Sunday, May 15, 2022

RISE IN THE PRICES OF CONSTRUCTION MATERIAL AND ITS IMPACT ON THE REAL ESTATE SECTOR

Over the last few years, inflation has been our greatest adversary. Following the epidemic, the world economy is in a state of insecurity. The worldwide financial crisis has thrown the nations into hardship and insecurity for many years. Inflation and increasing prices are causing irritation and anxiety among individuals, organizations, and industrial sectors across the world at the moment. 

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Introduction:

Inflation appears to be the worst threat for investors, developers, builders, and other significant stakeholders. This is mostly due to rising raw material, construction machinery, and labor wages.

Under the present situation, Pakistan’s rising high inflation is the major cause of rising property, development, and service prices. Nevertheless, the consequences of this policy are not confined to the consumer’s living costs; it has also had several other significant negative consequences for society.

Role of Real Estate Sector in Pakistan’s Economy:

In Pakistan, the building industry is among the most important industries fueling the country’s economy. According to World Bank estimates, Pakistan’s real estate sector is worth $400 and 300 billion dollars. Furthermore, Pakistan’s overall real estate wealth amounts to between 60 and 70 per cent of the country’s total assets. The turmoil in the real estate marketing sector is also linked to the country’s political, economic, and financial difficulties.

Hike in the Prices of Construction Material:

The cost of construction materials in Pakistan is constantly rising. Many builders have been compelled to modify their project costs, which isn’t helpful to alleviate the problems of end-customers and financiers equally. The unusual price increase also generates unanticipated project delays delivery and even the cancellation of operations that were planned to start soon.

To a certain extent, the rising cost of construction products in Pakistan—particularly in Punjab—has been linked to rising demand for and prices of petroleum and power, which has resulted in a significant increase in production costs.

Rise in the Prices of Raw Material: 

In recent years, the cost of construction materials has risen significantly. Because of the rising value of construction materials from regional and abroad suppliers, developers are projected to invest more in developing new projects, resulting in a price increase for all property assets.

Thirty-five per cent to 65 percent of the entire expenditure of project construction is accounted for by building materials. Steel, a key building material, has recently seen a significant price increase. These situations have put contractors and builders in jeopardy and forced them to rethink their budgets for starting new projects, causing them to postpone their schedules.

A rise in the prices of Construction Machinery:

In small and large undertakings, construction machinery is an important resource. The cost of construction equipment is carefully analyzed while estimating the project development cost. Construction machinery costs are rising rapidly due to the rapid pace of inflation, which has become a major reason for the increased additional costs and missed deadlines for builders and developers. Also learn about the Lahore smart city.

ADVERSE IMPACT ON THE ECONOMY:

The rise in prices is limiting global economic growth as the global market emerges from the mid-term effects of the current coronavirus scenario. The construction industry is among the most badly affected businesses because of what can only be defined as a massive shift in the global economy. The cost of construction materials in the United Kingdom (UK) has achieved a 40-year high, according to the BCIS Materials Cost Index. A similar tendency is presently being observed in Pakistan, resulting in delayed developments and skyrocketing building costs per square foot.

The building industry is marred by enormous disparities, primarily due to inflation. Residential construction prices in autonomous and multipurpose constructions have risen by 21% in the last year. Inflation has pushed prices up of construction materials and lands by 30%, forcing builders to raise the pricing of their buildings and services.

Developers are especially concerned about how these variations impede their ability to complete projects. Some contractors are losing money to the point of bankruptcy, while others are being forced to impose an additional fee on end customers, leading to general economic instability. Meanwhile, the government’s goal of alleviating Pakistan’s housing scarcity appears to be a long way off. When buying or building a home is becoming increasingly difficult for the upper-middle class, the prospects for low-income groups seem to be non-existent. Unless the government takes dramatic measures to reduce inflation, such as another extension of the leniency scheme, the construction industry could face another period of stagnation.

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