Asia Construction Outlook - 2013 - Final2 - Small

STRUCTIO OUTLOO
ASIA
CONSTRUCTION OUTLOOK 2013
About AECOM AECOM is a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. With approximately 45,000 employees around the world, AECOM is a leader in all of the key markets that it serves. AECOM provides a blend of global reach, local knowledge, innovation and technical excellence in delivering solutions that create, enhance and sustain the worlds built, natural and social environments. A Fortune 500 company, AECOM serves clients in more than 140 countries and has annual revenue in excess of $8.0 billion. More information on AECOM and its services can be found at www.aecom.com.
Foreword
Welcome to the rst biannual edition of the Asia Construction Outlook (ACO) published by AECOM and Davis Langdon KPK, an AECOM company. As we all know, it has been an interesting yet exciting year for our industry. Asia continues to be the growth engine of the world, with construction spend accounting for a staggering US$2.8 trillion in 2012. Of course, some regions and asset classes have performed better than others, and as more money ows in and out of Asia, volatility is here to stay. So, it is with this edition of ACO 2013 that we use our over 40 years of on the ground experience to provide our clients and partners with an industry overview of activity levels in 2012 and with longer term forecasts by region, county and city. Our analysis is based on a combination of sector statistics together with the results of an in-house market sentiment survey by our senior leadership. I hope you all enjoy this edition of ACO 2013 and look forward to enhancing our relationships.
Dato Sri Kandan Chairman Davis Langdon KPK, An AECOM Company
Introduction Executive Summary Asia Overview Construction Market Overview Country Overview & Outlook
China Overview India Overview Indonesia Overview Hong Kong Overview Malaysia Overview Philippines Overview Singapore Overview Thailand Overview Vietnam Overview
14 16 18 20 22 24 26 28 30 33
Asia Outlook
34
Introduction
Asia is the most populated continent in the world, but many people are still without their own residential accommodation
This paper provides an overview of the construction market in Asia midway through 2013. It reviews industry activity levels in 2012 and provides near and longer term forecasts for construction activity by region, country and city. The ndings are based on analysis of sector statistics combined with the results of an in-house market sentiment survey. Note: All data throughout this document are expressed in US dollars ($): - Market size = US $billion at constant 2010 prices; and - Market growth = per annum [average annual growth rates].
AECOM and Davis Langdon KPK, an AECOM company undertake a construction market sentiment survey in Asia twice a year. We send questionnaires to our construction experts across the region and the results provide very valuable information on the most important future trends in construction activity, over the short, medium and longer term. Opinion surveys offer essential insights into economic activity and when repeated regularly, they can provide an in-depth understanding of the direction in which markets are moving. Here, we look at the results of our May 2013 survey, based on 41 respondents in nine Asian countries. For further information on our methodology or other matters, please contact us at any of our ofces or by emailing: askasia@aecom.com.
2 Asia Construction Outlook Introduction
Asia As Asi A si sia Construction Cons ns n st tru tr ru r uc ct cti ti t tion ion on O Out Outlook ut u tlo lo loo oo ok In I Introduction ntr tro t ro r oduc du du uc ct tio on 3
Executive Summary
Asia is tipped to be the worlds fastest growing region between now and 2020. Until the end of the present decade alone, the region is forecast to grow at a rate of around 7 percent a year. Accordingly, the Asian construction market is set to be one of the busiest on the planet. In this review, we highlight the key opportunities, trends and challenges in this vibrant region. While Western economies have slowed, Asia has maintained growth, albeit at lower levels than in previous years. As a result, today Asia is the largest regional construction market worldwide, accounting for some 40 percent of global construction spending in 2012. Asia has become increasingly dependent on domestic demand in recent years. Burgeoning afuence and urbanization, a headline trend forecast for the region over the coming decades, will strengthen that demand going forward, further fueling construction activity. This key trend will also steer construction in a new direction: Activity will shift away from non-residential structures and instead move towards infrastructure, and then in the longer term to residential projects. Funding models will also evolve in Asia, with growing use of private nance, including publicprivate partnerships. Our review shows that China is the standout market, based on both its huge size and growth potential. The country accounts for some 41 percent of the Asia Pacic total construction spend, with expenditure of US$1.25 trillion last year. China was also top in our research in terms of protability expectations for rms working in the market. In terms of market size, China is followed by Japan, India, Korea and Indonesia. However, the strongest
4 Asia Construction Outlook Executive Summary
growth in construction spending will be seen in China, India, Indonesia and Vietnam. India offers a signicant level of opportunity because despite having a population comparable in size to that of China, its construction sector is only about one-third the size of the Chinese market. However, with the public purse constrained, growth will depend on Indias ability to attract private nance. Indonesia emerges in our review as a particularly interesting market. Construction spending in the worlds fourth most populous country accounted for more than a quarter of the nations GDP in 2012 with around half of this expenditure funding infrastructure projects. Our research also found that the Indonesian capital Jakarta is viewed as the number one city in the region for potential market growth and protability. Interestingly, expectations for growth and protability in Chinese cities are relatively poor. Vietnam, despite being one of the smaller construction markets in Asia, is set to see rapid growth in spending on residential, non-residential and infrastructure projects over the next ve years. In the shorter term, the property market is suffering from a downturn but this is expected to be overcome in the longer term. Although Japan is the regions second largest market by size, the present spike in construction activity is forecast to be relatively short-lived. This is largely because much of the work is being driven by rebuilding required following the earthquake and tsunami in March 2011. Overall, the review shows that Asias construction market offers excellent prospects for growth and protability over the short-, medium-, and long-term.
Asia Construction Outlook Executive Summary 5
Asia Overview
Despite economic turmoil in most of the rest of the regions of the world, the economic fundamentals in Asia remain robust, if slightly muted compared to the recent past. GDP growth is forecast to be around 7 percent per annum (pa) through to the end of the decade and Asia is expected to be the fastest growing region in the world through to 2020. Given some of the concerns in Asias primary export markets, Western Europe and North America, future economic growth is expected to be led largely by domestic demand. With diminished reliance on exports, countries will focus increasingly on trade and investment in their home markets. This will be facilitated by relatively easy access to nance and a robust local labor market. Over the longer term, the trend will strengthen because domestic demand will be fueled further by the growing middle class and rising real income rates. We expect these socio-economic changes to impact Asian construction markets signicantly. Principally, construction activity will steer away from nonresidential structures and towards infrastructure in the near term and residential buildings in the longer term. Below, we examine the resulting outlook for the construction market in the region.
Central-Wan Chai Bypass, Hong Kong, China
6 Asia Construction Outlook Asia Overview
Asia Construction Outlook Asia Overview 7
Construction Market Overview

