House Building Industries

Abstract

The house-building industry has three main functional sectors: residential land development, housing production, and house marketing and sales. It also has close links with hundreds of upstream and downstream industries in an economy. While the house-building industries in North America and Western Europe are relatively mature, those found in many parts of the Asia-Pacific region are still under development. Despite their short average history, the house-building industries in the region are growing fast and have been the engines for economic development in the region. This overview of the house-building industries in Japan, South Korea, Singapore, China, Thailand, and Malaysia focuses on important differences in the maturity and pace of development across jurisdictions. Fast economic growth in the less developed countries has offered opportunities for intensive development in the industry. Yet, issues like quality assurance and environmental sustainability have posed challenges to the house-building sector in the region.

Introduction

The house-building industry is characterised by three functional aspects of housing development, namely residential land development, housing production, and house marketing and sales. Owing to the high procurement costs and sale prices of the housing products, the prosperity of the industry depends very much on the availability of finance for house building and home purchase. Except for places such as Hong Kong, Singapore, and Japan, house-building industries in most parts of the Asia-Pacific region have a relatively short history as real estate markets in these countries have only become fully formed in the last 20 years or so, and, often, only in major cities. Compared with North America and Western Europe, house-building industries in the Asia-Pacific region have been developing very fast in the past two decades. The growth of these industries has given momentum to economic development in the region because of the economic activities opened for hundreds of upstream and downstream industries.

The Asian Financial Crisis in late 1997 and the outbreak of Severe Acute Respiratory Syndrome in 2003 severely hit the industry in the region. Afterwards, however, real estate and construction sectors recovered very strongly. Recent skyrocketing house prices point to an overheating in housing markets in various countries. For example, the ratio of the total house value to gross domestic product (GDP) in China in 2003 was about 2.3. It increased sharply to 3.3 in 2009. Over the period between 2002 and 2008, the average house price in South Korea increased by almost 60%. State interventions such as increased land supply and raised property tax were implemented to curb the problems associated with low housing affordability and proliferation of speculative activities in housing markets.

Historically speaking, the house-building industry contributed a great deal to the economic growth in Japan in the 1950s and 1960s. The 1980s and 1990s were the key periods for the sector’s boom in South Korea and other South-East Asian countries like Thailand and Malaysia. As shown in Table 1, the construction industry’s contribution to GDP in Asian countries generally decreased in the first decade of the twenty-first century, except for mainland China, Singapore, and Taiwan.

Table 1.

Contribution of the construction industry to local economic development by countries

	Contribution of the construction industry at local currency (proportion of the total GDP)
Year	2003	2004	2005	2006	2007	2008
Japan (billion yen)	32 333 (6.6%)	32 954 (6.6%)	31 861 (6.4%)	31 849 (6.3%)	31 444 (6.1%)	30 924 (6.1%)
Hong Kong (million HK$)	44 910 (3.6%)	40 376 (3.1%)	38 538 (2.8%)	38 688 (2.6%)	40 153 (2.5%)	47 922 (2.9%)
Mainland China (billion yuan)	749.1 (5.5%)	869.4 (5.4%)	1036.7 (5.6%)	1240.9 (5.7%)	1529.7 (5.8%)	1874.3 (6.0%)
Malaysia (million ringgit)	15 200 (3.6%)	15 458 (3.3%)	15 680 (3.0%)	15 976 (2.8%)	18 177 (2.8%)	20 606 (2.8%)
Singapore (million SGD)	Data not available	Data not available	6275.3 (3.0%)	6542.1 (2.8%)	7898.2 (3.0%)	11 342.4 (4.1%)
South Korea (billion won)	54 818 (7.1%)	57 833 (7.0%)	59 285 (6.9%)	61 359 (6.8%)	64 979 (6.7%)	64 612 (6.3%)
Taiwan (billion NT$)	253.5 (2.4%)	288.1 (2.5%)	284.8 (2.4%)	332.4 (2.7%)	357.6 (2.8%)	363.3 (2.9%)
Thailand (billion baht)	174.7 (3.0%)	194.5 (3.0%)	214.0 (3.0%)	234.5 (2.9%)	249.3 (2.9%)	260.7 (2.7%)

The infancy of some house-building industries and the closedness of the economies in the region mean that data and information are relatively limited in some countries. On account of the varying availability of industry data, direct comparative analysis across countries is not possible. In the following sections, house-building industries will thus be viewed country by country. Nations specifically considered include Japan, South Korea, Singapore, China, Thailand, and Malaysia.

