Construction costs likely to increase twice as much as tender prices: RICS

Construction professionals say 'financial constraints' are holding back activity

  
General view of Dubai's cranes at a construction site in Dubai, UAE December 18, 2018. Image used for illustrative purpose.

General view of Dubai's cranes at a construction site in Dubai, UAE December 18, 2018. Image used for illustrative purpose.

REUTERS/Satish Kumar

The recovery in the global construction market is now gaining momentum, but not without challenges.

"With few exceptions, professionals in most global markets expect a pickup in construction market activity across all segments of the market over the next year," Sean Ellison, senior economist at RICS, said citing feedback from chartered surveyors.

"However, the recovery is not without its challenges. Increasingly, respondents are pointing out difficulty in sourcing materials amid supply chain bottlenecks... In markets that rely on migrant labour, the persistent restrictions on mobility have led to a shortage of labour," he added.

As a result, Ellison continued, costs are likely to increase twice as much as tender prices over the next 12 months, and this is expected to put "margin pressure" on construction companies.

UAE Construction activity

Construction activity in the UAE was still on a decline in the first quarter of the year, although many markets around the world were on a recovery path, according to the latest RICS Global Construction Monitor.

From January to March this year, the construction activity index (CAI) for the UAE stood at -17, indicating a contraction, while across the region, the index rose slightly to +3, which is still behind Europe, Asia Pacific and the Americas.

"Some markets are still experiencing a contraction, including Spain (-11), South Korea (-17), the UAE (-17), South Africa (-23), Malaysia (-28) and Oman (-47)," RICS said in its report.

"This suggests that although the industry globally is undergoing recovery, there appear to be a great deal of idiosyncratic factors that are affecting the state of the construction markets across various geographies," the report noted.

The RICS Global Construction Activity Index is a measure of current and expected construction market conditions. It is based on the responses of construction professionals.

Financing, headcounts, cancellations

As in the previous surveys, industry respondents worldwide highlighted that there are still difficulties in accessing financing.

About two-thirds of those surveyed globally, and more than three quarters in the Middle East, said that financial constraints are holding back construction activity.

The outlook for hiring also appears to be subdued for certain markets like the UAE, India and Italy, which experienced a decline in overall headcounts during the first quarter of the year.

Respondents in the Middle East and Africa also said that 7.8 percent of private residential projects have been cancelled since the start of the pandemic. The share of private non-residential projects that did not push through stood at 8.6 percent, while infrastructure projects accounted for 7.2 percent.

Respondents who participated in the survey were also asked questions about the impact of the pandemic on the construction sector and productivity at the sites, among others.

Respondents said that onsite productivity is still expected to fall 6.7 percent globally due to the coronavirus pandemic. The figure, however, is lower than the decline expected in the Q2 2020 survey, when respondents expected an 11.7 percent fall in onsite productivity.

"[This indicates] that the impact on productivity from the pandemic may not be as bad as initially expected," the report said.

Looking ahead

Looking ahead to the next year, workloads are generally expected to increase, according to RICS, but with the exception of some markets in the Middle East and Africa, particularly in Oman, Kenya and Mauritius, and other markets where activity is expected to stabilise.

In China and the US, the construction sector is expected to undergo a "robust expansion".

(Writing by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@refinitiv.com

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