2012 was yet another difcult year for the construction industry in most parts of the globe, with Asia the only real bright spot. The Asian construction market is now the single largest regional market in the world, accounting for approximately 40 percent of total global construction spending in 2012. Future regional growth prospects are also exceptional compared to the other major regional markets.
Figure 4.1: Asia Construction spending by country 2012 (US $ billion)
Examining construction spending in individual countries (Figure 4.1) shows that China is the largest market, followed by Japan, India, Korea and Indonesia. The gures demonstrate how China dwarfs the other markets. For example, Indonesias construction spend is less than a tenth of Chinas. Growth prospects are encouraging (Figure 4.2). Construction spending is forecast to grow at rates above average in Bangladesh, China, India, Japan and Vietnam over the next ve years. China, India and Japan stand out in particular based on the market size combined with growth prospects.
In the longer term, both China and India are set to see high levels of growth in construction spending, if at slightly lower levels than in the recent past. However, growth in Japan is expected to be relatively short-lived. Japan is expected to see sizeable growth in construction spending through to 2018 as the earthquake and tsunami reconstruction effort gathers pace, but after this, spike construction activity is likely to return to trend later in the decade.
Figure 4.2: Asia Construction spending growth 2013-18 (%pa)
1.245
China
Bangladesh Pakistan
Trillion
222bn
Korea
.6% 7 China
Pakistan
Korea
2.2%
Japan
Hong Kong
16 bn 26 bn
Thailand
14 bn
Taiwan
487
Billion
4.3%
.1
Thailand
Hong Kong
Bangladesh
2.5%
Taiwan
Japan .6%
30 bn
Vietnam
43 bn 19 bn
Philippines
3.4%
Vietnam
3.2% 6.7%
Philippines
India
477
Billion
18 bn
Singapore
Malaysia
13 bn 20bn
Indonesia
India
4.5%
Singapore
Malaysia
184 bn
8
Source: IHS Global Insight (2012)
.9%
2.6% 3.5%
Indonesia
4.5%
8 Asia Construction Outlook Construction Market Overview
Asia Construction Outlook Construction Market Overview 9
Figure 4.3 highlights the importance of the infrastructure sector, which accounted for almost 38 percent of total construction spending in Asia in 2012. Spending on both residential and nonresidential structures was about equal, accounting for around 31 percent a piece.
Figure 4.3: Asia Share of construction spending by sector 2012 (%) Non-residential
30.5%
Near-term outlook for Asia For the nearer term, the survey respondents highlighted a number of construction trends they Non-residential expect to see during the next three years. At the .4% country level, rather surprisingly given widespread
31
commentary on China, Indonesia is the top-rated country for expected market growth in the near term, followed closely by China. However, in terms of perceived protability, China is the top country by some distance, followed by India and Indonesia.
Below we examine the outlook for construction in Asia based on the results of our most recent opinion survey. We start by briey assessing broad longNon-residential Non-residential term trends for the region and then we consider medium-term .5% .4% trends by individual country and metropolitan area, before focusing on countryInfrastructure specic, short-term trends.
The country with the fastest growing construction market in Asia will be:
Asia
China
31
30
37.9%
Asia
31
Residential
Residential
Non-residential
.6%
31.4% 33.8%
Infrastructure
34.8%
Residential
Residential
China
China
Infrastructure
Residential (72 percent) support the assertion that Asia will Longer term outlook for Asia .6% .8% the Infrastructure become a substantial exporter of construction The survey respondents generally support Infrastructure materials and services, some respondents were not as view.8% that looking ahead by around ten years, the .9% Strongly convinced. It will beagree interesting to observe any changes prospects for the size and growth of the Asian in these sentiments over time. construction market are positive, with 97 percent % in agreement. However, while the majority
33
34
37
31
33.8%
34.8%
Strongly agree
17
33%
Agree
The Asian construction market will remain large and it will continue growing at a healthy rate: Strongly agree
Agree Asia will become a substantial exporter of construction materials and services: %
55
64%
Strongly agree Not sure The country with the most protable construction market in Asia will be:
Strongly agree Not sure
33%
Agree Agree
17%
Disagree
23%
Agree
% 33 3%
Disagree
64%
Not sure Not sure
55% 5%
Not sure
0% 3%
Disagree
64%
Strongly disagree
Strongly disagree
3%
Disagree Disagree
%% 230
0%
0%
Strongly disagree
5%
Strongly disagree
0%
Strongly disagree
0%
0%
0%
10 Asia Construction Outlook Construction Market Overview
Asia Construction Outlook Construction Market Overview 11
The city or metropolitan region with the most protable construction market in Asia will be:
1Huadong
Delhi
Shanghai
1 Mumbai
1 Hong Kong
Kuala Lumpur Colombo
16 Jakarta
The city or metropolitan region with the fastest growing construction market in Asia will be:
1 Beijing 1Huadong
DLeedon, Singapore
Delhi Gujarat 1
Shanghai
3
1Mumbai
3
Hong Kong
At the city or metropolitan level, again perhaps surprisingly, Jakarta is the top-rated city in terms of both perceived market growth and protability. Notably, cities in China score relatively poorly on growth and protability expectations when compared with other cities in the region and in particular Jakarta.
In summary, in the near term, Indonesia, and in particular Jakarta, is a key market for our experts. The important position of China, especially in terms of perceived protability, is also clear. A nal signicant conclusion is that India and the cities within India score relatively poorly in terms of both perceived market growth and protability. Below we examine the construction outlook for individual countries in more detail.
Kuala Lumpur
4
Singapore
6 Jakarta
12 Asia Construction Outlook Construction Market Overview Asia Construction Outlook Construction Market Overview 13
Country Overview & Outlook

