Published 22 August 2008
Beijing has proved 22% less costly to build in than Wellington this year, Rider Levett Bucknall says in its half-yearly international construction cost commentary out today.
Locally, the consultancy found construction costs were rising faster in Christchurch (up 3%) than Auckland (up 2.3%) & Wellington (up 2.7%). Internationally, the big movers since Rider Levett Bucknall’s 2007 study were Singapore (up 18.7%), Dubai (up 15.8%) & Hong Kong (up 14.6%).
In New Zealand, the lack of funding has had more serious impacts on construction. Rider Levett Bucknall research & development manager Roger Hogg said: “The New Zealand economy is also continuing to operate at historically high interest rate levels, but is not as sheltered as the Australian economy by resource production, so the effect has been a marked general slowdown, although there remain the impacts of inflationary effects arising from a tight labour market.
“The prospect of low projected GDP growth for the next 3 years, accompanied by relatively high levels of general inflation caused by labour shortages and food & energy cost increases, has introduced a sense of uncertainty. The residential market in particular has been considerably affected by high interest rates & credit availability problems.”
Mr Hogg said large increases in steel costs and other incremental movements were negated by a tightening main-contract market, with a consequential squeeze on margins & preliminaries in order to pick up a slightly weaker current volume of work.
“Weakness in work volume is worst in the apartment residential sector, where the lack of availability and high cost of credit have combined with perceived falling values for apartments, to postpone or even cancel some developments. The commercial market is sending out mixed messages. Several major projects are close to commencement, whilst others are being delayed, due not to the credit squeeze, but rather to issues of consents & appeals.”
The tight credit market, high interest rates and rising fuel & food costs had flattened the housing & apartment markets and created tension in other sectors. “Tenders have remained competitive through early 2008, with many small to medium-sized contractors being particularly keen to tender.
“Materials costs, however, continue to rise, steel products being particularly affected. This, in tandem with a weakening dollar, is leading to cost increases despite competitive market conditions. With commodity prices set to continue rising and interest rates tipped to fall, Auckland may see greater levels of cost increase than in the last 18 months.”
Mr Hogg said demand in the Christchurch market had softened in recent months, due to a noticeable slowing in the residential market and the impact of tighter credit & higher interest rates.
“It remains to be seen what further effect weak national economic activity may have. There have been substantial cost increases in commodities, which it seems unlikely that main contractors & sub-contractors will be able to absorb. However, there is a competitive edge in the tender market, as contractors seek to maintain turnover in an uncertain environment. While the small to medium-size project market is showing a respite, there are still several large projects at design stage that are likely to increase medium-term demand.”
Rider Levett Bucknall’s global chairman, Brian Dackers of Auckland, said the global credit squeeze had slowed global growth significantly, but more in the advanced than the emerging economies.
“Global growth is forecast to slow markedly this year, with the US economy bumping along the bottom of its cycle before a projected recovery next year. Meanwhile the emerging economies are becoming increasingly integrated in the global economic scene and are making strides towards becoming major players. The increasing demand profile of the emerging economies is, however, offset by continuing inflationary concerns.”
New York, ranked as the most costly city to build in, is 50% more costly than Wellington. Second most expensive internationally was London, 47% more costly than Wellington.
Attribution: Rider Levett Bucknall release, story written by Bob Dey for this website.