Building up to a recovery: it's been tough in the Asian building and construction industry, but a new report says relief might soon be on the way - Property - Brief Article

Business Asia, August, 2002

Building and construction activity in the Asia Pacific region is still generally weak, but upward momentum is expected to begin in most countries this year ahead of recovery in 2004, according to a study by the economic and building/construction industry research firm BIS Shrapnel.

The report, Building and Construction Industries in Asia 2001-2004, looked at China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand--most of whom are still suffering from some form of property oversupply, mainly in the housing and office sectors.

However, overall construction will be sustained in part by infrastructure projects through pump priming measures (Singapore, Malaysia and Hong Kong), and the revival of some projects stalled by the 1997 financial crisis.

The report's principal author, senior economist Adeline Wong, says: "We believe the improvement in the construction sector will continue in 2003 and become more entrenched in 2004 as the building sector recovers, backed by stronger economic growth driving up demand across the property sector."

Rapid decline

The study says the unexpected and rapid deterioration in most domestic economies in Asia following the global slowdown and the 11 September terrorist attacks in the US saw both residential and non-residential building activity stall in some countries and contract in others. Having avoided doing so in 1998, Singapore and Taiwan slipped into recession in 2001, along with Hong Kong, while other countries, like South Korea, Malaysia, The Philippines, Thailand and Indonesia all experienced weaker building activity.

Only in China, least affected by the global slowdown and with WTO membership and the Beijing Olympics on the horizon, did the building sector maintain moderate growth.

Report findings

The reports findings on China shows that over 2002-2004 the construction sector will continue to be driven by residential activity, the development of provincial cities other than the main centres, and the continued demand for infrastructure and utility facilities. In nearby Hong Kong, overall construction activity in 2002-2004 will continue to be sustained by the civil engineering sector, with a gross value averaging HK$23 billion ($5.2 billion) annually.

Indonesia's construction sector continues its moderate recovery from a very low base, sustained mostly by small projects across the country.

According to the report, the only upside for Indonesia's sector is the resumption of major toll roads and rail projects following the recent awarding of contracts.

Pump priming

In Malaysia, residential and infrastructure projects (government pump priming) will sustain overall construction in the medium term, and residential building will grow at decelerating rates over the five years to 2005, due to a cut-back in the housing target. Across in The Philippines, stronger economic growth and foreign investment is expected to boost the construction sector, which will gather momentum in the two years to 2004.

In 2001, the Singaporean economy suffered its worst recession since 1965 and the construction sector will remain depressed in 2002 due to weak consumer and business sentiment.

Activity is expected to recover over the two years to 2004, but to a level still 31 per cent below the 1997 peak due to a significant reduction in public residential building.

New peak

As the South Korean economy recovers from the 2001 slowdown to become one of the strongest in the region, residential building activity will reach a new peak as the result of strong housing demand.

Non-residential and civil engineering construction will also grow solidly, resulting in total construction orders received over the 20022004 period averaging an estimated 53 trillion won ($76.3 billion) annually, just seven per cent below the figures for the 1995-97 boom period.

Taiwan's decade long residential building slump will continue over the three years to 2004 and beyond.

A rebound in the non-residential building sector by 2003 and strengthening growth in the civil engineering construction sector over the next three years is likely to be boosted by Taiwan's WTO membership and growing direct trade with Mainland China.

Finally, in Thailand the construction slump reached a 10-year low in 2001, despite signs of a recovery (albeit from the lowest level in over a decade) in residential building, driven mostly by increasing activity in the landed residential segment in the Bangkok area.

The residential building upturn is expected to continue through to 2004, when it will reach just over one third of the 1996 peak.