COST OF CONSTRUCTION – POSITION OF COLOMBO, SRI LANKA WITHIN THE SOUTH ASIAN REGION

Prepared by:

Ch. QS Subhashini Dasanayake, B.Sc. (QS) Hons, A.I.Q.S.SL and

Ch. QS Lalith Ratnayake, B.Sc. (QS) Hons, M.Sc. in Project Management, F.I.Q.S.SL

Recently, there were certain statements, unsubstantiated reports and speculations that the construction cost in Sri Lanka is substantially high and that it is very close to the construction cost of Singapore. This study is to provide more cognitive information on cost of construction in Sri Lanka.

The construction industry of a country is one of the main engines that drive the development of the country and it makes a considerable contribution to the Gross Domestic Product (GDP). Sri Lankan construction industry contributes around 7-8 percent to the Gross Domestic Product (GDP) of the country. Even though construction activities often act as a reliable bellwether for the economic performance of a country, they can get affected by several factors, such as demand that exists for construction, labor productivity, commodity prices and inflation. All such factors can have an impact on construction costs. (International Construction Cost Report, 2012).

Foreign investment in construction industry is vital to Sri Lanka as a developing country. In investment decision making process the associated construction cost of required built environment is an indispensable consideration and consequently a part of the feasibility assessments. Therefore, It is important to compare construction costs between countries to notify judgments. Such a study will facilitate efficiency assessments and highlight the different types of policies, practices and mechanisms, that can improve the industry. The opportunities to; improve the efficiency of the construction sector, enhance value and reduce the costs (initial and lifecycle), are also considerate prospects to accelerate economic development. Currently in Sri Lankan context, there is a demand for internationally comparable construction costs and prices, for investment feasibility. The objective of this article is, therefore, to find out where the cost of construction of Sri Lanka stands among those of other countries in the South Asian region.

A comparative study will always have issues and the most common among them are “comparability and representativity, i.e., the comparability means comparing of like with like. But using data that is representative of typical practices in different places; in construction these problems are particularly severe as output are seldom and even if identical. (Rick Best, International Project – level Comparison of Construction Industry Performance)

When international comparisons are attempted these problems are aggravated, as there is no truly “standard” projects that can be used as a basis for comparison and costs depend on many factors, such as  currency exchange rates, use of  imported construction materials, contract management, professional inputs, economic instability, local material price fluctuations, poor planning, experience, sample size and number of projects, quality or type of materials used , type of  construction method, type of building elements and materials, financial status of the owners, preferences of the owners/clients, project site accessibility, government taxes, policies, site conditions, tendering methods, procurement methods, social problems, site preliminaries, resource availability, environmental factors, climatic conditions etc.

However, comparisons are made and do produce some useful insights. (Rick Best, International Project – level Comparison of Construction Industry Performance)

This article represents the data selected from the typical constructions of the below categories and convert to a single currency of US$. Because, it is easy to understand and visualize. However, a change in the exchange rate makes a huge difference. if particular currency is strong compared to the base currency, the cost of construction will appear high.  

  1. Residential
    1. Individual detached or terrace style house medium standard            
    1. Individual detached house prestige                   
    1. Townhouses medium standard   
  • Apartments
    • Apartments low-rise medium standard               
    • Apartments high-rise                    
  • Aged care / affordable units                                        
  • Warehouse / factory units – Basic           
  • Hotels
    • 3 Star travelers                  
    • 5 Star luxury            
    • Resort style  

Moreover, to make uniform basis for comparison, the following cost elements have been excluded from unit rate calculations.

  1. External works,
  2. Landscaping,
  3. Demolition,
  4. Loose furniture,
  5. Fittings and equipment,
  6. Professional fees,
  7. Legal and finance fees, and
  8. Soil investigations.

The costs of construction in different cities in the South Asian region except Colombo were obtained from the International Construction Market Survey 2018 published by “Turner & Townsend”. The cost of construction in Colombo was prepared using the historical cost data available with the writer.

Tables 1, 2 and 3 below provide the cost of construction of various cities in Asia for the different building types to enable comparison, the construction costs of different cities have all been converted to US$.

Table 1 Costs of construction (Residential) in US$ per m2 and their rankings in ascending order

City /CountryIndividual detached or terrace style house medium standardIndividual detached house prestigeTownhouses medium standardApartments low-rise medium standardApartments high-rise
CostRankingCostRankingCostRankingCostRankingCostRanking
Bangalore434.002534.002434.001476.001626.001
Ho Chi Minh City430.001480.001614.005740.005800.003
Colombo474.613628.573548.083699.544892.504
Jakarta741.005926.005556.004630.003926.005
Kuala Lumpur688.004879.004460.002537.002765.002
Seoul1,384.0062,047.0061,637.0061,324.0061,685.006
Singapore3,091.0073,574.0082,107.0081,547.0071,993.007
Tokyo4,477.0092,351.0071,847.0071,883.0082,829.008
Hong Kong4,360.0088,333.0093,865.0093,197.0093,488.009

Source: Turner & Townsend: International Construction Market Survey (2018)

Table 2 Costs of construction (Industrial/warehouses) in US$ per m2 and their rankings in ascending order

City /CountryConstruction Cost  Ranking
Ho Chi Minh City  350.001
Bangalore  403.002
Colombo  467.133
Jakarta  481.004
Kuala Lumpur  557.005
Seoul  1,083.006
Tokyo  1,523.007
Singapore  1,666.008
Hong Kong  2,180.009

Source: Turner & Townsend: International Construction Market Survey 2018

Table 3 Cost of construction (Hotels and Resorts) in US$ per m2 and their rankings in ascending order

City /Country 3 Star travelers  5 Star luxury Resort style 5 Star
Cost Ranking Cost Ranking Cost Ranking
Bangalore  736.00  1  1,628.003  1,279.001
Colombo  850.0021,435.0011,540.002
Jakarta  889.003  1,481.002  1,852.003
Ho Chi Minh City1,300.004  1,900.005  
Kuala Lumpur1,439.005  1,755.004  2,743.005
Seoul1,805.006  3,853.007  2,468.004
Singapore2,560.007  3,364.006  4,019.007
Tokyo3,432.008  5,153.009  2,901.006
Hong Kong4,069.009  4,941.008  5,522.008

Source: Turner & Townsend: International Construction Market Survey 2018

Table 4 below shows the overall cost of construction of each city, which is the mean value of the   of the costs of construction of   the different categories of buildings .

