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Internetional Construction Cost

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Internetional Construction Cost

Post  Admin on Thu Feb 10, 2011 3:47 pm

Construction costs


Construction costs in many parts of the world have frozen or fallen over the past year as the global downturn has continued to hit workload, tender prices and profits.

Europe remains the most expensive place in the world in which to build and Switzerland tops the league, with construction costs about 60% higher than the UK. The fall in tender prices in the UK - down by almost 10% since this time last year - means that it comes in eighth in the European league, well behind Denmark (41% more expensive) and Finland (35%); Sweden is in fifth place with costs currently running at 15-20% more than the UK.

Despite the severe financial problems in Ireland, costs are about 20% above UK prices. Ireland used to be viewed as inexpensive, but the expansion of the “celtic tiger” economy pushed up prices for a number of years. The bust that followed is filtering through to the construction industry where prices fell by 15-20% last year with a similar fall expected this year.

In the UK, tender prices peaked in mid-2008 and have now been falling for two straight years. UK prices are about 16% below their peak and a further year of deflation is forecast. Recovery, when it comes, is not expected to be uniform and there could be a two-speed movement in tender prices. On small and medium-sized jobs in London there is a limit to the cost increases that contractors can absorb, and tender price inflation is expected to move out of the red in the second quarter of next year. However, on schemes worth more than £80m the supply of contractors/subcontractors is limited and increases in workload could result in levels of inflation higher than the above. Recovery across the rest of the country is expected to be slower and tender prices nationally are forecast to fall by a further 3-3.5% over the next year before recovering to rise by 1.2% in the year to the second quarter of 2012.

Commodity prices

These showed some startling falls in 2009 but have now started to recover as countries come out of recession. The recent rises in the prices of iron ore, oil and copper have had an impact on construction projects, and there is likely to be considerable inflationary pressure on factory gate prices, energy costs and raw materials; the prices of some commodities may rise by about 15-20% a year.

Labour rates in most countries are unlikely to show any real movements in the near future, but materials prices are likely to be especially susceptible to inflation.

Demand is starting to increase in China and India, but the supply chain is unlikely to rebuild capacity until debt is less expensive and confidence in long-term order books returns. The slow response of manufacturers, combined with the pressure on factory gate prices, means that materials price inflation could reach high levels for some products. This could, in turn, create problems of delivery of projects that were undertaken at low or zero margins in order to maintain turnover. On these jobs, price increases down the supply chain could create substantial losses, potentially leading to more corporate failures.

Europe

There is a remarkable level of consistency of price levels among the large and more established EU countries: Germany, France, Belgium and Italy are all within 97-107% of the UK. The only of the larger countries that falls outside the range is Spain, which is in the middle of a severe financial crisis, and where the construction industry is suffering from a huge level of over-extension. Costs in Spain are about 75% of UK costs and, with investment more or less dried up, are expected to show little movement over the next year.

As mentioned above, the level of pricing in the larger, older EU member countries is remarkably consistent. Whether this is partly the result of prices equalising owing to the use of the euro is open to question, but there is a worldwide market for a number of the construction items at the heavy end of construction: steel, reinforcement, concrete, and so on. This will tend to equalise prices between countries with similar sized economies.

Six years after the enlargement of the EU to include our eastern European neighbours, the pricing levels in the countries of central and eastern Europe (CEE) also tend to be grouped, although at a lower level than most western European countries. Prior to 2008, a number of CEE countries benefited from high levels of inward investment from developers looking to get a foothold in their emerging economies.

The crash caused a lot of those same developers to think twice about their strategies and in some cases to pull out, leaving the banks and financial institutions in possession of half-completed schemes for which there was no demand. Despite state intervention, falling wages and cuts in profits mean that construction prices have fallen substantially in a number of CEE countries. As a result, costs range from 50-55% of UK prices in Bosnia, Macedonia, Slovakia and Ukraine to 63% in the Czech Republic, 71% in Croatia and 75-80% in Poland.

Prices in Russia are 65-78% of those in the UK, although for many clients certainty of delivery will point them towards using more reliable Western contractors at higher cost, rather than locally based firms that may not be able to deliver. Since the credit crunch, most developers have frozen their activities in Russia and tender prices have fallen 15-25% when measured in dollars.