Japan

The most glorious era for the house-building industry in Japan was the years immediately before the burst of the asset-price bubble in the early 1990s. At that time, the investor’s confidence in Japan’s economy accelerated business expansion, increased corporate earnings, and boosted personal income pushing up the house prices. However, the country entered its ‘Lost Decade’ after the bubble burst, and the house-building industry was severely hit. The recession of the industry continued in the 2000s. Construction investment turned sluggish, and the share of construction industry in the GDP decreased gradually from 7.4% in 2000 to 6.1% in 2007. The value of housing construction contracts dropped from 2840 billion yen in 1995 to 2641 billion yen in 2000, and further to 2441 billion yen in 2007.

Similar declines were also experienced in the numbers of establishments and employees in the construction industry. The number of employees in the industry in 2008 was 5.4 million which is 17.8% less than in 2000, and the number of establishments also fell from 607 000 in 2001 to 549 000 in 2006. As shown in Table 2, housing construction started in 2009 amounted to 788 410 units or 72.5 million square metres. The market has been recently dominated by private-sector projects. Although reinforced concrete (with and without steel frames) gained popularity in the mid-2000s, wooden structures still remain the most common structural form for housing construction.

Table 2.

New dwelling construction started in Japan

Year		1999	2004	2005	2006	2007	2008	2009
Funding source (no. of units)	Private	677 037	952 839	1 044 946	1 146 888	960 938	984 392	690 058
	Public	537 564	236 210	191 229	143 503	99 803	109 093	98 352
	Housing Loan Corporation	454 981	161 182	114 691	67 389	33 960	43 593	39 897
Type of structure (no. of units)	Wooden	565 544	540 756	542 848	559 201	504 546	516 868	430 121
	Steel-frame reinforced concrete	96 507	46 351	28 466	31 158	21 282	18 714	5658
	Reinforced concrete	288 103	358 127	436 568	470 604	335 548	336 325	192 396
	Steel frame	262 316	240 122	225 057	226 991	197 394	219 519	158 298
	Concrete block	874	492	427	520	402	469	610
	Others	1257	3201	2809	1917	1569	1590	1327
Total (no. of units)		1 214 601	1 189 049	1 236 175	1 290 391	1 060 741	1 093 485	788 410
Floor area (million square metres)		125.4	112.3	113.6	115.5	95.9	96.4	72.5

Given the downturn in the housing market, the construction business is highly competitive. Yet, the Japanese construction industry is still among the most developed in the world. The industry has been renowned for its innovative construction techniques and designs (e.g., earthquake-resistant and green building designs), uncompromising quality control, and zealous commitment to research and development. Owing to their experience and expertise, many large Japanese construction companies have been increasingly placed in the world spotlight. They have built houses in other fast-growing regions in different parts of the world, including Europe, the Middle-east, Southeast Asia, the United States, and Greater China.

South Korea

In spite of the Asian Financial Crisis in 1997, the housing bubble reinflated quickly in South Korea in the early 2000s. Generally speaking, there are two reasons underlying the price hike. First, housing development in South Korea has lagged economic development. The ever-increasing demand was not met by market supply, pushing up house prices. Second, housing construction in South Korea has been shaped, in the context of repressive government financial policy, by speculative investment practices. The more affluent have enthusiastically invested in the housing market, further stimulating housing demand.

The annual completion of private housing increased from 253 388 units in 1999 to 398 803 units in 2007, that is, a rise of 57.4%. However, the new supply of housing was retarded by the global financial turmoil in 2008. The private sector experienced a drop of 42.3% in new supply that year. During the housing boom, the Korean government took some initiatives to meet people’s housing demand and need. For example, in redevelopment projects, developers are required to provide a prescribed minimum amount of small-sized housing units. In the period between 2003 and 2012, a total of 1 million long-term public rental housing units were scheduled for construction in order to address the housing problems of lower-income people. Since 2009, however, housing policy under the Bogeumjari plan has been modified to also include a large portion of subsidised owner-occupied houses for middle-income households.

The number of general construction enterprises as of the end of 2009 was 10 894, which was only slightly fewer than the figure in 2004. As of July 2010, there were 1.8 million people working in the construction industry in South Korea. There was a gradual increase in the total domestic construction value from 148 267 billion won in 2004 to 186 901 billion won in 2009, or 26.1% (Table 3). The private sector remained the largest contributor to total domestic construction. Korean construction companies have also been looking overseas where the potential for growth has been far more significant. The overall value of the construction sector jumped by almost 540% in less than 5 years, reaching 30 119 billion won in 2009. This indicates that the export of services by the construction industry has been growing rapidly in recent years.