Our review of construction in Asia in 2012 and the outlook for 2013 and beyond concentrates on nine Asian countries: China, India, Indonesia, Hong Kong, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
14 Asia Construction Outlook Country Overview & Outlook
Asia As Asi a Construction Cons Cons ns n nstru stru ru ructi uct cti cti ion Out Outlook tloo lo oo ok kC Country ountry Overview Over rview w & Outl O Outlook utlook utl ook
15 5
CHINA overview
China is the worlds largest construction market, accounting for 41 percent of the Asia Pacic total construction spend in 2012. This makes it almost three times the size of the Japanese construction market. With a construction spend of US$1.25 trillion in 2012, the Chinese construction sector makes up 19 percent of the countrys GDP. Furthermore, construction spending is forecast to grow at 8 percent pa over the next ve years, which is well above the average for the region as a whole. Chinas construction industry has been a driving force behind the nations rapid economic growth ever since the government deemed it one of the cornerstones of the national modernization agenda in the 1980s. Figure 5.1a shows how the countrys construction market breaks down: The residential, infrastructure and non-residential sectors each accounted for approximately one-third of total construction expenditure in 2012. Geographically, the picture is less balanced. The more developed coastal region in East and South China constituted 55 percent of total construction spending in 2011, according to the government, and this part of the country is expected to remain the primary focus in the near future. Chinas sustained demand for new residential buildings, non-residential structures and infrastructure has generated a multitude of construction projects. For instance, the everexpanding national and regional transportation network offers huge potential, particularly in railway construction. The governments 12th Five Year Plan for 2011-2015 allocated RMB 3.5 trillion (US$526 billion) for railway construction. The government plans to complete 90,000 kilometers of operational railway track, with investment in urban rail transit expected to surpass RMB 700 billion (US$108 billion). Chinas Ministry of Railways has said construction will focus on refurbishing existing rail lines and building the high-speed network. Longer term outlook Figure 5.1b presents forecast construction spending growth by sector over the longer term through to 2018. Construction spending growth in the residential sector (7 percent pa) is expected to remain relatively stable following the containment of the recent property bubble. Growth in nonresidential structures (7 percent pa) is slowing as export markets for Chinese manufactured products continue to contract. Meanwhile, infrastructure spending (9 percent pa) is expected to grow the fastest over the period and is thought likely to remain the fastest growing sector well into the next decade.
Figure 5.1b: China Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
However, with increasing urbanization, residential spending growth is likely to gather momentum towards the end of the decade once the current property surplus has diminished. Rapid population growth is expected in mega cities Beijing, Chongqing, Guangzhou, Shanghai and Shenzen, along with several second tier cities, through to 2020. This will spark signicant increases in residential construction spending over the longer term. Infrastructure construction spending will be a key trend over the near to medium term. Growth in transport infrastructure spending is likely to remain signicant, led by inter-city high-speed rail and highway construction, as well as the new airport in Beijing. In addition, energy supply constraints mean there is a push to develop power infrastructure: China is increasing its nuclear power capacity and investigating the potential of renewable energy. Geographically, the focus of infrastructure construction spending is shifting from the coastal cities to the central-northern and western provinces, which are less developed.
Near-term outlook A number of important short-term trends were indicated by our survey. Respondents cited the following expectations for the coming 12 months. The results suggest that while growth in China remains robust and the attractiveness of the construction market to foreign suppliers is expected to increase in the short-term, protability is decreasing. This is largely thought to be the result of the strong fundamentals in the construction market in China and the widespread declines in many foreign suppliers domestic or more traditional markets along with increased competition among suppliers within China. When comparing sub-sector performance in China over the short-term, the respondents suggest that both infrastructure and non-residential structures will be the fastest growing sectors, with infrastructure also expected to be the most protable. However, according to respondents, the sector most open to foreign suppliers of construction services is the non-residential sector.
Increasing Unchanged Decreasing
The size of the construction market will be: The profitability of the construction market will be:
50
50
0% 67% 0% 0%
Residential
0% 0% 60%
Infrastructure
33% 100% 40%

