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“Inflation in the construction sector has increased due to the recovery in consumption, for which the supply of raw materials is no longer sufficient, as well as the fear of inflation and related real estate investments. In addition, some of the world’s major economies, such as the United States and China, are actively buying raw materials, further increasing their demand. The delivery of some raw materials is also delayed due to various interruptions in the logistics chains, ”says Dalius Gedvilas, president of LSA, on the situation.
According to the International Monetary Fund (IMF), the price of industrial and construction raw materials, as well as fuel, is the highest since 2014 and has risen 60 percent in recent years. The IMF records that during the year, the total price of metals increased by 40 percent, copper by 85 percent, iron by 113 percent, aluminum by 59 percent and the price of products energetic up to 172 percent.
According to D. Gedvilas, the situation in the Lithuanian market is even worse due to the geographical location of the country, available national resources and logistical challenges. In Lithuania, all the major construction products became more expensive: metal and its products (110 percent), construction wood (20 percent) and its products (50 percent), plastic and its products (80 percent). cent), glass and its products (10 percent).), concrete and concrete products (10%), bitumen (30%), etc. The average material price increase since November 2020 is 45%.
“The cost of the largest construction objects has already increased by hundreds of thousands or even millions of euros, residential buildings – by at least a fifth, depending on the type and quantity of materials used. Unfortunately, today it is extremely difficult or even impossible to complete the contracts already concluded. It is no longer clear how contractors can participate in new acquisitions, as prices rise dramatically, material suppliers and manufacturers quote prices for an average of only 14 days, and sometimes only that day, so we have a silly thing to do: after the contract ends, it no longer corresponds to the market situation ”, says D. Gedvilas.
According to him, the rise in the price of construction products is not only a problem for contractors, it is also a problem for contracting authorities and the State in general, which affects the whole of society. About a third of the projects planned in the state investment program are expected to not be carried out this year due to higher prices of raw materials for construction.
According to the LSA, in the current situation, a monthly indexation of the prices provided for in public contracts must be carried out, taking into account the real market prices, which are the ones best indicated by the commodity exchanges. The government should also immediately ask the European Commission to establish a compensation mechanism to offset the increased cost of construction of EU-funded facilities so that these projects can be completed successfully, such as the Federation of European Construction Industries. (FIEC) has done.
“Obviously, contractors can no longer complete objects without additional compensation, so we will have a wave of bankruptcies, lawsuits and terminated contracts in the near future. This means that contracting authorities will have a large number of unfinished objects that they will have to do. be retained or that will require finding a new contractor and paying for their services at new and significantly higher prices, therefore the withdrawal of contracting authorities is already scheduled.
Furthermore, there is a risk that the EU-funded installations will not be completed and that the resulting EU funds will have to be repaid. Therefore, today a state approach is necessary so that both existing and new projects can be implemented ”, says D. Gedvilas.
According to him, banks, in an attempt to curb inflation, could raise interest rates, which could lead to the inability of real estate owners (RE) to repay bank loans. Property developers may no longer be able to build already sold assets from drawings at an agreed price, which can trigger an insolvency crisis in real estate companies.
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