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1 HONG KONG REPORT QUARTERLY CONSTRUCTION COST UPDATE SEPTEMBER 2017

2 OFFICES AROUND THE WORLD AFRICA AMERICAS EUROPE OCEANIA BOTSWANA Gaborone MAURITIUS Saint Pierre MOZAMBIQUE Maputo SOUTH AFRICA Cape Town Johannesburg Pretoria ASIA NORTH ASIA Beijing Chengdu Chongqing Dalian Guangzhou Guiyang Haikou Hangzhou Hong kong Jeju Macau Nanjing Nanning Qingdao Seoul Shanghai Shenyang Shenzhen Tianjin Wuhan Wuxi Xiamen Xian Zhuhai SOUTH ASIA Bacolod Bohol Cagayan de Oro Cebu Davao Ho Chi Minh City Iloilo Jakarta Kuala Lumpur Laguna Metro Manila Singapore Yangon CARIBBEAN Barbados Cayman Islands St. Lucia NORTH AMERICA Austin Boston Calgary Chicago Denver Guam Hilo Honolulu Las Vegas Los Angeles Maui New York Orlando Phoenix Portland San Francisco Seattle Toronto Tucson Waikoloa Washington DC UNITED KINGDOM Birmingham Bristol Cumbria Leeds London Manchester Sheffield Thames Valley Warrington/Birchwood Welwyn Garden City RLB EURO ALLIANCE Austria Belgium Czech Republic Finland Germany Hungary Ireland Italy Luxemburg Netherlands Norway Poland Portugal Russia Spain Sweden Turkey MIDDLE EAST OMAN Muscat QATAR Doha SAUDI ARABIA Riyadh UNITED ARAB EMIRATES Abu Dhabi Dubai AUSTRALIA Adelaide Brisbane Cairns Canberra Canberra Darwin Gold Coast Melbourne Newcastle Perth Sunshine Coast Sydney Townsville NEW ZEALAND Auckland Christchurch Hamilton Palmerston North Queenstown Tauranga Wellington

3 COST COMMENTARY REVIEW OF TENDER PRICE MOVEMENTS IN HONG KONG According to Rider Levett Bucknall s Tender Price Index, which measures tender price movements of builder s works in the private sector in Hong Kong, there was a decline of 1.0% in tender prices in the second quarter of On a year-on-year basis, the decline was 0.6%. The following are the second quarter year-on-year tender price movements of builder s works in the private sector in the past five years: % +9.1% +6.3% +1.2% -0.6% Disclaimer: While the information in this publication is believed to be correct at the time of publishing, no responsibility is accepted for its accuracy. Persons desiring to utilize any information appearing in the publication should verify its applicability to their specific circumstances. Cost information in this publication is indicative and for general guidance only and is based on rates at 2nd Quarter Hong Kong s economy grew by 3.8% year-on-year in real terms in the second quarter of 2017, compared with the 4.3% increase in the first quarter of On a seasonally adjusted quarter-to-quarter comparison basis, real GDP increased by 1.0% in the second quarter of 2017 over the first quarter of According to the Composite Consumer Price Index, overall consumer prices rose by 1.9% in August 2017 over the same month a year earlier, increased 0.1% as compared to July The seasonally adjusted unemployment rate stood at 3.1% in June - August 2017, same as that in May to July The underemployment rate remained unchanged at 1.1% in June - August The tender prices in Hong Kong finally saw a decline of 1.0% in the second quarter of 2017 after rising continuously since The moderate decline was a result of fewer new capital projects being approved by the Legislative Council in the past year, giving rise to widespread concern among contractors on the future outlook of their business. Contractors are anxious to secure new projects by bidding at a lower margin while their existing projects are being completed. However, a further substantial decline of the tender prices looks unlikely. The shortage of skilled labour has remained a concern and has therefore been providing resistance to a bigger fall in tender prices. While the prices of materials have been rather stable over the past few years, there are trends that commodity prices might start to rise. The reversal of the fall of Renminbi might also result in a rise in the cost of materials imported from Mainland. The government is committed to maintaining the supply of land for private residential and commercial developments and to keeping the expenditure in capital works at a stable level. A few mega projects such as Kai Tak Sports Park, the building works of Third Runway and some of the hospital redevelopments will commence in the coming few quarters. It is forecast that tender prices will continue to move moderately up or down within a narrow range until the end of this year. Macau Macau s Gross Domestic Product increased by 11.5% year-on-year in real terms in the second quarter of The unemployment rate for June to August 2017 stood at 2.0%, same as in the previous period (May to July 2017). The average daily wage of construction workers was MOP880 in the second quarter of 2017, increased by 6.0% on a quarter-to-quarter basis. The average daily wages of skilled and semi-skilled workers increased by 6.0% to MOP884, while that of unskilled workers increased by 1.4% to MOP439. Due to the increase in visitor arrivals and higher visitors spending, there is an accelerated growth in gaming and tourism services in the second quarter of However, with the contraction of private construction investment and successive completion of large-scale gaming and tourism facilities, construction output in the private sector has declined as compared with previous years. In recent months, the government s investment in public construction works (such as construction of public housing units, infrastructures, social projects, etc.) has been growing significantly. With the recent damages caused by the direct hit of Typhoon Hato, the government is planning new infrastructure works to improve its response and to provide preventive measures against natural disasters. This will provide positive support to the construction industry in the next few years. However, tender prices in the short term will remain weak as compared to the past few years. 1