Non-residential
Figure 5.1a: China Share of construction spending by sector 2012 (%) Non-residential
The openness of the construction market to foreign suppliers of construction services will be: The attractiveness of the construction market to foreign suppliers of construction service will be:
31
.4%
433.2
Infrastructure
7.4% 8.6%
Non-residential
The fastest growing construction sub-sector will be: The most profitable construction sub-sector will be: The construction sub-sector most open to foreign suppliers of construction services will be:
50% 50% 0%
50% 33% 83%
0% 17% 17%
China
Residential Infrastructure
421.3 390
.8
33.8%
34
.8%
$
6
7.6%
.7%
$ 1,245.3 Total
Asia Construction Outlook Country Overview & Outlook
17
INDIA overview
Whilst the construction market in India was large, at US$477 billion in 2012, which was 22 percent of Indias GDP, it was only a third of the size of the construction market in China, despite similar population levels. This suggests that Indias built environment market offers a signicant opportunity. Indeed, construction spending growth in India is forecast to be the fastest in the world at 9 percent pa through to 2018. However, given the current constraints on public nances, India is seeking to increase private funding for much of the new infrastructure needed. Figure 5.2a highlights the signicance of the nonresidential sector in India. It accounted for almost half of total construction spending in 2012 and was more than twice the size of the residential sector. In contrast, infrastructure spending accounted for almost one third of total construction spending. Private investment in infrastructure development will increase to 50 percent in the next ve years compared to 30 percent in the recent past, according to the Indian government. Much of the focus is on the major industrial hotspots, such as the Delhi Mumbai Industrial Corridor and the Chennai Bangalore Industrial Corridor. Here, increased construction activity is expected to create new industrial zones and cities. One such development is the new city of Dholera in Gujarat.
Figure 5.2a: India Share of construction spending by sector 2012 (%) Non-residential
Countries like India, which traditionally had abundant labor, are today facing a severe shortage of skilled workers
Along with the industrial corridors, other rapidly growing cities such as NCR, Mumbai and second tier cities, including Kochi and Pune are set to see increased demand for residential developments over the medium term. Longer term outlook The Indian construction market is emerging from a period of relatively weak growth compared to that witnessed in the recent past. Over the medium term, infrastructure is forecast to be one of the key drivers of construction spending rises through to 2018 with 8 percent spending growth per year forecast for the period (Figure 5.2b). A particular driver is the need to address energy supply constraints, with nuclear power generation seen as a major future power source. In addition, non-residential spending is also forecast to grow robustly (9 percent pa) through to
Figure 5.2b: India Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
2018, led largely by increases in ofce and retail construction spending. In the longer term, residential construction spending is expected to gather momentum as increasing urbanization continues to drive the demand for new homes in Indias major cities. Indeed, residential spending is forecast to be the fastest growing construction sector in India through to 2018, at 10 percent pa. It should be noted that this is from a relatively low base. However, this ags a signicant market opportunity: The populations of mega cities Delhi, Mumbai and Kolkata, along with several second tier cities, are likely to see huge rises through to 2020. This will spur signicant increases in residential construction spending. Geographically, the focus remains on the major cities of Delhi, Mumbai, Kolkata, Chennai and Bengaluru. In addition, the North East (particularly Assam) has
been identied by the Indian government as a region where construction spending will be boosted. Near-term outlook Our survey respondents cited the following shortterm trends for India over the next 12 months. All respondents expect the construction market in India to grow in the short-term with protability remaining largely unchanged. However, the perceived openness and attractiveness of the Indian construction market to foreign suppliers of construction services is expected to improve in the near term. Our respondents suggest that the infrastructure sector will be the fastest growing sub-sector over the short term, as well as the most protable and open to foreign suppliers.
The size of the construction market will be: The profitability of the construction market will be: The openness of the construction market to foreign suppliers of construction services will be: The attractiveness of the construction market to foreign suppliers of construction service will be:
Increasing
Unchanged
Decreasing
100% 20% 100% 60%

Infrastructure
0% 80% 0% 40%
Non-residential
0% 0% 0% 0%
Residential
60
20
20% 20% 20%
47.3%
India
Residential
102
.1
.9%
80% 60%
0% 20%
Infrastructure
149.5
Non-residential
8.0% 9.0%
8.9%
Asia Construction Outlook Country Overview & Outlook 19
Infrastructure
31.3%
21.4%
225.8
$ 477.4 Total
INDONESIA overview
Construction spending in Indonesia accounted for more than a quarter of the countrys GDP in 2012 at US$183.8 billion. The Indonesian construction market is signicant in both size and growth prospects for the next ve years (5 percent pa). As the fourth most populous country in the world, Indonesias construction sector is an important future component of the countrys wider economy. Figure 5.3a demonstrates the importance of the infrastructure sector in Indonesia, which accounted for almost one half of total construction spending and was almost three times the size of the residential sector in 2012. Indonesia is undergoing rapid transformation and growth. The government is focusing on major infrastructure projects in Jakarta and other major cities. Among the key projects is an MRT system for Jakarta to address severe road trafc congestion. The Japanese-funded program is well overdue but now progressing. Jakartas airport is also being expanded in a project that may include a city rail link if this proves viable. GDP growth is forecast to be around 6 percent for 2013-2017, based on a relatively stable macroeconomic picture and the ability of the economy to maintain steady growth despite a lack
Figure 5.3a: Indonesia Share of construction spending by sector 2012 (%) Non-residential
Indonesia, and in particular Jakarta, is a key market for our survey respondents
of concerted action by the government. The GDP growth rate could even be considerably higher if infrastructure development and economic reforms are accelerated. On the other hand, if infrastructure development proves weak this could undermine future rates of economic growth. There are considerable opportunities in Indonesia for infrastructure investment and private sector participation. As a result of the upcoming presidential election in 2014 there may be some slowdown in federal-driven projects. However, because many of the initiatives in Jakarta are led by the city itself, the elections are not expected to have a major impact on either infrastructure or wider development activities in the capital. Longer term outlook While the rate of growth of construction spending in Indonesia has slowed, as in much of the rest of Asia, relatively strong growth is forecast through
Figure 5.3b: Indonesia Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
Infrastructure development in Indonesia will depend on the availability of private nance

to 2018. The fastest growing sub-sector is likely to be non-residential construction spending (5 percent pa), followed by infrastructure (4 percent pa). The residential sector has the lowest growth prospects and is the smallest sector by some margin (Figure 5.3b). The Indonesian government has said infrastructure improvement will be a priority over the medium term, particularly transport, including highways, ports and airports. While the public sector is expected to provide some of the investment needed, much of the future investment in construction is likely to be via public-private partnerships (PPP).
Indeed, the Indonesian government has implemented new regulations and guarantees to attract both local and foreign investors to participate in the program. Over a hundred major projects for PPP delivery are planned, including toll roads, power, water, drainage, airport and seaport projects. Geographically, the focus is shifting from the West to the Eastern provinces, although with the bulk of Indonesias population in the West of the country, construction spending growth is likely to remain robust in Java. Near-term outlook For the immediate future of the construction market in Indonesia, the respondents forecast the following short-term trends (next 12 months). The results show our experts feel very positive about the outlook for the construction market in Indonesia. All respondents expect the market to grow in both size and protability. In addition, both the openness and attractiveness of the market to foreign suppliers of construction services is expected to increase over the next 12 months. The respondents see infrastructure as the key sector to watch. They expect it to be the fastest growing and most protable sector, as well as the most open to foreign suppliers.
100
0% 0% 0% 0%
38.1%
Indonesia
100% 75% 75%
0% 25% 25%
25.4
3.9% 4
.2%
Infrastructure
88.3
$
48
13.8%
Non-residential
Infrastructure
Non-residential
Residential
70.2
$ 183.8 Total
5
4.5%
.1%
75% 75% 100%
25% 0% 0%
0% 25% 0%
21
HONG KONG overview

