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Hong Kong construction market: 13% CAGR growth witnessed between 2008-12
Construction in Hong Kong - Key Trends and Opportunities to 2017 - a new market research report on 2014-03-31 03:15:04
Hong Kong´s construction industry recorded robust growth during the review period, registering a CAGR of 12.84%, predominantly driven by several large infrastructure development projects undertaken by the government to promote economic growth and increase in volume of high-rise residential buildings backed by population growth, low interest rates, limited land availability and buying interest from China.

The construction industry is expected register a CAGR of 8.25% over the forecast period. Expansion of the industry will be aided by government measures to increase land supply for around 40,000 public housing flats every year until 2017 and moderate housing prices, which have been increasing steadily. Growth will be driven by the continuation of large-scale infrastructure projects and the attractiveness of Hong Kong as Asia´s business hub.

Hong Kong´s economic growth contracted from an expansion of 4.9% in 2011 to 1.4% in 2012. Export growth remained subdued following a weak demand from the nation´s main trading partners, the US and Europe, declining from 3.7% and 16.8% in 2011 and 2010 respectively to 1.3% in 2012. Private consumption eased from 9.0% in 2011 to to 4.0% in 2012, and remained an important growth driver, contributing 2.6 percentage points to the country´s annual growth.

Owing to strong capital investments in the construction industry and machinery expenditure, fixed capital formation grew by 9.1% in 2012, lower than the 10.2% growth it posted in 2011. Hong Kong´s economy is expected to recover in 2013 and register an annual growth of 2.9% and average out in the range of 4.0–4.5% over the forecast period.

Since 2010, Hong Kong´s construction industry has shown strong levels of growth and posted an annual growth of 24.2% in 2012. This was driven by public investment and the expansion plans of private developers to meet housing sector demand.

Analysed by District Council, construction on Hong Kong Island, Kowloon and New Territories grew by 1.3%, 39.7% and 32.8% respectively in 2012. This indicates that the government is prioritizing development in newer regions.

Hong Kong has several leading financial institutions and the largest number of corporate headquarters in Asia. It is an attractive business hub due to its low tax rates, free economic structure and connectivity to markets across the world. The nation´s competitive advantage in terms of business attractiveness is expected to stimulate investment inflow into the office buildings category.

Infrastructure construction is expected to benefit from several large-scale infrastructure projects. At a cost of US$46 billion, the projects are designed to enhance connectivity across the country.

The supply of industrial space is diminishing continuously with government initiatives to increase residential supply. However, there is still sizeable demand for industrial space owing to warehousing, logistics, back office and light industrial activity. The reduction in supply has led to an increase in rents and pressurized the margins of SMEs that are already suffering from weak demand. While vacancy rates in the industrial sector were at 1% by the end of 2012, the lowest among all property sectors in the country, hardly any measures are being initiated to address the issue of diminishing supply.

In order to ease the rapid surge in property prices in Hong Kong, the government introduced measures including increasing housing supply, a 15% duty on corporate and non-resident buyers, doubling the sales tax to 8.5% on properties valuing more than HK$2 million (U$258,000), and increasing the duty on property transfer to 20% within six months of purchase. The anticipated correction in housing prices will make homes more affordable for buyers.

Hong Kong´s healthcare system is regarded among the best in the world, with male and female life expectancies one of the highest in the world at 80 years and 87 years respectively. The country also has one of the lowest infant mortality rates in the world at 1.3 per 1000 live births in 2011. The government recognizes healthcare expenditure as a key social investment and has allocated over 15% its budget to this. The initiatives are expected to boost the expansion of healthcare buildings over the forecast period.

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