4 HONG KONG REPORT SEPTEMBER TENDER PRICE INDICES IN HONG KONG RLB = Rider Levett Bucknall (Private Sector) ASD = Architectural Services Department (Public Sector) RLB ASD Quarter / Year Graph showing cost trends in the construction industry in Hong Kong based on Tender Prices for Builder's Works 400 TENDER PRICE INDICES RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD RLB ASD Quarter

5 COMMON UNIT RATES IN HONG KONG Description Average Rates in HK$ Unit 3Q2016 4Q2016 1Q2017 2Q2017 Reinforced concrete Grade 40 m 3 1, , , , Sawn formwork m Deformed high yield steel bar reinforcement kg mm Solid concrete block wall m Mastic asphalt roofing overall 20 mm thick (2-coat work) on horizontal surfaces 20 mm (Finished) Timber strip flooring including plywood sub-floor, sanding and wax polishing m m Timber skirting 100 mm high x 13 mm thick m mm Solid core flush door faced both sides with 5 mm timber veneered plywood including door frame, architrave, mouldings and painting (excluding ironmongery) Galvanised mild steel in balustrades, railings and general welded and framed work No. 6, , , , kg Structural steelwork - standard sections kg Fluorocarbon coated aluminium windows - frame and hardware including clear float glass and glazing (single-glazed windows) m 2 2, , , , mm Cement and sand (1:3) paving m Coloured unglazed ceramic mosaic floor tiling m Marble slab flooring (mid-range, European origin) m 2 3, , , , Two coats internal lime cement plaster to soffit and beams m Metal panel suspended ceiling m Ceramic / homogeneous wall tiling; internal work m Ceramic mosaic external wall tiling; adhesive fixed (45 x 45 or 45 x 95 mm tiles) Alkali resistant primer and two coats of emulsion paint on plastered walls and ceilings m m Notes: - The unit rates above are for general guidelines of likely tendered rates obtained by competitive tendering for lump sum fixed price contracts with a normal contract period. - The rates are also based on normal site conditions, locations and normal working hours. 3