Construction spending in Hong Kong was US$14.1 billion in 2012 and spending is forecast to grow by 2.5 percent pa over the next ve years. Figure 5.4a suggests that both residential and nonresidential spending represented a similar market share, with both approximately one-third of the total, while infrastructure spending is somewhat smaller. In a key policy move, the Hong Kong government plans to increase land released for residential development. This is aimed at addressing both the signicant undersupply of housing units particularly small apartments and the overheating of the property market, which together have caused much housing to become unaffordable. The land policy is set to provide a solid base for the residential construction market in the coming years, with plans to increase the supply of both publicand private-sector housing. Among the key current housing projects are North East New Territories
Figure 5.4a: Hong Kong Share of construction spending by sector 2012 (%) Non-residential
New Development Areas and Hung Shui Kiu New Development Areas, which are moving into the planning and engineering study phases, with a view to completing the initial stages of the projects by 2021. Longer term outlook Looking further ahead, infrastructure spending is forecast to be the fastest growing sector over the next ve years at around 3 percent pa (Figure 5.4b). Much infrastructure investment will be focused on improving transport links, both rail and road, between Hong Kong, the New Territories and mainland China. Many of the major infrastructure projects announced in the governments Policy Address in 2007-2008 are now well into the construction stage. These include the West Kowloon Terminus, South Island Line, Sha Tin to Central Link, Tuen Mun-Chek Lap Kok Link, Guangzhou-Shenzhen-Hong Kong Express Rail Link (Hong Kong Section), Hong Kong-ZhuhaiFigure 5.4b: Hong Kong Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
Macao Bridge, Lok Ma Chau Loop as well as the West Kowloon Cultural District and Kai Tak Development. Once complete these major infrastructure projects are expected to precipitate a shift in the market to residential and commercial developments in the longer term. Near-term outlook In terms of the immediate future for the construction market in Hong Kong, the respondents to our survey highlighted the following short-term trends (next 12 months).
This shows that our respondents feel reasonably positive about the growth prospects for the construction market in Hong Kong over the short term. However, most expect both the protability and openness to foreign suppliers of construction services to remain largely unchanged over the next 12 months. Over the short-term, the focus will be on the infrastructure sector. The respondents anticipate this being the sector that will see the fastest growth, best levels of protability and the highest degree of openness to foreign suppliers over the next 12 months.
67% 33% 33% 33%

Infrastructure
33% 67% 67% 33%

Non-residential
0% 0% 0% 33%
Residential
100
0% 0% 0%
34.4%
Hong kong
100% 100%
0% 0%
5.4
$
2.4%
Infrastructure
3.9
3.1% 2.1%
2.5%
27.3%
38.3%
$
Non-residential
4.8
$ 14.1 Total
23
MALAYSIA overview
In 2012, US$17.6 billion was spent on construction in Malaysia and spending is forecast to grow by 4.5 percent pa over the next ve years. Figure 5.5a highlights the importance of the nonresidential sector in Malaysia, followed by residential developments. In comparison, construction spending on infrastructure is considerably smaller. However, in future, infrastructure will play a larger role. The Malaysian construction industry is expected to sustain growth driven partly by long-term infrastructure projects, as well as mass affordable housing schemes and economic development corridor programmes in peninsular and east Malaysia. Following the the 13th general election, which saw the existing government retain power, the construction sector is set for strong growth spurred by the Economic Transformation Program (ETP). The policy aims to make Malaysia a high-income nation by 2020 with annual GDP growth of at least 6 percent. Highprole ETP projects include the Klang Valley Mass Rapid Transit system, Light Rail Transit extensions, Petronas RAPID complex, Kuala Lumpur River of Life and the major Iskandar development region in
Figure 5.5a: Malaysia Share of construction spending by sector 2012 (%) Non-residential
Johor, which will be enhanced by the RTS transit link between Woodlands in Singapore and Johor Bahru. Development corridors such as Iskandar and the Sarawak Corridor of Renewable Energy (SCORE) are continuing to attract strong investment inows despite the challenging global economic climate. SCORE is capitalising on renewable energy and cheap power to attract investors. Construction plans for SCORE include hydro dams, seaports, transmission systems and sub-station works. Iskandar, which has the strategic benet of geographic proximity to Singapore, has attracted both domestic and foreign investments during the last few quarters, which has precipitated signicant residential and nonresidential construction. These major infrastructure developments will in turn trigger notable commercial and residential projects. However, over the coming years, the impact of the works on the construction market will need to be monitored, particularly in terms of how increased activity affects the availability of engineering and construction companies and resources, as well as the availability and prices of materials and labor.
Longer term outlook Over the longer term, infrastructure is forecast to see the fastest growth in construction spending of any sector though to 2018, at around 5 percent pa (Figure 5.5b), closely followed by residential construction. Much of the forecast increase in infrastructure spending is to be delivered in partnership with the private sector via PPP projects. The focus through to the end of the decade is on improvements to transport infrastructure both in peninsular Malaysia, with several large projects in Kuala Lumpur, and outlying provinces.
Near-term outlook Our respondents expect to see the following trends over the next 12 months. Our experts anticipate growth in Malaysia to remain robust. The respondents were also broadly positive regarding the openness and attractiveness of the construction market to foreign suppliers of services over the next 12 months. On a slightly less positive note, they expect protability to remain largely unchanged. The focus will be on the infrastructure sector in the short-term, our respondents believe. They see this sector as the fastest growing, most protable and most open to foreign suppliers.
100
0% 0% 0% 0%
Residential
33% 50% 67%

