Construction Industry in The Philippines

Construction Industry in Philippines is valued at USD 20.05 billion in year 2020 and is expected to reach USD 54.12 billion by the end of the year 2026. It is expected to grow at a CAGR of 18.2% because of rising number of construction projects, increasing demand for green construction projects, implementation of different governmental projects, and increasing rate of urbanization and growing population However, rising cost of the raw materials required construction industry and shortage of skilled labour in construction industry might restrain the growth and development of this market.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Drivers
Market Restraints
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Factors
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

The construction industry is concerned with the building, maintain and repairing structures or either for the purpose of the residential, farm, industrial, commercial and other purposes. The main three sectors concerned with this industry are buildings, infrastructure and industrial. Here, the building construction is concerned into the residential and non-residential sector. The infrastructure construction is concerned with the building of large public works, bridges, highways, railways, water distribution, etc. The industrial construction is concerned with the mining, refineries, chemical processing, power generation, manufacturing plants, etc.

Based on the type od establishment, the construction industry is comprised of buildings, roads & railways, electrical & plumbing, utility projects, and others. As the application of the construction industry is considered, this industry consists of commercial, residential, industrial, education & research, medical & health and others.

Market Overview

The Philippines is one of the world’s fastest growing nations with emerging market and newly industrialized cities. The total market size of the construction industry in Philippines is valued at USD 20.05 billion in the year 2020, increased from USD 16.99 billion in the year 2019. Its market value is expected to grow at a CAGR of 18.2% within the forecasted time horizon of 2021-2026. Its market value is expected to reach USD 23.65 billion by the end of the year 2021 and USD 54.12 billion by the end of the year 2026.

Based on the type of establishments, the building construction segment is leading the market with a market share of almost 37.2% of the total construction industry in Philippines. The market size of this segment is valued at USD 7.45 billion in the year 2020 and is expected to reach USD 20.13 billion by the end of the year 2026.

Rising number of construction projects, increasing demand for green construction projects, implementation of different governmental projects, and increasing rate of urbanization and growing population are the factors responsible for the growth and development of the construction industry in Philippines. However, rising cost of the raw materials required construction industry and shortage of skilled labor in construction industry might restrain the growth and development of this market.

The key market players engaged in the operation of this construction industry in Philippines are EEI Corporation, Megawide Construction Corporation, DDT Konstract, SMCC Philippines, Metro Stonerich Corporation, Foundation Specialists, D.M. Consunji, Momentum Construction & Development corporation, Metro Construction, Highlands prime Inc, Highlands prime Inc, Spes Construction Inc, Vinnell-Belvoir Corporation, etc.

Market Risks

Shortage of skilled labor in construction industry

In the context of Philippines, there are almost 62 trainers and 33 master level instructors in the sector of construction. the number of the jobs related to the construction industry has been increased from 10,000 to 16,500 within a year. However, the supply of the skilled and unskilled labor in the huge projects such as BBB programs in construction industry. In this context, the gaps in supply of workers have been fulfilled by the recruitment of the workers from the overseas countries. It has been estimated that almost 52,000 skilled Chinese workers are allowed to work in Philippines and hundreds of thousands are working without proper permissions. It might create the risk for the growth and development of the construction industry in Philippines.

Top Market Opportunities

Rising number of construction projects

In the context of Philippines, the number of the construction projects and the permits from the authorized bodies for its establishments are in rising trend. Within the time horizon of past nine years, the number of the issued licenses for the contracting has been increased from 1.42 thousand to 1.86 thousand. Along with this, the number of flagship projects planned from the public sector are also increasing. For instance, almost 100 infrastructure flagship projects are prepared from the public sector in the year 2019. In terms of the buildings permits, almost 34.27 and 13.41 thousand building permits were given in Calabarzon and Central Luzon region respectively. The rising number of the construction projects and favorable environment for the licensing for contractors and permits for the building constructions are creating a significant opportunity for the growth and development of the construction industry in Philippines.

Increasing demand for green construction projects

The acceptance of the green building practices is gaining momentum in the sector of offices, residential and public sector construction projects because of the compliance towards the development of the environmentally friendly premises and social commitments for the reduction of climatic change. According to world green building trends survey, almost 15% of the construction organizations are involved in green construction projects. In the context of Philippines, the rating system entitled BERDE has been developed by the Philippines Green Building Council to facilitate the grading of building in terms of green credentials in the sector of design, construction and building management. Thus, the increasing adoption and demand of the green construction projects is creating a favorable environment for the growth and development of the construction industry in Philippines.

