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Building and Construction Industry in Hong Kong

Overview

  • Hong Kong companies have earned a reputation over the years in rapid construction of quality high-rise apartment blocks and office towers. The adoption of specialised construction techniques, such as reclamation and design-and-build methods, has made Hong Kong a regional leader.
  • Hong Kong’s construction industry performed well in 2014, with the gross value of construction work performed by main contractors increasing by 13% YoY to HK$199.7 billion (25.6 billion). In Q2 2015, gross value went up by 15% to HK$55.2 billion (US$7.1 billion).
  • Most of the export markets for Hong Kong’s building and construction services are in Asia, with the Chinese mainland being a major one. Major services exports include project management, contracting and engineering consulting.
  • The ten mega infrastructure projects, first announced in 2007, are being rolled out in phases as scheduled, boosting Hong Kong’s construction market.
  • China is expected to announce the 13th Five-Year-Plan in early 2016, which will be closely watched for any policy intention to further increase infrastructure investment.

Industry Data

Table: Industry data
Table: Industry data
Table: Major indicators of the building and civil engineering industries
Table: Major indicators of the building and civil engineering industries

Range of Services

Construction activities can broadly be classified into three categories, namely buildings (residential, commercial, and industrial/storage/service), structures and facilities (transport, other utilities and plant, environment, and sports and recreation), and non-site activities (decoration, maintenance and repair, etc.).

The overall gross value of construction work performed by main contractors in Hong Kong has been rising since 2009. A strong YoY growth of 37.8% in the value of private sector sites and 23.9% in the value of public sector sites drove up the construction activity by 14.5% to HK$55.2 billion in the second quarter of 2015.

The recent rise in public expenditure on infrastructure has been driven mainly by transportation projects, including the Hong Kong-Zhuhai-Macau Bridge, Guangzhou-Shenzhen-Hong Kong Express Rail Link, the expansion of railway networks such as the West Island Line and the Shatin to Central Link, as well as new highways such as Tuen Mun-Chek Lap Kok Link and Island Eastern Corridor Link. To expand land supply and enhance infrastructure, the government is planning for new town extensions and new development areas, such as North East New Territories New Development Areas, Hung Shui Kiu New Development Area, Tung Chung New Town Development Extension and the airport's North Commercial District. These works include land formation, road construction and laying of water mains. As the infrastructure projects are being rolled out, the demand for construction services in Hong Kong, particularly demand from the public sector, will remain high.

Table: Gross value of construction works performed by main contractors
Table: Gross value of construction works performed by main contractors

Services Providers

Hong Kong's construction industry is characterised by a small number of large local contractors, a high level of subcontracting, presence of a large number of overseas contractors, with a substantial proportion of companies being both developers and contractors.

Most of Hong Kong's construction companies are small in size and those with less than HK$10 million (US$1.3 million) in annual gross value of construction work account for as high as 96% of the construction industry. The majority of the small ones act as subcontractors to the large companies, which tend to be main contractors. There are quite a number of big construction companies capable of handling projects requiring sophisticated technology and strong financial background and are expanding their business across the region.

Hong Kong contractors are experienced and highly skilled in building works. Because of the growing size and complexity of the projects, the current industry trend is to award large and complex building contracts as a single package to multi-disciplinary contractors. There is no formal restriction for entry to the contracting business in Hong Kong. Foreign and local contractors are treated alike, and they are allowed to tender local public sector projects.

Exports

Hong Kong's expertise in construction of quality high-rise residential and commercial buildings is internationally renowned and in great demand in overseas markets, especially in Asia. The Middle East has arisen to be a market with growing potential for Hong Kong’s construction companies. Government infrastructure plans as well as commercial projects provide good support to construction activities in the Gulf region. For example, the Hong Kong-based construction company, Chun Wo Development, launched a luxury residential project ‘Reem Diamond Residence’ in Abu Dhabi, the United Arab Emirates (UAE) in 2014.

Major types of Hong Kong's exported services include project management, contracting and engineering consulting.

Table: Hong Kong exports of construction services
Table: Hong Kong exports of construction services

Industry Development and Market Outlook

New momentum in public infrastructure

To achieve the objective of promoting economic growth through infrastructural development, the Hong Kong government has been increasing its infrastructure investment over the past few years. Some of the mega infrastructure projects announced in the Policy Address in 2007 have had their details published and tenders released, thereby driving up local construction activities. Below is a summary of the ten infrastructure projects:

Table: 10 mega infrastructure projects
Table: 10 mega infrastructure projects

Apart from the ten infrastructure projects, the Hong Kong government has also forged ahead with other works, such as Operation Building Bright and Revitalising Historic Building. In addition, further development of the Hong Kong International Airport, including the construction of the third runway, has been approved. 

In the 2015-16 Budget, the Hong Kong government projected public expenditure on capital works to reach HK$70 billion for the fiscal year ending March 2016. In recent years, public spending on infrastructure has been maintained at high levels. For instance, the government has invested in large-scale road and railway projects totalling over HK$90 billion since 2009.  

Infrastructure projects and property developments in the region

To accommodate the urbanisation process, many Asian countries are upgrading their basic infrastructure such as road networks, port facilities and housing. Commercial, retail and residential projects are springing up in many developing Asian countries, typically India, Indonesia, the Philippines, Thailand, Malaysia and Vietnam, where Hong Kong construction companies are actively seeking opportunities. For examples, Luks Group engages in cement production and property development in Vietnam, while Hongkong Land has participated in residential and office building projects in Indonesia, as well as luxury residential developments in the Philippines.