Infrastructure
67% 50% 33%

Non-residential
Figure 5.5b: Malaysia Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
100
0% 17% 0%
44.6%
$
.8
Infrastructure
4.7%
$
83% 100%
0% 0%
Malaysia
2.9
Non-residential
5.0% 4.0%
16
.5%
38
.8%
$
7.9
$ 17.6 Total
4.5%
25
PHILIPPINES overview
Some US$13.1 billion was spent on construction in the Philippines in 2012, with spending forecast to rise by 2.5 percent pa over the next ve years. Figure 5.6a highlights the relative magnitude of the residential sector in the Philippines, which accounted for more than half of all construction expenditure in 2012, followed by the infrastructure sector. In contrast, the non-residential sector made up less than a tenth of total construction spending in 2012. Following many years of relative stagnation in the construction market, the present government is now driving growth through a major infrastructure programme and promoting delivery by public-private partnerships. The transport system in Manila requires considerable improvement and initiatives to further develop the existing transit systems and highways are progressing. The water companies in Manila, which were privatized more than 10 years ago, have also been investing heavily in new water and wastewater systems. Other cities such as Cebu and Davao are seeing investment in infrastructure and a number of regional airports are being improved. In addition, mining activity has continued to expand in the south of the country.
Figure 5.6a: Philippines Share of construction spending by sector 2012 (%) Non-residential
A shortage of both technical and professional labour is increasing the cost of delivery
Longer term outlook Over the next ve years, infrastructure is forecast to see the fastest rise in spending of all sectors through to 2018 at 4 percent pa, followed by residential developments (Figure 5.6b). The Philippine government has earmarked transport as a key area of development, with particular plans to improve rail, roads and airports. A signicant proportion of the investment required is expected to be delivered through PPP projects. Geographically, much future investment will focus on the main island of Luzon and in particular the Metro Manila district, particularly Makati City and Bonefacio Global City.
Figure 5.6b: Philippines Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
Near-term outlook Our survey revealed the following trends for the next 12 months. Our experts take a very positive view of the near-term outlook for the Philippines construction market. All expect the market to grow in size and protability. However, both the openness and attractiveness of the market to foreign suppliers of construction
services is expected to remain largely unchanged over the next 12 months. Our experts believe the focus will be on the residential sector, which they perceive as the fastest growing and most protable sector in the short-term. However, they see the infrastructure sector as the most open to foreign suppliers of construction services.
100
0% 0% 0% 0%
Residential
100% 33% 33%

Infrastructure
0% 67% 67%
Non-residential
33
67% 67% 33%
33% 67%
0% 0%
9.5%
Philippines
Residential
7.0
$
1.9%
Infrastructure
4.8
Non-residential
4.1% 1.3 0.5%

2.6%
Infrastructure
37
53
.4%
$ 13.1 Total
Source: IHS Global Insight (2012) Source: IHS Global Insight (2012)
27
SINGAPORE overview
Construction expenditure in Singapore was US$20.4 billion in 2012 and spending is forecast to increase by 3.5 percent pa over the next ve years. However, spending growth is gradually slowing down because much of the built stock is already in place. Figure 5.7a indicates the equal importance of both the residential and non-residential sectors, while infrastructure is comparatively less important. Currently, much of the construction work in Singapore comprises public housing, healthcare projects and major infrastructure works. The latter include the Thomson Mass Rapid Transit Line, Kallang-Paya Lebar Expressway, Tampines Expressway Interchange and Woodleigh Waterworks Redevelopment as well as port and berth facilities. The next three years are expected to be a critical period of transition for Singapores construction industry. Attempts to curb the hiring of unskilled foreign workers while also improving productivity are set to lead gradually to a tighter labor supply
Figure 5.7a: Singapore Share of construction spending by sector 2012 (%) Non-residential
amid efforts to shed inefcient work methods, including labor-centric processes. In the coming months the construction industry will see a move to mechanization, automation and re-engineering throughout the supply chain. This will be encouraged by increases in the minimum buildability and constructability scores for new projects in mid 2013 and again in mid 2014. These new legal requirements will discourage laborintensive methods and encourage prefabrication of components off-site, with a view to shortening on-site delivery times. Longer term outlook Infrastructure is forecast to see the fastest growth in spending of all sectors in Singapore over the next ve years at around 6 percent pa (Figure 5.7b) Meanwhile both residential and non-residential construction are expected to be somewhat more subdued compared to the recent past, through to 2016.
Near-term outlook Our experts forecast the following trends for Singapores construction market in the next 12 months. The respondents have a relatively negative view on the short-term outlook for construction. They are broadly pessimistic regarding both the likely future growth of the market and protability. Despite this, our experts were more optimistic about both the openness and perceived attractiveness of the market to foreign suppliers of construction services. Over the short-term, the focus in Singapore will be on the infrastructure sector. Our respondents believe the sector will be the fastest growing, most protable and most open to foreign suppliers of services over the next 12 months.
Low labor costs mean few construction rms invest in technology to improve construction
The size of the construction market will be: The profitability of the construction market will be:
38
50
12% 37% 0% 25%