Market Drivers

Implementation of different governmental projects

The government of Philippines is planning and implementing a range of the projects favoring the growth and development of the construction industry. For instance, Build Build Build (BBB) program is on the of important program implemented by Duterte administration to accelerate the governmental expenditure on public infrastructure with a target to increase the average public infrastructure expenditure to 7.3% of GDP from the average expenditure of almost 2.9%. This program includes almost 75 infrastructure, 5 flood control, 4 energy facilities, and 3 social infrastructure projects. Here, almost 41.41% of the infrastructure projects are related to the transportation followed by road transportation (26.56%) and rail (7.03%). The implementation of this sorts of huge infrastructure program is driving the growth and development of the construction industry in Philippines.

Increasing rate of urbanization and growing population

In the context of Philippines, the rate of urbanization is in increasing rate. The share of urban population has reached 47.41% of the total population of the country in the year 2020, increased from the share of the urban population of almost 45.33% of the total population in the year 2010. Along with this, the population of the Philippines is also in growing trend. It has been estimated that the current growth rate of the population is about 1.39% and is holding the 84^th position in terms of the population growth rate globally. The rising urbanization rate and population growth rate is driving the demand for the need of more residential and commercial building which in turn will create the favorable environment for the growth and development of the construction industry in the Philippines.

Market Restraints

Rising the prices of raw materials for construction industry

The cost of the development of the construction projects is rising because of the rise in the prices of the raw materials required for the construction of the building and other construction projects. The key materials used for the manufacture of the construction materials are crude oil, softwood lumber, cement, fixtures, plumbing, etc. It has been estimated that the price of the crude oil has been increased by almost 49% while the price of the softwood lumber has increased by almost 23%. Along with this, the price of the cement has been increased by almost 2.5% while the plumbing & fixtures has increased by almost 3%. The rising price of the raw materials in the sector of the construction industry might restrain the growth and development of the construction industry in Philippines.

Industry Challenges

Highly fragmented market

The construction industry in Philippines is overwhelmed with the multiple number of the market players residing in this industry. The key market players engaged in the operation of this construction industry in Philippines are EEI Corporation, Megawide Construction Corporation, DDT Konstract, SMCC Philippines, Metro Stonerich Corporation, Foundation Specialists, D.M. Consunji, Momentum Construction & Development corporation, Metro Construction, Highlands prime Inc, Highlands prime Inc, Spes Construction Inc, Vinnell-Belvoir Corporation, etc. It is quite challenging for the market players for the establishment of their market value and continuity of the engagement in the construction projects.

Technology Trends

Adoption of new and advanced technologies is creating a favorable environment for the growth and development of the construction industry in Philippines. Some of the key technological trends in this construction market are discussed as follows:

Bridge lock-up device systems: This systemis used to provide the temporary rigid link between the deck of a bridge and its supporting abutments with a view to share the collision and braking forces between the supports.
Building information system: This system provides the broad-scope information about the building to develop the smarter and dynamic building designs and other aspects by applying intelligent insights.
Fiber-reinforced polymer composites: This type of materials are made of polymer matrix reinforced with fibers through the step-growth polymerization process.
Prefabrication of building components: This practice is concerned with the assembling components of the building structure in the manufacturing site and the completely assembled building components are transported to the construction site.

Pricing Trends

The price of the products of this construction industry depends upon the type of material, price of raw materials, technological type, and application. For instance, the price of cement ranges from USD 4.97 to USD 5.37 per bag of 40 kg. Along with this, the price of the construction materials depends upon the size of the product. For instance, the price of steel is about USD 3.38 for 1o mm while its price is USD 4.77 for 12mm. The price of softwood lumber is USD 7.56 while the price of the plywood is about USD 7.36 for 1/4″. The price of the raw materials used in construction industry is rising. It has been estimated that the price of the crude oil has been increased by almost 49% while the price of the softwood lumber has increased by almost 23%. Along with this, the price of the cement has been increased by almost 2.5% while the plumbing & fixtures has increased by almost 3%.

Regulatory Trends

Some of the regulations directly or indirectly related to the construction industry in Philippines are discussed as follows:

Guidelines and options on the payments for the renewal of the contractor’s license: According to this guideline, the contractor involved in the construction industry can renew their license through digital payment system (e-wallet, Mastercard, etc), cash payment, and Land Bank of the Philippines Link Biz portal.

Corporate Recovery and Tax Incentives for Enterprises Act: This act was approved in the year 2019 by the government of Philippines to bring the set of corporate and tax reforms. According to this act, the corporate income tax has been reduced from 30% to 25% in order to enhance the foreign investment.

Market Size and Forecast

The total market size of the construction industry in Philippines is valued at USD 20.05 billion in the year 2020, increased from USD 16.99 billion in the year 2019. Its market value is expected to grow at a CAGR of 18.2% within the forecasted time horizon of 2021-2026. Its market value is expected to reach USD 23.65 billion by the end of the year 2021 and USD 54.12 billion by the end of the year 2026.