Table 3.

Statistics of the construction industry in South Korea

Year		2004	2005	2006	2007	2008	2009
New housing constructed (no. of units)	Public	123 991	140 978	143 694	156 989	141 160	168 300
	Private	339 809	322 663	325 809	398 803	230 125	213 487
	Total	463 800	463 641	469 503	555 792	371 285	381 787
No. of general construction enterprises		11 008	11 059	10 950	11 076	10 912	10 894
Domestic construction value (billion won)	Public	55 837	53 419	53 262	57 434	63 737	82 615
	Private	87 199	92 948	97 811	107 572	114 678	103 851
	Others	530	384	446	523	404	435
	Total	148 267	151 641	161 636	165 529	178 819	186 901
Overseas construction value (billion won)		4701	4890	10 117	16 139	32 736	30 119

Singapore

Unlike many other jurisdictions in the region, the Singaporean government has heavily intervened in the local housing sector. The housing market has long been characterised by a large proportion of state-built housing constructed by the Housing and Development Board (HDB). About 81% of the resident population in the country lives in HDB flats (in 2009). In the financial year 2008/09, 1769 HDB flats were completed with another 31 058 units under construction. Compared with the level in 2003/04, the amount of HDB housing under construction in 2008/09 increased by 106%. Yet, as indicated in Table 4, the total value of building work contracts in the private residential sector started exceeding that of the public sector after 1999. Table 4 illustrates the differences in public and private housing completions over the past 10 years.

Table 4.

Statistics of the construction business in Singapore

Year		1999	2004	2005	2006	2007	2008	2009
Values of building work contracts (SGD million)	Public housing	2824	1277	1135	1163	1810	4677	2772
	Private housing	2115	2586	2589	4135	5551	6397	3526
Building plan approval for private housing (no. of units)		8290	10 038	5333	11 863	16 345	13 350	10 506
Building commencement for private housing (no. of units)		6806	4145	10 282	11 295	12 432	14 239	8603
Building completion for private housing (no. of units)		11 079	11 799	8697	6520	6513	10 122	10 488

Private housing development in Singapore has grown fast despite barriers to market entry. Private developers must hold a Housing Developer’s License in order to carry out housing developments with more than four dwelling units, pursuant to the ‘Housing Developers (Control and Licensing) Act’. To obtain the license, developers have to fulfil certain requirements, like provide a minimum paid-up capital of SGD100 000. Moreover, the Singaporean government prescribes sale and purchase agreements for new flat sales and exercises tight controls on developers’ withdrawal of money from their project accounts. The proportion of the working force engaged in the construction industry dropped from 7.2% (around 109 000 out of 1.5 million people) in 1999 to 6.09% (around 113 800 out of 1.9 million people) in 2009. Overall, the construction industry contributed to about 3.5% of the country’s GDP in the past decade.

Greater China

Mainland China

In comparison with the other well-developed economies discussed above, the house-building industry in mainland China has grown exceptionally fast in the past decade. The affluence of households, particularly those in cities, has swelled upon the economic expansion of the country, with improved household consumption power augmenting demand for private housing. The total floor space of commercialised housing sold rose by 3.6 times, from 130.0 million square metres in 1999 to 592.8 million square metres in 2008. The growth is estimated to be 7.6 times in terms of total revenue. As of 2008, there were 87 562 enterprises engaged in real estate development. More and more state-owned developers have turned into private enterprises. At the same time, owing to China’s entry to the World Trade Organisation in 2001, barriers to foreign-funded companies entering China’s real estate market have been reduced. This helps explain why Table 5 shows the number of foreign-funded real estate development enterprises in 2008 almost doubling since 2003.

Table 5.

Numbers of real estate development and construction enterprises in mainland China

Year		1999	2003	2004	2005	2006	2007	2008
Number of real estate development enterprises	Domestic-funded	21 422	33 107	53 495	50 957	53 268	56 965	81 282
	State-owned	7370	4558	4775	4145	3797	3617	3941
	Collective-owned	4127	2205	2390	1796	1586	1430	1520
	Funded from Hong Kong, Macao, and Taiwan	3167	2840	3639	3443	3519	3524	3916
	Foreign-funded	1173	1176	2108	1890	1923	2029	2364
	Total	25 762	37 123	59 242	56 290	58 710	6 258	87 562
Number of construction enterprises	State-owned	9394	6638	6513	6007	5555	5319	5315
	Collective-owned	27 197	10 425	8959	8090	7051	6614	5843
	Funded from Hong Kong, Macao, and Taiwan	664	535	511	516	479	482	474
	Foreign-funded	341	287	386	388	370	365	363
	Others	9638	30 803	42 649	43 749	46 711	49 294	59 100
	Total	47 234	48 688	59 018	58 750	60 166	62 074	71 095