6 HONG KONG REPORT SEPTEMBER 2017 Office Type of Building Approximate Order of Construction Costs in Hong Kong and Selected Cities in Hong Kong HK$ Macau MOP Beijing (Cost per Square Metre Construction Floor Area at 2nd Quarter 2017 Prices) Chengdu Guangzhou Shanghai Shenzhen High Quality 23,400-33, ,800-22,700+ 7,400-11,000 6,700-9,700 7,200-10,800 7,400-10,800 7,100-10,500 7,100-10,700 6,700-9,700 7,300-10,900 6,700-9,700 6,700-9,700 Medium Quality 18,400-22,500 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Ordinary Quality 15,600-19,800 10,900-14,700 3,850-5,300 3,500-4,600 3,700-4,900 3,850-5,000 3,600-4,750 3,700-5,000 3,500-4,600 3,800-5,100 3,450-4,550 3,450-4,600 Shopping Centre High Quality 29,700-35, ,800-27,600+ 7,700-12,100 6,800-10,600 7,400-11,300 7,600-11,800 7,200-11,100 N/A N/A N/A N/A N/A Medium Quality 22,500-27,600 N/A 6,100-7,700 5,500-6,900 6,000-7,300 6,100-7,700 5,800-7,100 N/A N/A N/A N/A NA Residential High Rise; High Quality ; 24,200-36, ,800-20,300+ 4,150-5,750 3,700-5,200 4,000-5,500 4,050-5,600 3,850-5,300 4,000-5,400 3,650-5,100 4,100-5,600 3,650-5,100 3,650-5,100 High Rise; Better Quality ; 16,900-19,800 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A High Rise; Ordinary Quality ; 15,300-16,500 8,100-9,800 2,250-3,050 1,950-2,700 2,150-2,900 2,150-2,950 2,100-2,850 2,100-2,950 1,950-2,700 2,150-2,950 1,950-2,700 1,950-2,700 House; High Quality ; 35,300-52,800+ N/A 4,500-6,200 4,000-5,600 4,150-5,900 4,350-6,100 4,100-5,800 4,150-5,900 3,900-5,500 4,450-6,100 3,900-5,500 3,900-5,500 House; Medium Quality ; 23,300-29,200 N/A 2,950-3,850 2,650-3,550 2,850-3,650 2,900-3,850 2,750-3,600 2,900-3,650 2,650-3,500 2,900-3,750 2,650-3,500 2,650-3,500 Clubhouse 32,700-53,600+ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A External works & landscaping (cost/m 2 external area) Hotel (including FF&E) 4,250-9,100+ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 5-Star 35,200-42, ,900-36, ,400-16,500 11,300-14,500 12,700-16,400 12,300-16,200 11,800-15,400 11,700-15,600 11,200-14,600 12,200-16,100 11,100-14,600 11,100-14,600 3-Star 29,100-33,500 23,600-26,300 9,300-11,900 8,500-10,700 9,400-11,400 9,200-11,700 8,900-11,200 8,900-11,500 8,500-10,700 9,200-11,700 8,300-10,600 8,300-10,700 Industrial Landlord; High Rise ; 10,000-12,400 N/A 2,550-3,450 2,200-3,100 2,450-3,300 2,450-3,450 2,350-3,200 2,400-3,250 2,250-3,100 2,450-3,400 2,250-3,100 2,250-3,100 End User; Low Rise ; 13,500-20,400 N/A 3,650-6,400 3,250-5,700 3,450-6,300 3,600-6,300 3,350-6,200 3,450-6,200 3,250-5,700 3,600-6,300 3,250-5,700 3,250-5,700 Carpark Basement; up to 2 Levels ; 2 19,500-27, ,700-13,300+ 3,550-6,200 3,500-5,800 3,600-6,300 3,900-6,500 3,600-6,200 3,500-5,900 3,500-5,900 3,600-6,200 3,550-5,900 3,500-5,900 Multi-Storey ; 8,900-11,300 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A NOTES Tianjin Wuhan Wuxi Xian Zhuhai The construction costs above are based on prices obtained by competitive tendering for lump sum fixed price contracts with a normal contract period and are based on normal site conditions and locations. Extra costs should be allowed for projects with fast track programme, non-traditional procurement approaches and multi-phasing completion, etc. The costs are average square metre unit costs only not based on any specific drawings / design. Therefore they provide nothing more than a rough guide to the probable cost of a building. Figures outside the given ranges may be encountered. When information is required on a specific project, it is essential that professional advice be sought. The standards for each type of building in selected cities in do not necessarily follow those in Hong Kong due to local design practices and choice of materials. The building costs exclude furniture, fittings and equipment (except hotel / serviced apartment / clubhouse), site formation and external works, finance and legal expenses, consultants' fees and reimbursables, value of land and fluctuations in prices between the price date as specified above and the time of calling tenders. ( / / ) Construction floor areas are measured to the outside face of external walls (or in the absence of such walls, the external perimeter) of the building & include all lift shafts, stairwells and E&M rooms but exclude lightwells and atrium voids. These areas are usually larger than Architect s calculation of Gross Floor Area (Plot Ratio Area). () ( ) 4 5 Other Specific Exclusions : HOTEL : pre-opening expenses, operating expenses, working capital, staff training and administrative costs SHOPPING CENTRE : fit out to tenant areas INDUSTRIAL; LANDLORD () : security system, air conditioning, electrical distribution in tenant areas; production and warehousing equipment; special M&E provisions PROJECTS IN SELECTED CITIES IN CHINA : utilities to the site beyond site boundary, connection charges and capital contribution; local authority levies and taxation; import duties