Based on the type of establishments

The building construction segment is leading the market with a market share of almost 37.2% of the total construction industry in Philippines. The market size of this segment is valued at USD 7.45 billion in the year 2020 and is expected to reach USD 20.13 billion by the end of the year 2026.
The road & railways segment accounts for the market share of almost 24.6% of the total market size of the construction industry in Philippines. The market size of this segment is valued at USD 4.93 billion in the year 2020. Its market size is expected to reach USD 13.31 billion by the end of the year 2026.
The electrical & plumbing segment accounts for the market share of almost 22.1% of the total market size of the construction industry in Philippines. The market size of this segment is valued at USD 4.43 billion in the year 2020. Its market size is expected to reach USD 11.96 billion by the end of the year 2026.
The utility projects segment accounts for the market share of almost 4.6% of the total market size of the construction industry in Philippines. The market size of this segment is valued at USD 0.92 billion in the year 2020. Its market size is expected to reach USD 2.48 billion by the end of the year 2026.

Market Outlook

The construction industry in Philippines is expected to grow at the CAGR of 18.2% within the forecasted time horizon of 2020-2025 because of rising number of construction projects, increasing demand for green construction projects, implementation of different governmental projects, and increasing rate of urbanization and growing population. Its market value will reach USD 54.12 billion by the end of the year 2026.

Effect of COVID-19 pandemic in the construction industry

The implementation of the mobility restriction and social distancing due to the pandemic situation of COVID-19 disease has severely caused disruption in the growth rate of construction industry in Philippines in the first quarter of the year 2020. It has been estimated that the growth rate of the construction industry in Philippines has been shrined by almost 9.2% in the year 2020. In the context of Philippines, the Department of Budget and management has reduced the spending target of the infrastructure by about 15.8% i.e. from USD 18.7 billion to USD 15.7 billion to tackle the pandemic.

However, in the late July 2020, almost 21.8% of GDP has been allocated to improve the healthcare delivery system with focus on the increasing investment in the public and digital infrastructure. Along with this, the quarantine condition due to the pandemic has caused the situation of the shortage of labor and skills mismatch between them. Overall, the increase in the investment for the development of the public health infrastructure and other building structure has increased the growth rate of the construction industry in Philippines.

Technology Roadmap

The technological changes occurring in this construction industry are driving it towards the adoption of smart and dynamic technological system for the development of infrastructure along with promoting environmental friendliness and protection. For instance, use of the bridge lock-up device systems, building information system, etc are enhancing the dynamism in the construction industry. Adoption of new and advanced technologies and refined building components is creating a favorable environment for the growth and development of the construction industry in Philippines.

Distribution Chain Analysis

The key stakeholders involved in the operation of this construction industry of Philippines market are raw materials suppliers, product manufacturers, distributors, sales, and end users. At first, the raw materials required for the production of the construction components are collected and supplied to the manufacturing sites where they are refined to produce the building structures. The building materials are available to end-users through online and retails sales system.

Competitive Factors

The key market players engaged in this construction industry in Philippines are competing for the product portfolio expansion, high investment in research and development activities, mergers & acquisitions, geographical expansion, and collaborations. Along with this, they are competing for the use of the advanced technological system in the construction sector to promote dynamism and smartness in manufacture and assembly of building construction products.

Key Market Players

Short profile of the key market players engaged in this construction industry are discussed as follows:

EEI Corporation: It is one of the leading construction company in the context of Philippines with its specialization in the construction of the large-scale heavy and light industrial projects, infrastructure, and property development projects.

Megawide Construction Corporation: It is one of the leading engineering company in Philippines with its specialization in engineering, procurement, construction, and transport-oriented development.

DDT Konstract: It is one of leading corporation with its expertise in the pre-construction, general construction, construction management, and design of all types of buildings.

SMCC Philippines: It is the Japan-based largest construction company with its extensions globally including Philippines. It is specialized on civil and building works with its latest technologies.

Metro Stonerich Corporation: This company is specialized in the sector of engineering, construction and project development with its capability to do design, build and construct projects.

Strategic Conclusion

The construction industry in Philippines is growing at a CAGR of 18.2% because of rising number of construction projects, increasing demand for green construction projects, implementation of different governmental projects, and increasing rate of urbanization and growing population However, rising cost of the raw materials required construction industry and shortage of skilled labor in construction industry might restrain the growth and development of this market.

References

Appendix

BBB= Build Build Build
USD= United States Dollar
CAGR= Compound Annual Growth Rate