Facing massive cost-escalation, construction industry braces for tough time
- Builders facing difficulties in pricing housing units for new projects
The construction industry is currently facing difficulties in pricing its housing units as project-completion costs have soared massively, with steel prices skyrocketing 96% between January 2021 and June 2022 and cement price surging by over 72% in the same period, raising the overall expenditure by at least 40%.
The price of steel has nearly doubled from Rs120,000 per ton to Rs235,000 per ton during the period under review. Similarly, the price of a 40kg bag of cement has increased from Rs535 to Rs920.
On the other hand, price of sand (Bajri) has jumped from Rs28 per cubic foot to Rs50 per cubic foot – showing an ascent of 78%. Crush used to cost Rs38 per cubic foot in January 2021 but it is now available at Rs75, recording an increase in price of 97%.
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The construction of a structure used to cost Rs1,500 per square foot in January 2021. Now, it amounts to around Rs2,350 per square foot.
The cost of finishing work on a project has spiked 16% from Rs1,550 per square foot to Rs1,800 per square foot. The cost of higher-grade finishing work has increased by 36%, moving up from Rs3,050 per square foot to Rs4,150.
With rupee depreciating massively, construction cost is likely to be higher in coming months.
“Fundamentals of the construction sector have changed massively in a span of few months," said Hanif Memon, Senior Vice Chairman of the Association of Builders and Developers (ABAD). "Builders working on a three-, and in some cases, five-year plans calculate their per unit price on the basis of expected cost they would incur over the time period.
“But the situation has changed drastically. Project cost has exceeded revenue generated from selling the units,” he claimed.
Moreover, he said that it is difficult now to price housing units for new projects because it is impossible to predict the cost of construction material moving forward.
Recalling that he recently needed 3,200 bags of cement to build a roof in one of his projects during the rainy season, he stated that he received 1,600 bags at Rs890 per bag one day and the remaining 1,600 bags at Rs920 per bag the very next day.
“I have not seen such price fluctuation in 42 years in this profession,” he said.
Memon cited that the construction work in Pakistan had slowed down during the last four months.
“There is immense volatility and builders have also slowed down activities to wait for things to settle down,” he added.
The volatility stems from a stuttering Pakistan economy that saw its currency endure its worst weekly fall in over two decades, with an over 8% loss to the dollar. At the same time, falling foreign exchange reserves have raised concerns over Pakistan's balance-of-payments' situation, prompting the finance minister and even the State Bank of Pakistan (SBP) to move and pacify markets.
Rupee, which ended at a record low of 228.37 to the dollar in the inter-bank market, is also likely to stay under pressure in the coming week amid heightened political uncertainty after Punjab CM's re-election on Friday.
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