construction market

8/22/2019 Construction Market

1/15

Introduction to Demand andSupply for Construction

Dr. Yasangika Sandanayake

25th November 2009


2/15

Construction Market

Buyers Sellers Commodity

Clients Construction

enterprises

The service required to design and

erect, alter, repair or maintain a

particular physical facility

Users Construction

clients

Newly completed building or part of

a buildingUsers The legal interest in an existing

property or part of a property

All these three types of markets are interrelated


3/15

Construction Demand by Sectors

Housing is a basic human requirement.

Direct demand

Demand for housing determined by:

Need for new housing

Changes in user requirements

Availability of source of finance for development

Demographic factors

Economic factors such as inflation rates, cost of construction

The real/disposable income

Related government policies on housing

Environmental factors

Housing


4/15

This covers all industrial buildings, including

factories and warehouses and commercial

buildings including offices and shops.

Demand created by an increase demand for

products or the development of new processes

that cannot be housed in existing building.

Derived demand

Commercial and Industrial Buildings


5/15

Social type construction items are financed by either

government, social organizations or NGOs, which

initiates them on the basis that it would be beneficial if

they were available for use by society (For example,

roads, bridges, railways, schools, hospitals, water and

power supply projects, religious places)

It is difficult to predict the demand for this type of

construction.

Social Type Construction


6/15

Demand for this type of construction is affected by

Conditions of existing stock

Level of obsolescence

Users financial situation

Funding available

Government expenditure

Government economic conditions

Repair and Maintenance


7/15

Characteristics of Demand

Predominantly an investment good

Demand is either direct or derived: As a consumable product

Eg. Housing and for industrial and commercial buildings Market for each type of demand is different

Demand of every client is different

Demand for repairs and renovations is a considerableproportion of total demand

Standardization / Mass production is difficult Demand is affected by socio-economic policies and

environment (Cyclical in nature of demand)

Several intermediate agents shape the nature of the clientsdemand before it reaches the builder


8/15

Characteristics of the Product and

Factors Affecting Construction Demand

Unique in nature, Not homogeneous

Large, indivisible and very expensive, and hence themarket has few buyers and sellers

Immobile, hence the supply cannot be transferred to an

area of high demand, and demand is also relatively

location specific

Subject to wide range of external (political, sociological,

cultural and economic) influences

Subject to the actions of the government, which is a

major client


9/15

Factors Affecting Construction Supply

Products in competitive supply; Amount, Price,

Profitability The factors of production

Aims and objectives (of firms)

Maximise profits

Increase marketabilityFuture strategies - expanding to new geographic area

- diversification


10/15

Technology changesIncrease efficiency; Reduce prices

Government policiesGrant / subsidies; Taxes - BOI concessions; Regulations -

safety restrictions (planning); Interest rates; Investmentpolicies

External factors that cannot be controlledWar / social unrest; Natural disasters; Political instability

ExpectationsProduction decision - early stage; Trends judgment; Winning

a bid / bids

Contd.


11/15

Characteristics of Supply

Production takes place on site itself

Mass production is insignificant in the industry Production process in assembly oriented

Vertical disintegration

Labour intensive production

The role of middleman is predominant Affected by the external environment

Productivity is generally low

High risk to the producer


12/15

Cyclical Nature ofConstruction Demand


13/15

Construction Cycle

Construction activity is subject to fluctuation

in levels of demand and, hence, output. Theperiod between two successive peaks or

troughs in the total construction volume is

referred to as a construction cycle .


14/15

Signs During Peak Demand

Increased activity for construction firms

Measures for increasing productivity

Rise in construction prices

Increasing number of construction firms entering into themarket

Employees being attracted into the sector

The performance of the industry may fall due to excessivework over existing capacity

Time and cost overruns of projects

Government intervention may become necessary forcontrolling the undesired outcomes, for example inflation


15/15

Signs During Depression in Demand

When the economy slacks, construction demand also tends todecline.

Due to the fall of demand the construction industry wouldexperience many ill effects.

Over capacity of construction firms

Redundancy in employment

Curtailment of training programs

Less efficient firms would be forced to leave the industry (The largerfirms may find work in other industries or diversify into otheractivities)

Prices of materials and equipments would fall, which will affect thewell being of manufacturers. This may result in reduction ofproduction.

construction market

Documents