Table 4 Overall cost of construction in US$ per m2 and their rankings in ascending order

City (Country)Construction CostRank
Bangalore631.241
Ho Chi Minh City657.722
Colombo695.623
Jakarta860.804
Kuala Lumpur1,033.525
Seoul1,727.766
Singapore2,171.487
Tokyo2,793.888
Hong Kong3,766.169

Source: Turner & Townsend: International Construction Market Survey 2018

The construction cost in Colombo is the third lowest in the South Asian region (Table 4).

Labor, material, plant and preliminaries and the profit margins of the contractors can influence the construction costs directly and substantially.

Construction cost is sensitive to labor cost which depends mostly on the labor availability within the country, labor productivity and the labor wages, including additional expenses, such as travel costs, national health insurance costs, pensions and other employment benefits . In Sri Lanka, the labor available are internal migratory; they belong to various trades, such as agriculture, transport and fisheries. The labor is used in Sri Lanka generally on hire and fire basis and on piece work rates without pensions and usual employment benefits.

Young labor gangs are more common in Bangalore than in Ho Chi Minh City and   Colombo. Hence the average labor rates in Bangalore is lower by 50% than in Colombo and it could possibly lead sustenance to derive the lower construction cost in Bangalore than in Colombo, However the average labor rates in Vietnam is higher by 50% than in Colombo while the overall construction costs of Vietnam appears lower and it could be due to several other factors as given below.

The availability of raw materials locally for construction can have a positive impact on the cost of construction in the country. The materials commonly used in construction, such as cement, reinforcements etc., are locally produced in both Bangalore and Ho Chi Minh City. The average prices of concrete and reinforcements in Bangalore and Ho Chi Minh City are lower than those in Colombo by about 20%. 

Since Bangalore is located on granite rock strata, stone quarries are found everywhere around the city. Therefore, stone is easily and readily available in Bangalore. Materials like coarse and fine aggregate, paving blocks, kerb stones, tiles, and m-sand, a byproduct of aggregate production , are available  locally in Bangalore  and  their prices are  lower than those available in Colombo. Ho Chi Minh City also  has many stone and mineral quarries. Thus, tiles, bricks and flooring materials are cheaper there as well. There are also craft villages and communities in the city, where people are trained in wood carving and detailing techniques that are typically used to produce wooden items, including doors, windows and floorings. Consequently, the cost of construction in Bangalore and Ho Chi Minh City are lower than the cost of construction in Colombo.

In Jakarta, the costs of materials, such as cement, iron, steel and aluminum, which are available locally, are also considerably lower and as such these materials are becoming increasingly popular as building materials. Besides, the amount of glass, cement, plastic and paints produced in the city is higher than in the other cities in the region. However, the average labor rates in Jakarta are much higher than those of Colombo, and accordingly the cost of construction in Jakarta is higher than that in Sri Lanka.

Preliminaries and margins are the other two factors affecting the overall construction cost. The cost of preliminaries depends on job complexity, building regulations and other local factors. Construction in busier cities would require higher preliminaries. The preliminary costs will invariably be high when construction has to be carried out in limited spaces, when there is traffic to be managed and when the laydown area is small. Thus, the construction costs in busy cities in the South Asian region, such as Hong Kong, Singapore and Tokyo  become the highest in the region.

Exchange rate changes can also have an impact on construction costs. If the exchange rate of a country weakened against US$, its construction costs would rise, even when the costs in the national currency remains unchanged. Since Vietnam has a very strong national currency, its construction cost is found to be lower than the cost of any other city in the South Asian region.

According to the above findings, Colombo, Sri Lanka is in 3rd place in terms of costs of construction in South Asian region except for five-star hotels where construction cost of Colombo, Sri Lanka is the lowest and is very close to Jakarta and Bangalore. The tax and duty concessions enjoyed through Board of Investment approved projects and tourism promotion initiatives could be some of the reasons for such lower construction costs in five-star hotels in Sri Lanka. This reveals that the cost of construction in Colombo, Sri Lanka is reasonably competitive and investment feasibilities may not be substantially affected by cost of construction. Returns on Investments, fostering investments and business feasibilities could be more sensitive to; governance, global and regional competitiveness and enabling environment. Sri Lanka is at 85th place among 140 countries in global competitiveness index and Sri Lanka is the worst performer in the quality of land administration while Singapore is the best performer as per the World Economic Forum Report, 2018.

References;

  1. Turner and Townsend, International Construction Market Survey (2018), Retrieved from https://www.turnerandtownsend.com
  • G Ofori (2000), Challenges of Construction Industries in developing countries, Department of Building, National University of Singapore, Retrieved from https://www.irbnet.de
  • Rick Best, International project – level comparison of construction industry performance (2005), University of Technology Sydney, Australia, Retrieved from https://www.irbnet.de

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