The Middle East is another market which has attracted many Hong Kong companies, with many projects won in many Middle East countries. Hip Hing Construction has won contracts in Abu Dhabi’s carbon-free city Masdar, as well as in Dubai to build a 72-storey residential building through joint venture with a local contractor. Paul Y was awarded a contract worth US$77 million to build the 54-storey Arraya Office Tower in Kuwait.

China's construction market

Rapid urbanisation has driven up China’s infrastructure development. To expand domestic consumption, China’s urbanisation plan 2014-20 aims to increase the proportion of urban population from 53.7% in 2013 to 60% by 2020. The higher rate of urbanisation will generate huge demand for public infrastructure, housing and transport networks.

Table: Selected key indicators
Table: Selected key indicators

In the 12th Five-Year-Plan (FYP), the Chinese government announced ambitious plans to develop transport and energy infrastructure as part of the efforts to accelerate the country's industrial transformation and upgrading. The proposed projects include new railway lines, highways and airports (see table below). China’s 13th Five-Year-Plan, which is expected to be released in early 2016, will be closely watched for any policy intention to further increase infrastructure investment over the next few years.

Table: Transportation construction plans under the 12th FYP
Table: Transportation construction plans under the 12th FYP

In the past years, local governments have been building a lot of new towns along the outskirts of China’s second- and third-tiers cities as part of their efforts to achieve the urbanisation target. However, a lack of supportive infrastructure and transport network has left most of these newly built apartments empty, creating an increasing number of “ghost towns”. Together with the recent deceleration of economic growth, as China enters a “new normal” mode, the property market has greatly softened since early 2014. After some downward adjustments, the property market is showing initial signs of stabilization. In the first eight months of 2015, nationwide sales of residential buildings increased by 18.7% YoY according to the National Bureau of Statistics.

Belt and Road opportunities

In March 2015, China’s National Development and Reform Commission issued The Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road, outlining the framework of the “ Belt and Road” (BnR) Initiative, co-operation priorities and mechanisms. In 2016, the implementation of the BnR Initiative, along with China’s 13th Five-year Plan, will be closely scrutinized for business opportunities.

Hong Kong is renowned for its excellent professional services including building and construction. With transport networks and infrastructure being the first stage in development of the BnR Initiative, Hong Kong professionals in consultancies, construction, project management and related fields are expected to benefits from the ample opportunities ahead.

The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Under CEPA, construction professional services include construction design services, engineering services, integrated engineering services, urban planning and landscape design services (except overall urban planning services).

According to the Regulations on Administration of Foreign-Invested Construction Enterprises promulgated in end-2002, the application for and approval of the establishment of foreign-invested construction enterprises has been further relaxed. However, CEPA still enjoys a number of preferential treatments compared with China’s WTO commitments.

In applying as a wholly-owned construction and engineering design enterprise, foreign service providers who have been qualified as certified architects or certified engineers in China shall not be fewer than 1/4 of the total certified professionals required under the qualification grading criteria (1/8 for a joint-venture (JV) construction and engineering design enterprise), and the foreign service providers who have the relevant design experience shall not be fewer than 1/4 of the total key technical personnel required under the qualification grading criteria (1/8 for a joint-venture construction and engineering design enterprise). Under CEPA, Hong Kong Service Suppliers (HKSS) can employ mainland registered professionals to fulfil the requirements.

In addition, for a foreign enterprise applying for a JV enterprise, the proportion of total capital contributed by mainland partners of JVs should be no less than 1/4 of the registered capital, whereas mainland partners of HKSS are not subject to the required proportion of the registered capital.

Under Supplement VII to CEPA, Hong Kong professionals who have obtained the mainland's Class-1 registered architect qualification or Class-1 registered structural engineer qualification, can act as partners to set up construction and engineering design offices on the mainland in accordance with the relevant qualification requirements, without restrictions on the ratio of the number of Hong Kong partners to the number of the Mainland partners, the ratio of the total capital contributed by the Hong Kong partners to that by the Mainland partners, or the Hong Kong partners' period of residence on the Mainland. Hong Kong professionals who have obtained Mainland's Class-1 registered architect qualification or Class-1 registered structural engineer qualification by mutual recognition, can register and practise in Guangdong.

Supplement VIII to CEPA provides Hong Kong professionals with national treatment in Guangdong, as they are allowed to register and practise in Guangdong on the same basis as their mainland counterparts with the same professional qualifications from April 2012. In addition, they are recognised as registered practitioners for the purpose of declaration of engineering design enterprise qualifications within Guangdong.

Under Supplement IX to CEPA, Hong Kong professionals with the mainland's supervision engineer qualification, registered architect, registered structural engineer, registered civil engineer (harbour and waterway), registered public facility engineer, registered chemical engineer or registered electrical engineer qualification, are allowed to register and practise in Guangdong regardless of whether they are registered practitioners in Hong Kong. They are recognised as registered practitioners for the purpose of declaration of supervision enterprise or engineering design enterprise qualifications within Guangdong, in accordance with the relevant Mainland regulations.

Supplement X to CEPA allows contractual service providers employed by HKSS to provide construction and related engineering services on the mainland, in the mode of movement of natural persons.

As of 30 September 2015, there were 103 approved HKSS in the sector of construction professional services, and construction and related engineering services.

Content provided by Picture: Winnie Tsui
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