Hong Kong builders pivot overseas amidst housing slump

Some are closing deals in Saudi Arabia, while others are turning to nearby Macau.

Construction firms and contractors have turned to overseas markets to stay afloat amidst a property slump in Hong Kong, where home prices have nosedived to an eight-year low.

The city’s builders are trying to land deals in hot construction markets like Saudi Arabia, whilst some are turning to nearby markets such as Macau and Singapore, where many industry players are already active, Christopher Tung, a partner at K&L Gates Hong Kong, told Hong Kong Business. 

Housing prices in Hong Kong continued their free fall in July, dropping by 1.9% month on month and 4.7% year to date, according to Knight Frank. Residential deals have declined for four consecutive months to 3,652 in August after peaking at about 8,500 transactions in April.

Though some builders have looked overseas for growth, many still seek opportunities locally when possible, Tung said in an e-mailed reply to questions.

State construction projects are one area where they can still make money, including the Northern Metropolis Development Strategy and the Greater Bay Area Plan, said Donglai Luo, senior economist at the Royal Institution of Chartered Surveyors (RICS).

The first seeks to transform Hong Kong’s New Territories into a hub for advanced technology, whilst connecting the Hong Kong Peninsula to China’s Shenzhen City. The second is a Chinese government project that will connect Hong Kong, Guangzhou, Shenzhen and Macau, plus seven other supporting cities on the mainland into a single economic and business hub.

Turner & Townsend Pte Ltd. in a June 2024 report said the Northern Metropolis is a “key economic lever” in this year’s budget that would influence the construction industry. It involves site formation and infrastructure works in the Shenzhen-Hong Kong Boundary Control Points Economic Belt, as well as in the Yuen Long and North districts. There will be 300 square kilometres of new residential, commercial and industrial areas.

Other projects in the 2024-2025 budget that are likely to stimulate construction activity include the Hong Kong Microelectronics Research and Development Institute and Hong Kong Centre for Medical Products Regulation, the expansion of Science Park and Cyberport 5, and the Chinese Medicine Hospital and Government Chinese Medicines Testing Institute.

Meanwhile, there might still be hope for Hong Kong’s housing market, as the government tries to sell 5,690 flats in eight sites under its land sales programme for 2024 and 2025. Hong Kong also seeks to build 440,000 housing units by 2033-2034.

Rising building costs

The state is also helping ease construction costs. Under its 2024-2025 budget, it increased the financing caps for development projects, letting developers secure as much as 100% of construction costs through building mortgages.

Rising building material prices have fuelled the decline in construction activity in Hong Kong, according to RICS. Hong Kong is the most expensive place to build in Asia, with average construction costs per square metre at $35,000 (US$4,500), based on Turner & Townsend’s 2024 International Construction Market Survey.

Fong Chung (FC) Lee, interim-chair of the RICS Hong Kong Advisory Board, said the prices of some major materials like copper and steel have been on the high side. A 15mm thick copper pipe that’s 1,000 metres long costs $54.40 (US$7) per metre, while 100 tonnes or more of structural steel beams cost $2,607 per tonne, according to data from Turner & Townsend.

The sector is also grappling with the rising cost of skilled labour. In Hong Kong, the hourly rate of a general labourer is $171 (US$22), compared with $70 ($9) in nearby Shanghai. 

Lee said some consulting firms have have requested their employees to take three to five days of unpaid leave each month due to high staff cost.

To keep labour costs down, Lee said the government has been promoting digitalisation and the use of off-site or Modular Integrated Construction, where freestanding blocks complete with finishes, fixtures, and fittings are made in a factory and transported to a site for installation.

“That means major construction activities are carried on off-site,” he said. “They can fabricate these on the Mainland and then transport these to Hong Kong to reduce labour input and reduce costs.”

In July 2023, the Construction Industry Council set up the CIC Digital Twin Hub, showcasing technologies that firms can adopt to boost their productivity and efficiency.  

More than a year later, Hong Kong set up the Building Technology Research Institute to drive research and development in innovative construction materials and technologies, as well as to establish standards, carry out testing, and provide accreditation.

The industry is also adopting sustainable practices to support Hong Kong's ambition to become a green maritime fuel-bunkering hub and transform Hong Kong International Airport into a green airport.

In years to come, Luo expects more frontline building companies to embrace ESG (Environmental, Social, and Governance) standards, a shorthand for an investing principle that prioritises environmental, social, and corporate governance issues.

These changes are a silver lining amidst the declining demand for traditional buildings, Luo said, adding that this has allowed the industry to evolve. Slower local construction activity may have reduced income levels of the sector, but ultimately this could help avoid overheating and keep property prices from rising too high, which could undermine Hong Kong’s overall competitiveness, Tung said.