Residential
0% 63% 50%
Infrastructure
63% 37% 25%

Non-residential
Table 5.7b: Singapore Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
The openness of the construction market to foreign suppliers of construction services will be: The attractiveness of the construction market to foreign suppliers of construction service will be:
41
.1%
8.3
$
2.5%
Infrastructure
The fastest growing construction sub-sector will be:
100% 100% 100%
0% 0% 0%
0% 0% 0%
Singapore
3.7
Non-residential
6.4% 3
.1%
The most profitable construction sub-sector will be: The construction sub-sector most open to foreign suppliers of construction services will be:
18.3%
40.5%
.4
$ 20.4 Total
3.5%
29
THAILAND overview
Construction spending in Thailand was US$30.3 billion in 2012 and is forecast to grow by 3.4 percent pa over the next ve years. In the short-term, the industry is likely to be boosted by reconstruction following the oods of 2011. The precedence of infrastructure construction in Thailand is clear from Figure 5.8a, which shows the sector accounted for half of all construction spending in 2012. This is followed by residential structures with spending on non-residential structures considerably smaller. Demand in the Thai property market remains resilient and we expect to see sustainable growth in this sector. Housing demand will increase, driven by private developer-built housing, upcoming mass transit extension lines and market opportunities upcountry. In Bangkok there are currently four mass transit lines (the two BTS Skytrain lines, the MRT and airport link). Together these cover, just 80 kilometers, so the Thai government plans to add ten lines covering an additional 400 kilometers. Construction on the rst 160 kilometers is already underway and due to complete between 2015 and 2017. The expansion of mass transit lines is likely to generate new residential demand in neighbouring townships like Nonthaburi, Pathumthani and Samut Prakarn.
Figure 5.8a: Thailand Share of construction spending by sector 2012 (%) Non-residential
There are signicant opportunities in greeneld markets like Myanmar, which are relatively untapped at the moment but could prove very fruitful in the medium-term
The commercial development sector will meanwhile be boosted as retail companies prepare for an expected increase in foreign tourists as a result of the ASEAN Economic Community (AEC) integration in 2015. For example, two local retail giants, The Mall Group and Siam Piwat, plan to develop at least ve new mega retail and mixed-use developments between them while also improving their existing malls.
Two new risk factors loom on the horizon for the Thai construction industry however. These are recent changes in the Bangkok Metropolitan Administration building codes in May 2013 and anticipated labor shortages arising from the AEC integration. Longer term outlook All major sectors are forecast to grow at similar rates over the next ve years, of around 3.5 percent pa (Figure 5.8b). The Thai government plans to boost spending on infrastructure over the longer term, particularly transport, energy and water projects. Geographically, construction spending is likely to be concentrated in major population centres within the central provinces, including Bangkok and the immediate surrounding area.
Near-term outlook The survey respondents highlighted the following trends in the Thai construction the market for the next 12 months. Our experts feel very positive about the near-term outlook. The majority expect the construction market to grow in both size and protability. Despite this, both the openness and attractiveness of the market to foreign suppliers of construction services is expected to remain largely unchanged over the next 12 months. The respondents believe that the fastest growing sector over the next 12 months will be residential structures. The most protable will be the infrastructure sector, which is also expected to be the sector most open to foreign suppliers of construction services.
80% 60% 40% 40%

