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What are the key issues facing construction in Asia in 2023?

Apr 14, 2023

Francis Au

Greater China Growth Director / City Executive

After uncertainty following the COVID-19 pandemic, construction in Asia is entering a period of significant growth.

Construction is one of the oldest and most well-established industries in Asia, particularly compared with emerging growth sectors such as manufacturing or technology. While construction activities are typically delivered onsite and are highly labour intensive, there is much we can learn from these newer industries when it comes to embracing digital, automated, and AI technologies to keep up with the pace of change.


Why Hong Kong has high ranked

This is certainly the case for Hong Kong, which has long ranked among the top ten most expensive cities for construction in the world, according to our own annual International Construction Costs Index. Rising inflation, labour shortages, and increasing materials and energy prices continue to take their toll.

A further issue driving cost is that many employers still procure their developments through fixed price, lump sum contracts with ‘watertight terms and conditions’. This means that risk is transferred to contractors and suppliers, who are pricing their services accordingly. The overall impact is that, when the market is good, employers are paying the price for a risk that may not happen, or contractors are absorbing the risks without considering the time and financial implications when the market is challenging. The result is that many projects end up being delivered over time, over budget, and with many of the benefits not realised.

Demographics make skilled labour shortages likely

Yet despite these challenges, construction is key when it comes to accelerating economic recovery. Government forecasts suggest economic growth of 3.5% to 5.5% this year in Hong Kong and, according to the Construction Industry Council (CIC), we can expect total construction expenditure to exceed HK$300 billion (US$38.2bn) per year for the next ten years. We are seeing high levels of investment in major infrastructure projects in particular, including the HKD100 billion (US$12.8bn) Northern Metropolis and the Kau Yi Chau Artificial Islands, which will provide additional land and create significant development opportunities for both the public and private sectors.

However, the issue of an insufficient construction workforce to help meet this demand is acute. An ageing population and constraints to the availability of migrant labour suggest that in the next five years we could be facing a shortage of 40,000 skilled workers and 15,000 professionals, supervisors, and technicians in Hong Kong along.

New markets and innovation can overcome risk

One solution would be the increasing the use of innovative technology and adoption of BIM, DfMA, Modular Integrated Construction (MiC), and robotic to enhance the efficiency, sustainability, and safety in our planning and delivery processes. When implementing large-scale infrastructure projects, it would also be beneficial to consider partnerships such as early contractor and supplier involvement, as well as ‘pain/gain’ or revenue sharing mechanisms in procurement strategies, to help bring down risk-related costs.

For more on this topic please check out the International Construction Costs 2023.