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Skyrocketing home prices in Hong Kong: The cost of not innovating


There are many reasons why property in Hong Kong remains among the most expensive in the world.

But bringing in modern building methods and re-designing the approvals process could reduce costs significantly, says John Webb, Market Director, Built Environment, Asia at Aurecon

According to news reports, Hong Kong’s property prices hit a high of HK$20,600 per square foot (or US$28,400 per square metre) in October 2017 for its western and central regions. This is an eye-watering 14.4 per cent increase from the same time the previous year,

The picture is not any better from an affordability point of view. Hong Kong was recently ranked the most expensive housing market in the world for the seventh consecutive year, according to the annual Demographia International Housing Affordability Survey.

The survey, which divides median house prices by gross annual median household income, found Hong Kong to be leading at 18. So, on average, if someone makes $50,000 in annual income, their home would cost $900,000. In contrast, Sydney rings in at 12, Greater London at about 9, and Singapore at 5.

There is an assumption that Hong Kong’s property prices will continue to dominate global “most expensive” lists because of its perfect storm of limited land supply; a densely packed population; and strong ongoing demand. While these are strong contributors, there’s another significant factor which is often overlooked: the cost of construction. 

Earlier this year, Turner and Townsend produced its International Construction Survey 2017, which tabulates the cost of construction, labour and materials in cities around the world. Comparing the data for Singapore, Sydney and London with Hong Kong’s make for interesting reading.

Aurecon's John Webb explores how bringing modern building methods and re-designing the approvals process can significantly reduce property costs in Hong Kong.

Table 1: Comparison of costs of construction (Source: Turner & Townsend)

Table 1 shows that construction costs in Singapore and Sydney are both consistently cheaper than Hong Kong, while London is marginally more expensive. Why is that?

Well, it’s not down to labour costs. A comparison of the costs of three levels of construction workers only confuses the picture further (Table 2). For instance, construction costs in Singapore are about half to two-thirds’ that of Hong Kong but the cost of labour in Singapore is only marginally cheaper. In Sydney, the cost of labour is three to four times that of Hong Kong, yet total construction costs are lower — sometimes 50% lower.

Aurecon's John Webb explores how bringing modern building methods and re-designing the approvals process can significantly reduce property costs in Hong Kong. 

Table 2: Comparison of costs of labour (Source: Turner & Townsend)

Nor can the difference be explained in material costs. Table 3 illustrates that Hong Kong is paying no more than others, relatively speaking, for building materials (Table 3). 

Aurecon's John Webb explores how bringing modern building methods and re-designing the approvals process can significantly reduce property costs in Hong Kong.

Table 3: Comparison of cost of raw materials (Source: Turner & Townsend)

Taking the path of least resistance

The unfortunate reality of the Hong Kong building industry is that participants understand and fear the difficulty of getting their projects approved by the authorities during design and construction. There is a perception among some in the industry that the authorities tend to interpret the codes and guidelines conservatively.

For developers, the cost of three months’ delay in obtaining approvals could outweigh the savings in the construction, either by smart design to reduce material use, or by methods that have not been previously tried in Hong Kong.

It is little wonder, then, that developers appear to place greater value on reliability of procuring building approvals quickly than on smart, economical design. After all, their goal is to get the property to market as quickly as possible. In turn, some consultants respond by taking the path of least resistance in their design – heavy, over-reinforced structures using the methods of yesteryear, slavishly following the prescriptive guidelines issued by the authorities.

The result? The building industry in Hong Kong operates within a closed, vicious circle that has presented some significant challenges to innovation over many years.

The high price of not innovating

From my experience in the Built Environment industry, London, Singapore and Sydney have been faster to adopt modern and innovative construction methods than Hong Kong over the past few decades, which has resulted in significant time and cost savings. In this respect, the city is behind its rivals and Hong Kong residents are the ones who paying the high price of not innovating.

Take Singapore, for instance, where the Building and Construction Authority (BCA) has been encouraging the construction industry to adopt game-changing technologies like Prefabricated Prefinished Volumetric Construction (PPVC). Under PPVC, free-standing modules, complete with finishes for walls, floors, ceilings and even fittings, are constructed offsite, transported to site, and then installed into the building. PPVC has been mandatory for selected residential Government Land Sale sites since 1 November 2014. The BCA estimates that such modular construction can “potentially achieve a productivity improvement of up to 50% in terms of manpower and time savings, depending on the complexity of the projects”.

Freedom within a framework

I believe a radical update of the approach for approvals could generate far more economical designs and spawn new construction techniques that are desperately needed in Hong Kong. But nothing can happen if the authorities does not adopt a “freedom within a framework” mindset, as opposed to conservative interpretation to codes and being tied to methods of construction from the past. For innovation to flourish, authorities, developers, designers and contractors must have meaningful dialogues about good design that will benefit the people of Hong Kong. We need to foster an eco-system where industry can experiment with solutions – for example using shipping containers or concrete water pipes in housing developments – to allow evolution to deliver the best solution.

How the smart first-movers, that is, those who propose more efficient designs and construction techniques, are handled will be closely watched by the industry. A cause for optimism is the new Construction Industry and Technology Application Centre, which has a big challenge ahead, including looking at how to incorporate the most modern construction techniques in Hong Kong for better productivity, sustainability, and safety.

If we can achieve greater freedom, then schemes like Starter Homes or “nano” units of under 200 square feet will have a better chance of succeeding in providing affordable and liveable spaces for the people of Hong Kong. After all, the city’s residents have been paying too much for too long. The government will be better off, as it spends enormous sums on construction each year. And unnecessarily too.

Shorter versions of this article have been published on LinkedIn here and here.

About the author

John Webb has been involved in tall building projects in most states of Australia and in China, Hong Kong, Macau, Abu Dhabi and Vietnam. He was Chairman of Standards Australia Committee BD2 on Concrete Structures for seven years and won the IABSE Prize in 2000 for his contribution to structural engineering.


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