7 HONG KONG REPORT SEPTEMBER 2017 LABOUR COST TRENDS AVERAGE DAILY WAGES OF WORKERS ENGAGED IN PUBLIC SECTOR CONSTRUCTION PROJECTS 2,200 1,500 2,150 1,450 2,100 1,400 2,050 1,350 2,000 1,300 Daily Wages (HK$ per day) 1,950 1,900 1,850 1,800 1,250 1,200 1,150 1,100 1,750 1,050 1,700 1,000 1, , , Month / Year Average Daily Wages in HK$ per day Selected Occupations Bar Bender and Fixer 1, , , , , , , , , , , , , , , , , , , ,137.2 Concretor 1, , , , , , , , , , , , , , , , , , , ,926.4 Carpenter (formwork) 1, , , , , , , , , , , , , , , , , , , ,925.9 Painter and Decorator 1, , , , , , , , , , , , , , , , , , , ,271.3 Plasterer 1, , , , , , , , , , , , , , , , , , , ,420.3 Metal Worker 1, , , , , , , , , , , , , , , , , , , ,211.9 Plumber 1, , , , , , , , , , , , , , , , , , , ,416.7 General Workers , , , , , , ,037.6 (Source: Census and Statistics Department) 6

8 MATERIAL COST TRENDS AVERAGE WHOLESALE PRICES OF SELECTED BUILDING MATERIALS 6,000 8,500 5,500 8,000 5,000 7,500 4,500 7,000 4,000 6,500 Costs of Materials (HK$) 3,500 3,000 2,500 6,000 5,500 5,000 2,000 4,500 1,500 4,000 1,000 3, , Month / Year Average Wholesale Prices of Selected Building Materials Building Materials Sand ($/10 t) 1,650 1,890 1,380 1,070 1,190 1,220 1,220 1,220 1,320 1,480 1,530 1,410 1,700 1,800 1,240 1,210 1,210 1,200 1,130 Bitumen ($/t) 7,600 7,150 7,017 6,750 6,583 6,167 5,650 5,450 5,450 5,117 4,850 4,850 4,883 4,983 5,050 5,683 5,950 6,150 6,150 Portland Cement ($/t) Sawn Hardwood 50x75 ($/m 3 ) 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,707 5,814 5,814 5,814 5,814 Mild Steel Round Bars ($/t) 5,090 5,073 5,054 5,059 5,270 5,380 5,450 5,255 5,275 5,330 5,395 5,320 5,550 5,675 5,610 5,600 5,660 5,590 5,520 High Tensile Steel Bars ($/t) 3,333 3,242 3,157 3,200 3,466 3,905 3,844 3,570 3,558 3,692 3,730 3,700 3,985 4,264 4,272 4,304 4,437 4,295 4,270 (Source: Census and Statistics Department) 7

