Rising Cost of Construction-Challenges & Impact
They say it takes money to make money, and for construction firms, that investment goes primarily into materials and labor. However, rising construction costs are squeezing profit margins tighter than ever.
A surge in global demand, coupled with the lasting effects of the pandemic, taxation, and logistical challenges, has led to severe material shortages, delays, and price hikes. As the economy rebounds, demand continues to soar, but raw material prices are rising faster than manufacturers can absorb. As a result, they are passing these costs onto the market, further driving up expenses for the construction industry.
Russia and Ukraine account for nearly 50% of the global export market of steel. In the aftermath of the war, prices of Steel in the international market have a 22% increase.
Another factor that will keep the prices high is China’s continued cancellation of its export tax rebates on steel products. China accounts for 57% of the global steel production. They had a tax rebate programme that refunded iron and steel exporters 13% of the VAT charged. In mid-2021, the policy was cancelled to compel the steel industry to support the country’s record-high domestic demand.
Locally, a kilo of steel has risen to Sh180 from Sh100 late last year as referenced by the business daily.
Cement is not an exception to these rising costs. Its prices have risen by 10% to maintain and sustain production. These factors have caused a stretch in the supply and demand chain by contractors hoarding necessary materials to maintain their building schedules.
A spot check on various vendors in Nairobi has revealed the following prices for different brands such as Bamburi’s Nguvu Cement, National Cement’s Simba, Mombasa Cement’s Nyumba, Savannah Cement, and East African Portland Cement Company’s Blue Triangle:
- Simba Cement prices: Sh600-Sh630 a bag.
- Savannah Cement prices: Sh600-Sh630 a bag.
- Bamburi Cement prices: Sh630-Sh770 a bag.
- Mombasa Cement prices: Sh600-Sh630 a bag.
- Blue Triangle: Sh600-Sh630 a bag.
These prices were as of mid-March 2022. Please contact your local vendor for an updated price.
EFFECTS ON SOCIETY
Residential projects in the affordable and mid-income segments carry relatively lower margins and are price sensitive. Hence, any major increase in input cost can put pressure on developers to pass it on to end-users. This uncertain wave of fluctuating prices creates more demand for property as people want to take advantage of the known rather than the unknown. On the other hand, Grade A industrial and warehousing facilities are already seeing robust demand from E-commerce players. An increase in construction cost is likely to put upward pressure on rents due to the limited availability of quality assets.
Developers are facing high costs but are being cautious to increase the price for end-users as it might impact overall demand. However, if the escalated cost persists, developers may have no choice but to pass on increased overheads to the market. Some intervention from the government in the form of lower import duty can provide some relief to developers, especially in segments with low margins.
CONCLUSION
The drastic increase in the price of essential products in construction like cement, iron sheets, and deformed steel bars has forced many to halt their projects or dig deeper into their pockets. To mitigate the rising cost of construction, decision-makers must consider amending the budget and encourage the public to explore alternative or unconventional methods in construction, like precast solutions.
Control is an elusive concept in the construction industry but using the EcoConcrete precast flooring solution, allows you much control over your project site, schedule, and costs. Unlike conventional methods, the cost of precast is predetermined in advance and unlikely to change once a quote/agreement is made.
Precast delivers exceptional quality and durability, easily withstanding harsh elements and years of wear and tear while maintaining structural integrity. As a result, it significantly reduces miscellaneous repair costs.
Are you planning a construction project but concerned about rising material costs? Choose EcoConcrete’s suspended floor/roof slab for a cost-effective solution. With a predetermined construction cost, fast and easy installation, and zero site preparation, it eliminates the need for shuttering or propping, saving you both time and money.
Contact us today on 0722882088.