In the 1980s, the Chinese construction industry was rather primitive. No building codes governed building product specification, design, and construction. Moreover, nearly all construction enterprises were directly supervised by the central ministries or municipal governments. Construction work projects were assigned by the authorities rather than being acquired through competitive bidding. That is why the construction industry in mainland China was regarded as a single large enterprise with a centralised hierarchical organisation where factors of production and other resources were almost exclusively realised through administrative channels. These conditions were not favourable for the development of the industry and represented a fundamental lack of market competition.

The picture has changed significantly along with reform of the industry in the 1990s and 2000s. Construction law was promulgated by the National People’s Congress in 1997 to regulate various aspects of the industry such as the qualifications for operation, contracts among different parties, and quality of construction. The industry has since become more market-based. Table 5 indicates that the numbers of state-owned and collective-owned construction enterprises declined in the period between 1999 and 2008. The industry employed 33.1 million people, about 4.3% of the total labour force in 2008. The total gross output of the industry grew at an average annual rate of 50.7% in the period between 1999 and 2008. It amounted to 6203.6 billion yuan in 2008. The whole industry earned a profit of 220.2 billion yuan. The total housing investment completed increased from 263.8 billion yuan in 1999 to 2244.1 billion yuan in 2008, corresponding to an average annual growth of 83.4%. Throughout the country (except Hong Kong, Macau, and Taiwan), around 4.9 million housing units were completed in 2008.

The Hong Kong Special Administrative Region (Hong Kong)

In spite of the restricted geographical size of Hong Kong (about 1107 km²), the local house-building industry is famous for its high productivity and efficiency. About half of the total population in the territory lives in the private housing sector. While there are thousands of companies engaged in the real estate development in the territory, the private house development sector has been dominated by several large property developers with a lot of political and financial power. Hong Kong developers that deliver their product to the market at the right time can reap obscene profits.

Table 6 shows that 24 525 establishments worked in the industry at the end of 2007, engaging a total of 210 417 people. The numbers of establishments and people directly engaged have dropped compared with 1999. Similarly, the total number of active private residential projects decreased from 286 in 1999 to 140 in 2007, and the total expenses incurred experienced a drop by 54% in the same period. These decreasing trends are actually signs of the maturation of the industry in the local market and more and more housing developers have turned their attention to mainland China. Overall, the construction industry contributed around HK$40.2 billion to the region’s GDP (2.5% of total GDP) in 2007.

Table 6.

Statistics of the house-building industry in Hong Kong

Year		1999	2003	2004	2005	2006	2007
Number of establishments	Construction	20 233	19 520	18 302	17 985	19 057	19 399
	Real estate development and leasing	3583	3084	3276	3351	3037	3134
	Real estate management and maintenance	465	431	292	367	543	581
	Real estate agency	1958	1496	1050	1220	1306	1411
	Total	26 239	24 531	22 920	22 923	23 943	24 525
Number of people directly engaged	Construction	157 685	124 933	122 007	122 870	135 337	114 294
	Real estate development and leasing	9464	8794	8900	9375	10 260	10 476
	Real estate management and maintenance	53 280	58 258	62 186	68 126	67 523	67 885
	Real estate agency	14 551	13 409	14 819	15 585	16 179	17 762
	Total	234 980	205 394	207 912	215 956	229 299	210 417
All private residential projects	Number of projects	286	213	159	127	131	140
	Total expenses (million HK$)	43 010	29 600	21 869	21 131	22 363	19 788
	Payments to contractors (million HK$)	28 287	22 981	16 365	14 308	16 352	13 939
	Building materials and fittings supplied (million HK$)	134	0a	0a	2	5	8
	Architectural design and technical consultancy fees (million HK$)	1441	1125	938	747	747	689
	Interest payments (million HK$)	10 686	2273	1143	2128	2966	3540
	Other project expenses (million HK$)	2462	3221	3423	3947	2294	1612

^aLess than HK$0.5 million.

Taiwan

Taiwan’s housing market has been growing steadily since 2003 on account of the relaxation of the rules hindering foreign investment in the region and closer economic linkage between Taiwan and mainland China. The Taiwanese government put forward an ambitious 5-year property development plan worth NT$500 billion in 2003. The construction industry employed around 842 000 people in 2008, corresponding to 8.1% of the total labour force in Taiwan. However, the industry’s contribution to the region’s economy was relatively small. It only shared 2.9% of the total GDP, or NT$363.3 billion in 2008.

