RICS: Construction Outlook Worsens as Spending Cuts Begin to Bite

RICS UK construction market survey Q2 2010

HONG KONG, Aug. 19 /PRNewswire-Asia/ -- Sentiment in the construction sector began to decline again in the second quarter of the year, as fears over the scale of public spending cuts and ongoing uncertainty about prospects for the economy hit the construction industry, says the latest RICS Construction Market Survey, published today.

Despite some encouraging signs at the beginning of the year, the latest data shows seven per cent more surveyors reporting a fall than rise in total construction workloads. This is in comparison to the previous quarter where five per cent more surveyors reported rising, rather than falling workloads.

Most sectors of the construction industry experienced a drop in workloads, although private commercial and residential were both broadly unchanged. Perhaps unsurprisingly, in light of cuts to budgets, public housing and other public works were the worst affected sectors, with the net balances sliding from 3 to -26 and 0 to -33 respectively. The large fall in the public works sector has been attributed to the suspension of the Building Schools for the Future programme (BSF).

Across the UK, the only regions which escaped falling workloads were the South East and London, however even here workloads only stabilised, rather than increased. Elsewhere, workloads fell, with Northern Ireland recording the worst reading; 75 per cent more surveyors reported falling than rising workloads there, compared with a -59 per cent reading in the first three months of the year.

Just one per cent of surveyors reported having problems procuring workers (down from three per cent in Q1 2010) reflecting the competition among tradesman for work as construction projects diminish. Alongside this, surveyors' future expectations for employment revealed 16 per cent more surveyors expect employment to fall than rise over the next year, compared with -5 percent in the previous three months.

The outlook for output and profit margins has also turned more negative. Profit margin expectations have been the most adversely affected, with 49 per cent more surveyors expecting profits to fall rather than rise.

Commenting Simon Rubinsohn, RICS chief economist said:

"This survey suggests that it is too early to conclude that the construction industry is on the road to recovery despite the strong contribution the sector appeared to make to the latest GDP data. Significantly, spending cuts are already having an adverse effect on sentiment and although the cost of tradesmen and overheads continue to fall, raw material prices are rising – creating a difficult operating atmosphere.

"Surveyors are also reporting an increase in competition for work as larger firms bid for smaller projects. Meanwhile, a continued lack of clarity from the government on existing projects is adding to the uncertainty. Given all these factors, it's of little wonder respondents to the survey are feeling gloomy."

Kenneth Kwan, RICS Hong Kong Quantity Surveying and Construction Professional Group Committee Chairman, said:

"It is a bit different here in Hong Kong and probably Asia in general. In the first quarter of 2010, the GDP of Hong Kong, China and Macau have increased by 8.2%, 11.9% and 30.1% respectively on a year-on-year basis. It is forecasted that this expansion mode will maintain in the next couple of quarters but perhaps in a slower pace.  Both Hong Kong and Chinese Government have already taken steps to cool the property market, after rapid first quarter growth on the back of strong movement in credit and borrowing. This suggests policy-makers  are with a keen eye on sustainable growth, and an acute awareness of the problematic picture on exports arising from such circumstances as the European economies' recent difficulties."

RICS construction market survey

Published quarterly, the RICS Construction Market Survey provides a unique look at this GBP80bn industry in the UK.  It features trends in house building activity, labour availability, expected profit margins and publicly-funded building infrastructure projects.

For further details, please download the full report from:

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RICS (Royal Institution of Chartered Surveyors) is the mark of property professionalism worldwide. It covers all aspects of property, construction and associated environmental issues. RICS has 140,000 members globally and represents, regulates and promotes the work of property professionals throughout 122 countries.

The RICS Asia supports a network of over 11,000 individual professionals across the Asia Pacific region with an objective to help develop the property and construction markets in these countries, by introducing professional standards, best practice and international experience. It promotes RICS and its members as the natural advisors on all property matters. It also ensures that services and career development opportunities are provided to members.

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Source: Royal Institution of Chartered Surveyors