Construction costs low, but could rise

Construction costs low, but could rise

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The Riviera construction on Koh Pich. Photograph: Hong Menea/Phnom Penh Post

Construction costs in the Kingdom have increased only 1.36 per cent year-on-year, compared to Cambodia’s inflation rate, which is projected at 3.5 per cent for 2012, according to a new report from global estate agents CBRE.

The company says the minimal increase is due to the competitive market conditions, as well as labour costs remaining the same year on year. Labourers on average receive $5 per day, which is the same rate as in 2011.

However, compared to construction costs regionally, Cambodia’s costs are approximately 10 per cent higher than in neighbouring Thailand and Vietnam, because even though labour costs are significantly lower here, the lack of supply of domestically manufactured construction materials has created a dependence on imported materials, resulting in higher costs.

The construction sector is projected to grow by 9.9 per cent from 2012 to 2015, according to CBRE.

Construction approvals by the Ministry of Land Management, Urban Planning and Construction have seen large fluctuations in recent years, with the first three quarters of 2012 seeing construction approvals reaching $541.3 million in Phnom Penh.

That is already higher than the yearly total since 2009. The value of the construction projects has been steadily increasing each year, which clearly indicates that the market dynamics are starting to shift, and strong growth is returning to the market.

However, with a limited amount of vocational training on offer, the current supply of skilled workers is not meeting the increased demand of the construction sector, and skilled workers’ wages are likely to increase at a faster rate due to the current lack of supply. This could potentially lead to an increase in construction costs.

The demand for materials remains high across the region, particularly China, and this will mean construction material prices are unlikely to decrease in the short or medium term.

Material costs will only fall if there is an increased supply of domestically manufactured construction materials, and this is not likely to change in the coming months, if not years.

The outlook for the construction industry is positive, but construction materials will remain subject to international forces, while the supply of skilled labour will increase overall construction costs and could hit development.

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