Thailand

Starting from the mid-1970s, the economy of Thailand grew very quickly until the Asian Financial Crisis in 1997. At that time, Thailand strived to become an industrialised country and a vast amount of construction works were taken on. In spite of the economic slump between 1997 and 2003, Thailand’s construction industry has grown very quickly in recent years. The value of gross output or receipts of construction establishment amounted to 394 billion baht in 2008, increasing by 22.5% from 322 billion baht in 2003. In the same year, the intermediate consumption and value added were 276 and 118 billion baht, respectively. The respective rises were 21.8% and 24.3% in comparison with the figures in 2003. As shown in Table 7, the value of residential construction also increased continuously from 2001 to 2005. In 2006, permits were issued by the authority for construction of a total of 146 229 residential buildings throughout the country, resulting in the addition of 218 767 dwelling units or an increase in floor space of 45.6 million square metres.

Table 7.

Gross fixed capital formation contributed by residential construction in Thailand

Year	2001	2002	2003	2004	2005
Private housing (million baht)	78 549	104 063	130 997	167 806	194 665
Public housing (million baht)	11 333	8080	6751	14 451	30 244

In the 2009 Construction Industry Survey, the number of building companies in Thailand in 2008 was estimated at 29 360, constituting an increase of around 41.4% since 2003. The number of persons engaged in the construction industry increased from 234 925 in 2003 to 364 694 in 2008, representing a 55.2% rise. However, the survey results also indicate that the majority of construction establishments (83.1%) were small in scale, with not more than 10 persons. On the whole, there was a business concentration in a few large-scale listed construction companies. Apart from local projects, large Thai construction companies have also started working on construction projects in Bangladesh and other neighbouring countries like Laos in recent years. Compared with Asian counterparts, the Thai construction industry is still far from mature with a significant absence of professional skills and advanced technologies. In this light, there has been a call for the establishment of a national institution of construction to improve industry standards.

Malaysia

The house-building industry in Malaysia has been strongly influenced by sociopolitical forces and transformations in the country. For example, the May 13 incident in 1969, involving sectarian riots in Kuala Lumpur, revealed the socioeconomic imbalances between different ethnic groups. To encourage homeownership among bumiputera and promote greater interaction among the various ethnic groups living in Malaysia, the Malaysian government introduced the National Economic Policy in the 1970s. Under that policy, housing developers in Malaysia have been required to set aside at least 30% of the completed housing units for the bumiputera and offer a discount of 5–15% to them. In spite of its social objectives, this policy has resulted in large inefficiencies in the local housing delivery system. Nonetheless, the development industry is still a major contributor to the country’s GDP even though the housing completion rate has decreased in recent years as shown in Table 8.

Table 8.

Statistics of the house-building industry in Malaysia

Year	2005	2006	2007	2008	2009
Building plan approval (no. of units)	161 657	154 703	141 002	115 874	78 336
Building commencement (no. of units)	152 892	153 268	133 948	108 012	86 549
Building completion (no. of units)	180 600	171 448	181 123	134 334	101 604
Number of persons engaged in construction (thousand persons)	904.4	908.9	992.5	998.0	1015.9
Number of persons engaged in real estate, renting, and business activities (thousand persons)	459.0	508.4	558.1	553.2	601.9

The Malaysian construction sector recorded strong growth between 2006 and 2008, with an 8.8% increase. As of December 2008, the loans made by commercial banks and merchant banks for construction of residential properties amounted to 7300.8 million ringgit in total. The progressive growth in the sector can be ascribed to the implementation of the construction-related activities under the Ninth Malaysia Plan and other fiscal stimulus packages. Table 8 illustrates that the number of people engaged in the construction industry increased by 12.3% in the period between 2005 and 2009. However, the fast growth of the industry also resulted in a rise in business malpractices. Since the late 2000s, the Malaysian government has stepped up its control over the house-building industry. For example, over 1000 housing developers were blacklisted for having abandoned projects, defective works, or noncompliance with decisions of the Housing Tribunal and failure paying fines.

Concluding Remarks

It appears that the pace of development in home building industries in different Asian countries is quite dissimilar. While the construction industry’s contribution to GDP in most jurisdictions in the region decreased over the period between 2003 and 2008, this does not necessarily represent a recession in the industry across the region. While high-speed economic development in the less developed countries has offered opportunities for intensive growth in house-building industries, challenges such as quality assurance and sustainable construction still need to be addressed.

See also

Housing and the State in China; Housing and the State in South Asia.