Asia Construction: 2021 Industry Outlook

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The Asia Construction Market (comprising South , East, Southeast Asia and Oceania) shrank in 2020. This comes at no surprise due to the COVID-19 pandemic. However, the outlook for 2021 is positive at a 5.8% predicted growth rate for the Asia Construction market. In fact, businesses can expect steady market growth in the following years till 2024. The predicted compound annual growth rate (CAGR) of the industry for 2019 to 2024 is 3.5%.

The Asia Construction market is expected to experience an upward tick growth by 5.8% to hit USD 5.866 Trillion this 2021.

Challenges despite growth

Profit margins in the highly competitive construction industry are notoriously slim. This is especially so in the current pandemic as costs rise and productivity hits a new low. COVID-19 has led to even more serious labour shortages and job site disruptions. Contractors are also reporting increased running costs due to the need to conduct regular testing on workers and the need to avoid cross-deployment. Spending on COVID-19 safety personal protection equipment such as face masks, sanitization chemicals and more are also contributing to the rising costs. Such overall costs are upending firms with existing contracts that have little buffer.

Survive and Thrive

Relief packages and the extent of government aid to the construction sector differ from country to country. However, businesses everywhere can rely on several common key factors to stay competitive. They include : adaptability, good cash flow management, risks management and increased productivity & efficiency.

Adaptability : Familiarity and understanding of COVID-19 safety measures can reduce or even prevent disruption to the work site. As these measures tend to change over time, it is also crucial to be updated with the latest requirements to ensure compliance. Increased costs due to spending on face masks, sanitization chemicals and tools should be expected and accounted for in the budget. Productivity may still take a hit due to social distancing rules and the shutdown of work sites. However, early and consistent revisions of schedules could provide some much welcomed wiggle room for completion.

Good cash flow management: Good cash flow management can determine whether a business sinks or floats. With rising costs and a slimming profit margin, it is no longer sustainable to operate with razor thin buffers. On the other hand, due to the highly competitive market, raising contractor’s fees could result in a loss of business. By managing cash flow efficiently, contractors would be able to improve their profit margin while charging a competitive rate. This would also maintain a healthy buffer against any potential delays. To do so, contractors can tap into an overlooked and existing source of capital : PLANT & HEAVY EQUIPMENT. Idle heavy equipment, spare parts and building materials are common. Surplus stock is also common as businesses tend to stock up on parts and materials when prices are low. Idle and surplus assets do not generate revenue, are being used and incur costs (storage, servicing,insurance and more). This gets worse over time as most costs are being incurred while the value of these assets depreciate. Businesses with good cash flow management tend to liquidate such assets as early as possible to obtain maximum cash back for the peak resale price before depreciation. However as these assets, especially used heavy equipment , tend to have long sales cycle, it is not always easy to sell them. Oftentimes paying for marketing and services in order to sell leave little cash back for the owner of these assets. If the owner opts to sell them without third party services, they often require substantial resources and time to do so. Unlike many marketplaces, EQT Yard provides free marketing for its vendors. We are able to reduce the long sales cycle by advertising to as many potential buyers as possible. This way, our sellers get maximum cash back before depreciation. We also support the transaction and sales process from start to finish so the seller need not waste resources to sell and buyers have less barriers to buy. Best of all, EQT Yard is only paid when the seller is paid. No sale no costs. This way, businesses can focus on improving their cashflow without incurring extra costs. If you would like fast cash from your construction assets, click here to register.

Managing Risks: To avoid any unnecessary risks and pitfalls caused by COVID-19, it is crucial that businesses :

  • provide pricing based on an assumed COVID-19 phase/alert level if not already covered by law. These assumptions should be included in draft agreements and left to be negotiated. If possible , contractors should also consider calculating pricing under different phases/alert levels. Contingent terms covering costs and time in the event of a COVID-19 delay or disruption should also be considered. Depending on the complexity of the project, the method used to calculate contractor’s rates may need to be adjusted. For example, simpler projects may allow daily rates.
  • identify key labour and supply risks. These may arise from cross-border trade. In such situations, to avoid disruption or taking on the entire risk, contractors may negotiate with suppliers to share the risks like an adjustment to payment terms. Again, contractors should be mindful of the COVID-19 situation in countries where they source their labour and supplies. These considerations should be put on contract to manage expectations and risks.

Increased productivity & efficiency: Improved cashflow would allow for reinvestment into upgrading to better and newer equipment which can improve productivity and efficiency to lower running costs and expand profit margins.

Opportunities multiply as they are seized.

Sun Tzu , Art Of War

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