Why construction costs are likely to rise 7-8% in 2014

Clue: material and labour costs.

Barclays, citing HKET, said the RLB’s tender price index, which measures tender price movements of builders’ works in the private sector in Hong Kong, rose 7.5% y/y to 2,230 in 3Q 2013, compared with 4.3% y/y inflation over the period.

Construction costs have been rising in the past four years, with the index up from 1,620 in 3Q 2009 to 2,230 in 3Q 2013, +37.7%.

Here’s more from Barclays:

The increase in construction costs was mainly driven by increasing material and labour costs, as well as a higher standard for new private buildings.

Based on the RLB data, current construction costs are around HK$1,690-2,230psf for a high-quality residential high rise. With club and landscaping included, construction costs could reach HK$3,500-
4,000psf.

Looking ahead, with more new private development, infrastructure construction and a shortage of skilled labour, construction costs are expected to continue to rise in the coming 12 months, at the same pace of the 7-8% recorded in 2013.