Hong Kong Market Review
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1 Hong Kong Market Review
2 14 Hong Kong Market Review by Michael Hoare Images courtesy of Leighton Asia and Dragages Hong Kong Only a few years ago, Hong Kong s construction industry was becalmed. Following the exuberance of the late 1990s, the early years of this century followed a trajectory of singular, spectacular infrastructure jobs but an overall greatly diminished share of the city s GDP. In 1980, the construction industry s share of the city s GDP was 6.49 percent, according to the Census and Statistics Department. By 1990, it had fallen to 5.17 percent, before bottoming out in 2007 at a 2.53-percent share of GDP. The fall reflected the winding down of the city s manufacturing heritage as much as it represented a level of government nonchalance about infrastructure. We have come from a previous decade where the Government spending was only about HK$20 billion per year, Nicolas Borit, Managing Director of Dragages Hong Kong Limited. When I came Trade and Industry Tower
3 Factory Acceptance Test of the 17.6-m in diameter Tunnel Boring Machine here for the first time in 1997, Dragages was running a lot of projects, all about HK$1 billion and HK$2 billion. These were seen to be very large projects. Today, the size of the projects is far larger. The turning point came when the government outlined a strategy of Ten Major Infrastructure Projects in its Policy Address for It was presented as a five-year plan, part of a grab-bag of policy initiatives that are unfolding around us now, including greater ties with Guangdong and Shenzhen, in particular; efforts to improve the travel sector s impact on the economy with works on the Kai Tak Development and its new cruise terminal; a pledge to deliver the West Kowloon Cultural District; another runway at Hong Kong International Airport; and, of particular relevance, the strengthening of what was then the newly created Construction Industry Council. These headline grabbing projects would come to be complemented by land improvement projects, transport works, heritage conservation, sewage and waste treatment, environmental protection and education, among others. The formidable agenda would involve a number of government agencies and the spine was to be 10 works projects to tackle long-term infrastructure needs. Turning point The Development Bureau s Deputy Secretary for Works Policies and Infrastructural Projects, Chan Chi-ming, says seven of the 10 projects have entered the construction phase: the Kai Tak Development, the Hong Kong section of the Guangzhou-Shenzhen- Hong Kong Express Rail Link, the South Island Line (East), the Hong Kong-Zhuhai-Macau Bridge, Tuen Mun-Chek Lap Kok Link, Sha Tin to Central Link; and the West Kowloon Cultural District. Mr Chan and the bureau are responsible for overseeing the city s major infrastructure projects. The construction market in Hong Kong right now has a lot of opportunities, he told the The Lighthouse. There is a big demand for infrastructure, particularly housing and public infrastructural support for land development. The total construction output stood at around HK$180 billion for We expect this figure would not be the peak. The government s capital works expenditure was about HK$70 billion in We expect this level of spending to be maintained for the coming few years.
4 16 MTR Express Rail Link Contract No. 820 Mei Lai Road to Hoi Ting Road Tunnels In the space of only a few years, the number of high-profile projects has increased dramatically and the industry has undergone somewhat of a renaissance. This may well be a golden age for the construction industry. Over the last 12 months, Leighton had been very successful in securing new work, says Leighton Contractors (Asia) Ltd s General Manager for Hong Kong-based operations Boyd Merrett. In February, we were awarded a HK$3.2-billion contract for the construction of the tunnel buildings, the design and installation of all tunnel services and works associated with the tunnel commissioning for the Central-Wanchai Bypass. Shortly after, in April, we were awarded another major contract of HK$8.4 billion for the construction of the Hong Kong Boundary Crossing Facilities passenger clearance building. Leighton says it is currently working on 17 projects in Hong Kong, including a HK$2.9-billion contract to build the 260-bed Tin Shui Wai Hospital, a 12-storey building with a floor area of about 58,900 square metres. Mr Merrett says two contracts on the muchpublicised MTR South Island Line (East) the four stations, rail tunnels and viaducts of contracts 903 and 904 should be substantially completed by the third quarter of next year. Hong Kong-Zhuhai-Macao Bridge - Hong Kong Link Road
