Construction, one of the few sectors that had managed to almost avoid the effects of the pandemic, has been going through a complicated situation for months, also derived from the international crisis that the health situation has generated.
An unprecedented rise in the cost of major raw materials that could raise the price of new homes by as much as 15% at the beginning of next year. “The price of the house that is put up for sale on January 1, 2022 may be 15% above the house that is delivered on December 31 of this year. The market is not prepared to rise 15% or 18% in the short term “, explains to elEconomista Andalucía Francisco Martinez-Cañavate, president of Fadeco Promotores.
The concern is “maximum” among construction and development companies, both those that are dedicated to public works, and those that work in the private sector.
“The issue is generating great uncertainty among builders and developers due to the spectacular price increases that raw materials are experiencing since before the beginning of this year. Initially it was thought that they were specific increases due to the increase in post-covid activity, but little little by little and accompanied by the rise in electricity and petroleum derivatives, we see how they tend to settle down, “says the president.
Wood, aluminum, steel or glass are some of the materials that have increased their price the most in recent months, accumulating increases that even reach 30% in the case of copper. The rising cost of these raw materials has increased the total cost of the works, on average, around 22%.
As indicated by Fadeco Contractors, the increase in prices is causing serious problems for the builders to meet their commitments, both financially and on time, and may even cause the stoppage of some works.
The construction companies that do public works are very concerned because they have fixed prices and there is no price review in public contracts, therefore all the works that are being carried out are doomed to losses.
“The situation of the construction companies that are dedicated to public works is complicated because there is activity, but it is working to lose money. The work tenders that are currently going out continue to come out with prices prior to the price increase, they are out of date and the companies after the covid do not have much lung to withstand the situation, “warns Martinez-Cañavate.
In the private sector there is a certain margin of negotiation and the construction companies are analyzing and renegotiating each contract so that the promoters assume part of the increase in costs and thus try to cushion the losses.
The promoters are also suffering from the situation and there are increasingly higher prices to build buildings and houses and terms of just 15 days to accept a budget requested from a construction company.
Final buyers have not yet noticed this price increase that companies are assuming for now, but if the situation continues, the final price will begin to rise in the coming months.
This is due to the fact that in real estate development we work with a pre-marketing system, that is, what is being built now is practically all sold, because financial institutions require 60% of homes signed to grant the loan to the developer.
“The fear is that in the future if this price escalation does not remit then we will be led to an increase in the price of housing for the end customer. On the one hand we think that it may be a temporary situation and that prices if they do not return to the before, if they remain in an intermediate situation “, indicates the representative of the sector.
From Fadeco Contractors they defend the adoption of measures that guarantee the automatic application of mechanisms to restore the economic balance of contracts, allowing the application of price reviews or other measures that make future works viable and, especially, a significant number of works awarded and in execution, which are now being seriously compromised.
With this objective, the Employers’ Association of the Sector in Andalusia has approved a document of its own preparation in which it will request the Junta de Andalucía to immediately update the Construction Cost Base of the region, while requiring to take measures, or promote them, when they are not within its competence, in relation to the works in progress.
In this sense, the president of Fadeco Promotores explains that the sector has claimed the creation of a Decree Law at the national level that allows the modification of the public sector contract law, which would make it possible to review prices.
“We are waiting for the Ministry of Economy and Finance to approve this decree so that the prices of the works in progress can be reviewed. This would give air for the construction companies to charge what they are currently spending. It is a legal support so that the companies can update prices and adapt them to the increased cost of materials, “he explains.
From the sector they also warn that this situation could cause great delay in the works in progress of construction or reform of public infrastructures. “For example, the arrangement of a hospital, if a construction company sees that the numbers do not come out, it can terminate the contract,” warns Martinez-Cañavate.
In the sector they do not even want to mention the word crisis and insist that this situation has nothing to do with the serious recession that the sector suffered between 2008 and 2014.
In fact, they explain that the scenario is practically the opposite: then the supply was much higher than the demand, the banks did not grant loans or mortgages and an excessive stock of homes was created in the hands of financial institutions, now there is more demand and housing that is built is sold.