The expectation is that GDP in the Eurozone countries will rise 1.1% this year and by a further 1.3% in 2011. Within that figure there are obviously some winners and losers: GDP in Greece is expected to fall 4.5% this year, and Spain is expected to contract by 0.4%. The Greek economy is expected to shrink 4.3% in 2011, but the Spanish economy is expected to show a marginal recovery of 0.6%.

North America

The US was one of the first countries to be hit by the recession but has responded well to economic stimuluses and is well ahead of Europe on the road to recovery. Economic growth of 3.3% in 2010 and 3% in 2011 is expected although unemployment still remains high at almost 10%.

Construction prices have fallen by as much as 15% since last year and a recovery is not expected until the first quarter of 2011 with a return to a “normal” market in mid to late 2012.

Notwithstanding the general reduction in prices, some bids are being received up to 20% below estimates. The pricing of key economic components is fluid and contractors’ overhead and profits have been cut from the normal level of 10-12% to 6-9% as firms struggle to secure workload. Costs in the US are about 90% of those in the UK, but it should be borne in mind that the US is a vast country with huge regional variations.

Prices in Canada are currently 10-15% above the UK. This is a substantial increase compared with last year, primarily because the Canadian dollar has appreciated by more than 20% in the past year.

Middle East

This region is undergoing a period of retrenchment and recovery from the situation it was in 12 months ago, when swaths of schemes were put on hold. However the recovery is going to take a long time. Market conditions mean that clients are rarely securing loans at competitive rates and it is only those organisations with available working capital that are able to press forward with their built asset investments.

Pricing in the region is grouped quite closely and is not much different to the UK. Bahrain is the most expensive of the Gulf countries, with prices running at about 11% above the UK; at the other end of the scale is Saudi Arabia with prices running at around 94%.

Workload is expected to increase towards the end of 2010, with overheads and labour costs pushing up prices. In Qatar and Saudi Arabia, there is a shortage of skilled labour available to meet the increase in workload and the wage bill is expected to rise by about 15% by December 2011. In addition, owing to the small number of contractors eligible to operate in these two countries, higher overheads and profit margins are also expected to kick in. Inflation rates are expected to be similar in the UAE and Saudi Arabia, but are expected to increase significantly in Qatar as a result of global energy demand. By the end of 2011, it is predicted that construction costs in the Gulf will be very different to their historic levels, with Saudi Arabian prices rising at a sustainable pace and prices in Qatar reaching similar levels to those witnessed there towards the end of 2007.

Asia-Pacific

Even as most economies were crashing, the Chinese economy never stopped expanding. Industrial production increased 16% over the past year and the current expectation is that the economy will grow 9.9% this year and a further 8.2% in 2011.

China’s response to the banking crisis was to inject almost $500bn (£320bn) into the economy with programmes of infrastructure construction and housing investment for first-time buyers. Partly as a result of this, construction output rose 22% in 2009. However, there has been an element of overheating and the government is now imposing measures to slow down the property market, such as raising mortgage rates, increasing down payments and ending sales tax breaks.

The rise in construction output had little effect on tender prices in China; these are expected to rise 3% this year and a further 5% in 2011. Construction prices in China are currently about half the level of the UK.

The economic climate in Hong Kong is not as favourable as in the rest of China, although prices here are well ahead of mainland China, and 90-95% of the UK. Construction workload and tender prices in Hong Kong rose steadily throughout 2009, driven primarily by government spending on infrastructure. This investment has led to sharp rises in some prices and it is expected that there will be a period of readjustment as the supply chain tries to rebuild capacity.

The market in Hong Kong is difficult to predict; a number of scenarios present themselves, and depending on which comes to pass, tender price inflation may range between 2% and 20% over the next year.

Singapore remains the most expensive country in the Asia-Pacific region; prices here are about 5-10% higher than the UK. Tender prices in Singapore fell by 8% last year, but the market now appears to be recovering on the back of strong economic growth. The completion of about 550,000m2 of new offices over the coming year and the resultant rise in fit-out work is creating a “hot” market, which could strain supply chains and increase tender prices. In fact, the bounce back in the Singapore economy has outstripped even China, with industrial production up 50%, feeding a rise in GDP of 38% in the first quarter of 2010. The growth is expected to slow somewhat over the rest of the year, but nevertheless the economy is forecast to grow by 8% this year and by a further 4.5% in 2011.

Reference
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[url=http://www.building.co.uk/data/international-costs/5003863.article]http://www.building.co.uk/data/international-costs/5003863.article[/url]
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