5 18 Deep and wide Dragages has a storied past in Hong Kong and its adding another chapter to the history with some extraordinary construction projects. The company s teams are at work on seven major projects, including some of the most demanding marine engineering in the world: the foundation work for the Hong Kong-Zhuhai-Macao Bridge-Hong Kong Link Road. We have spent quite some time in the water, preparing the piles, which has not been easy. The piles are very long, and we have to change the design of foundation works in some areas since rocks were not found at 140 metres, Mr Borit says. The company will have six TBMs working on tunnelling jobs right across the city. Some of the most challenging terrain they will be chewing through is between Causeway Bay and Admiralty. The area is some of the world s most expensive real estate, heavily built-up and densely populated. Two different TBMs will be used on the twin tunnels to battle soil may be soft and the rock on which Hong Kong Island sits. In the New Territories, work on the city s longest road tunnel is underway, thanks to a TBM with a cutter head that can carve a 14-metre diameter channel not the biggest in the world, but right up there. The twin, dual-lane tunnels to the Liantang-Heung Wai Boundary Control Point will stretch 5.4-km and have a contract value of HK$10.3 billion. The granddaddy of all infrastructure jobs in Hong Kong is the HK$18.2-billion Tuen Mun-Chek Lap Kok Link the city s biggest contract in dollar terms. The Dragages-Bouygues Joint Venture won the contract in August last year and is due to start tunnelling in March. The underwater tunnels will run from the landing point of the Hong Kong-Zhuhai-Macau Bridge on Lantau island, north to the western side of the New Territories. The project is notable for several firsts. The TBM, with its 17.6-metre diameter, is the biggest in Hong Kong and the biggest anywhere on earth. At 50 metres underwater and about 5-km long, the twin tunnels will be Hong Kong s deepest and longest sub-sea road tunnels. This is a project with a lot of technical firsts, says Mr Borit. This is going to be fun. Risky business More complex and more valuable than ever before, the city s infrastructure projects are also creating potential pitfalls for the contractors executing the government s ambitious works programme. It looks like the future is full of wonderful opportunities, but it also comes with challenges. Nothing is quite that simple, says Mr Borit. He argues that it is contractors that face unfairly the consequences of negative cash flow and the greatest share of
6 financial risk. A large contract today is more than HK$10 billion. There are always unknowns in construction. You need the support of your employer when you come up against those unknowns, he says. It s not a question of an engineering issue that we cannot solve, it s a question of timing. With five or six projects worth HK$10 billion and bigger, you simply cannot wait until the end of the project to solve the issues. Another long-running problem for the industry and for most businesses in Hong Kong is access to skilled workers. Mr Merrett labels a shortage of labour a major challenge, one that is compounded by an ageing workforce. Labour shortage have been one of the key contributions to a recent surge in construction labour costs and is anticipated to remain a key issue over the coming years, he says.
7 20 Mr Chan sees part of the solution within innovations towards better designs and more economical construction. Outsourcing prefabrication works to the suppliers in the Pearl River Delta was one solution. Some people query whether we have the ability to deliver the level of infrastructure at the present moment as construction workers wages have increased and construction [costs] have gone up, but I need to stress that slowing down infrastructure development is not an option, he says. Perhaps intensifying the industry s workforce woes, particularly at the management level, is the gradual transition from enormous infrastructure works towards civil projects. Mr Chan earmarked the provision of public housing as a key item on the government s agenda. A major focus of projects in the pipeline will be land supply, he said. The government has set a target to supply 470,000 new residential units in the 10 years. They will generate a lot of projects, not only in the public sector but also in the private sector. Training is part of the solution, but for some of the bigger firms, already at capacity and geared up for large-scale infrastructure, there may be issues ahead. We expect that there will be a little bit of a slowdown in the next 12 months. Compared to the last three years, we expect that there will be a slowdown on the infrastructure side, says Mr Borit. Something that will start to ramp up is the housing side of the industry. There are already a number of projects in the pipeline. For us, this is a totally different ballgame. We haven t been involved in this type of construction for a while. What is clear is the government s commitment to its programme of 10 infrastructure projects. Next up, the express rail link between the airport and Shenzhen Bao'an International Airport that will traverse the Qianhai financial district, and the urbanisation of two areas in the northern New Territories. The industry s sustained robustness is supported by the government s development blueprint including its comprehensive housing target, airport master plan, new railway network and environmental facilities, says Mr Merrett. I strongly believe that the implementation of these infrastructure proposals will enable Hong Kong to maintain its position as one of the greatest cities in the world.
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