9 HONG KONG REPORT SEPTEMBER 2017 GDP Growth and Tender Price Movement The following graph shows the movement of RLB s Tender Price Index (TPI) and Hong Kong s per capita Gross Domestic Product (GDP) in the past 20 year period, highlighted with major events in Hong Kong s economy and construction industry. There is a strong correlation between GDP growth and tender price movement. RLB s TPI reached its first record high in 4th Quarter It fell continuously following the 1997 Asian Financial Crisis, through the dot-com bubble in 2000 to the SARS outbreak in The overall fall was about 35% over the six year period. Starting from 2004, the TPI rose along with Hong Kong s economic recovery and reached its second record high in 2008 after rising by an overall 55%. There was a short-lived drop in Hong Kong s GDP in 2008 to 2009 due to the Global Financial Crisis and the TPI also fell by about 14% concurrently. The GDP and TPI rose again after 2009 with the TPI reaching its third record high in Disclaimer The above information is for general reference purposes only without being necessarily applicable to specific developments or projects of any particular individual or company. 8

10 OFFICES IN HONG KONG, MACAU AND MAINLAND CHINA HONG KONG 20th Floor Eastern Central Plaza 3 Yiu Hing Road Shaukeiwan Hong Kong SAR 3 20 Telephone : Facsimile : [email protected] BEIJING Room , 18th Floor East Ocean Centre 24A Jian Guo Men Wai Avenue Chaoyang District Beijing A Telephone : Facsimile : [email protected] CHENGDU Room , 29th Floor Square One No.18 Dongyu Street Jinjiang District Chengdu Telephone : Facsimile : [email protected] CHONGQING Room , 30th Floor Metropolitan Tower No 68 Zourong Road Central District Chongqing Telephone : Facsimile : [email protected] DALIAN Room 1103 Xiwang Tower 136 Zhongshan Road Zhongshan District Dalian Liaoning Province Telephone : Facsimile : [email protected] GUANGZHOU Room Central Tower No. 5 Xiancun Road Guangzhou Guangdong Province Telephone : Facsimile : [email protected] GUIYANG Room E, 12th Floor Fuzhong International Plaza 126 Xin Hua Road Guiyang Guizhou Province E Telephone : Facsimile : [email protected] HAIKOU Room 1705, 17th Floor Fortune Centre 38 Da Tong Road Haikou Hainan Province Telephone : Facsimile : [email protected] HANGZHOU Room 2306 Green Town Deep Blue Plaza No. 203 Zhao Hui Road Hangzhou Zhejiang Province Telephone : Facsimile : [email protected] MACAU Alameda Dr. Carlos D AssumpÁ o No. 398 Edificio CNAC 9º Andar I-J Macau SAR I-J Telephone : Facsimile : [email protected] NANJING Room 1201, 12th Floor South Tower, Jinmao Plaza 201 Zhong Yang Road, Nanjing , Jiang Su Province Telephone : Facsimile : [email protected] QINGDAO Room 2019, 20th Floor Parkson Commercial Plaza Zhongshan Road Shinan District Qingdao Shandong Province Telephone : Facsimile : [email protected] SHANGHAI 22nd Floor, Greentech Tower No.436 Heng Feng Road Jingan District Shanghai Telephone : Facsimile : [email protected] SHENYANG 25th Floor Tower A, President Building No. 69 Heping North Avenue Heping District Shenyang Liaoning Province 69 A Telephone : Facsimile : [email protected] SHENZHEN Room Shun Hing Square Diwang Comm. Centre 5002 Shennan Road East Shenzhen Guangdong Province Telephone : Facsimile : [email protected] TIANJIN Room 502, 5th Floor Tianjin International Building 75 Nanjing Road Heping District Tianjin Telephone : Facsimile : [email protected] WUHAN Room 2301 New World International Trade Centre No. 568 Jianshe Avenue Wuhan Hubei Province Telephone : Facsimile : [email protected] WUXI Room Juna Plaza No. 6 Yonghe Road Nanchang District Wuxi Jiangsu Province Telephone : Facsimile : [email protected] XIAN Room 1506, 15th Floor, Tower F Chang an Metropolis Center No.88 Nanguan Zheng Street Beilin District Xian Shaanxi Province 88 F Telephone : Facsimile : [email protected] ZHUHAI Room 3108, 31st Floor Everbright International Trade Centre No. 47 Haibinnanlu, Jida, Zhuhai Guangdong Province Telephone : Facsimile : [email protected]

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