract labour. Many towns and cities in Ireland have a surplus of office space, a situation which is set to continue as the economy continues to further deteriorate.
In South Africa it seems that building material costs are falling but this is being offset by the rising cost of wages particularly in the run up to the 2010 FIFA World Cup. For example hotel construction costs have jumped by 40-45% and high-rise apartments have increased by 25%. The bulk of the South African construction activity however comes from government contracts in the areas of transport, energy and low cost housing.
Construction costs have fallen in Australia since peaking in the 3rd quarter of 2008. Labour costs are still increasing and building materials are stable except for steel and rebar which have fallen. Margins and preliminaries are falling through increased competition.
Worldwide, confidence now appears to be improving. The stock market is a good "leading indicator" and worldwide stock markets are recovering. Many infrastructure projects are moving from planning to execution phase, stimulus package construction works are underway and global finance is starting to flow again.
We think that this is the bottom of the market for most regions and that recovery will be underway during 2010. However unemployment is still likely to worsen, and in many regions will continue to increase during 2009 and early 2010 before recovering in late 2010.
Subscribers to CostWeb can access the report here. Non-subscribers can simply email and we'll send one out. Enjoy.
By Gary Emmett
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