Infrastructure
20% 40% 60% 60%

Non-residential
0% 0% 0% 0%
Residential
Figure 5.8b: Thailand Market size and growth prospects by major construction sector Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
40
60% 20% 20%
18.8%
Thailand
60% 60%
20% 20%
9.4
3.5%
Infrastructure
15.2
$
3.2%
Non-residential
50.1%
31.2%
5.7
$ 30.3 Total
3.8%
3.4%
Asia Construction Outlook Country Overview & Outlook 31
VIETNAM overview
The construction market in Vietnam, while of limited size, is set for above average growth rates through to the end of the decade. Construction spending in 2012 was some US$18.6 billion, which accounted for roughly 20 percent of the countrys GDP. Spending is forecast to grow by close to 7 percent pa over the next ve years. Figure 5.9a indicates that the residential sector was the largest market in 2012, accounting for over half of total construction spending, followed by the infrastructure sector. The non-residential sector accounted for just one tenth of total construction spending in 2012. The property market in Vietnam is currently subdued, Challenging market conditions including a lack of capital resources have resulted in developers being unable to complete projects, while buyers are nding it difcult to afford property because of a lack of access to loans. There are also signs of distressed property assets throughout the country. There is currently a mismatch between demand and supply in the Vietnamese property market. Demand persists for affordable housing but developers of mid to high end properties are struggling to attract buyers. Meanwhile it was estimated that the total value of inventory in housing development projects as of May 2013 was at more than VND125 trillion (US$6 billion) in 55 cities and provinces. A further problem is high land prices, which have increased due to speculative activities at the peak of the market. As a result developers are holding on to land purchased
Figure 5.9a: Vietnam Share of construction spending by sector 2012 (%)
Non-residential
at relatively high prices and are unwilling to sell at a loss during the current downturn. To address the over-supply problem, adjustments to the apartment size and level of development are essential. Longer term outlook All major sectors are forecast to grow over the next ve years at similar rates, of around 7 percent pa. However, it should be noted that growth in the nonresidential sector is from a very low base (Figure 5.9b). Infrastructure investment, particularly transport infrastructure, such as highways, rail and ports, will be a major growth area through to the end of the decade. However, the government is likely to have limited capacity for funding much of this because it is likely to be constrained by public debt levels. As a result Vietnam is set to offer signicant opportunities through privately nanced infrastructure projects, with the funding likely to take the form of foreign direct investment or PPP joint ventures. Geographically, much of the investment will be focused on the cities of Ho Chi Minh and Hanoi and the North-South corridor in between. Near-term outlook We received only limited responses to our survey from Vietnam, so we are unable to present meaningful results for the countrys near-term outlook this time around. However, we are hopeful that we will be able to provide more in subsequent editions of this publication.
Figure 5.9b: Vietnam Market size and growth prospects by major construction sector
Construction output 2012 ($bn) Residential Growth 2013-18 (%pa)
10
.3%
9.7
Infrastructure
6.7% 6.9
Non-residential
Vietnam
$
6.8%
$ .9
37.2%
52.6%
6.7%
6.7%
33
$ 18.5 Total
Asia Outlook
Our review shows that future prospects are bright for the construction market in Asia. Construction spending in the region is increasing from a share of 31 percent of the global market in 2005 to a forecast share of 46 percent by 2020. This shift is largely at the expense of declines in both the Western European and North American markets (Figure 6.1a & 6.1b). Over the near and longer term, the strongest construction spending growth will be in China, India, Indonesia and Vietnam. In addition, reconstruction spending in Japan will provide a temporary stimulus to construction in that country.
Chinas market is substantial in size with growth prospects that are above average in the region. Despite the relatively moderate growth levels compared to the recent past, forecast construction spending in China over the next few years, the absolute size of the market and the resulting opportunities will continue to make this one of the most attractive construction markets in the world. Similarly, in India the construction market is substantial in size with above average growth prospects. However, the upcoming general election due mid 2014 is likely to put a temporary break on economic growth generally and public construction specically. Also, while there has been progress in reforming some of the bureaucracy in India, more remains to be done to tackle issues such as market openness and a lack of institutional reform.
Currently, much of the growth in the region is based on infrastructure spending. However, the focus is likely to switch to residential structures as incomes improve, domestic consumption increases and the middle classes develop. Indeed, with increasing urbanization, residential spending growth is likely to gather momentum towards the end of the decade. Mega cities throughout the region are likely to see rapid population rises through to 2020 and this is expected to drive signicant increases in residential construction spending in the longer term. Furthermore, the inability of India, Indonesia, Malaysia the Philippines and Vietnam to provide sufcient public nance to fund much of the infrastructure needed is likely to lead to signicant opportunities via private nance and PPPs in the region.
Figure 6.1a: Share of construction spending by region 2005
Figure 6.1b: Share of construction spending by region 2020
34 Asia Construction Outlook Asia Outlook
Asia Construction Outlook Asia 35
Acknowledgements We are very grateful to the survey respondents who took the time to complete the questionnaire that informed this review. This document was produced with contributions from:
Andy North, Kuala Lumpur Clarence Tan, Bangkok Daniel Shih, Shanghai Dato Sri Kandan, Kuala Lumpur David Crosthwaite, London Didi Redoble, Manila Eugenie Lip, Singapore Gar Ti Wei, Kuala Lumpur Jason Lau, Hong Kong Jonathan Miller, Hong Kong Martin ONeill, Jakarta Meenakshi Sundaram Ramanathan, Chennai Minda Xu, Shanghai Phan Lay Eng, Singapore Rebecca Yan, Hong Kong Ronald Acio, Manila Shima A, Singapore Soh Chye Hian, Singapore Tony Au, Singapore
AECOM has compiled the information in this document from a number of sources. AECOM has not veried that such information is correct, accurate or complete. Whilst every care has been taken in the preparation of this document, AECOM makes no representation or warranty as to the accuracy or completeness of any statement in it, including, without limitation, any forecasts. Historical trends are not necessarily a reliable indicator for actual future performance. AECOM accepts no liability or responsibility to any party in respect of this document. This document has been prepared for the purpose of providing general information, without taking account of any particular persons objectives, situation or needs. You should seek professional advice having regard to your own objectives, situation and needs before taking any action.

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STRUCTIO OUTLOO

CONSTRUCTION OUTLOOK 2013

2 Asia Construction Outlook Introduction

Central-Wan Chai Bypass, Hong Kong, China

6 Asia Construction Outlook Asia Overview

Asia Construction Outlook Asia Overview 7

Construction Market Overview

Figure 4.2: Asia Construction spending growth 2013-18 (%pa)

Source: IHS Global Insight (2012)

8 Asia Construction Outlook Construction Market Overview

Asia Construction Outlook Construction Market Overview 9

Source: IHS Global Insight (2012)

Strongly agree Not sure

10 Asia Construction Outlook Construction Market Overview

Asia Construction Outlook Construction Market Overview 11

Kuala Lumpur Colombo

Country Overview & Outlook

14 Asia Construction Outlook Country Overview & Outlook

33% 100% 40%

50% 33% 83%

16 Asia Construction Outlook Country Overview & Outlook

Asia Construction Outlook Country Overview & Outlook

100% 20% 100% 60%

20% 20% 20%

Source: IHS Global Insight (2012)

18 Asia Construction Outlook Country Overview & Outlook

Infrastructure development in Indonesia will depend on the availability of private nance

100% 75% 75%

75% 75% 100%

Source: IHS Global Insight (2012)

Source: IHS Global Insight (2012)

20 Asia Construction Outlook Country Overview & Outlook

Asia Construction Outlook Country Overview & Outlook

HONG KONG overview

67% 33% 33% 33%

33% 67% 67% 33%

Source: IHS Global Insight (2012)

22 Asia Construction Outlook Country Overview & Outlook

Asia Construction Outlook Country Overview & Outlook

33% 50% 67%

67% 50% 33%

Source: IHS Global Insight (2012)

Source: IHS Global Insight (2012)

24 Asia Construction Outlook Country Overview & Outlook

Asia Construction Outlook Country Overview & Outlook

100% 33% 33%

67% 67% 33%

4.1% 1.3 0.5%

26 Asia Construction Outlook Country Overview & Outlook

Asia Construction Outlook Country Overview & Outlook

12% 37% 0% 25%

63% 37% 25%

The fastest growing construction sub-sector will be:

100% 100% 100%

Source: IHS Global Insight (2012)

Source: IHS Global Insight (2012)

28 Asia Construction Outlook Country Overview & Outlook

Asia Construction Outlook Country Overview & Outlook

80% 60% 40% 40%

20% 40% 60% 60%

60% 20% 20%

Source: IHS Global Insight (2012)

30 Asia Construction Outlook Country Overview & Outlook