Builders are already seeing the impact of the second wave of the pandemic: construction prices will inevitably rise

Dalius Gedvilas, president of the Lithuanian Builders Association (LSA) and Mindaugas Statulevičius, director of the Lithuanian Real Estate Development Association (LNTPA), told how the second wave of the coronavirus affected the construction sector and how much the prices of construction next year.

The second wave will affect NT much more strongly

D. Gedvilas mentioned on the show that during the first wave of the coronavirus, projects were stopped for completely different reasons than they are now. This time, according to him, the problems are much more serious.

“The second wave has already had a serious impact. We cannot say how many people are ill in the construction sector today, but practically one in two companies already has cases where the employee is ill or is forced to put Quarantined We believe there are several patients in the construction industry.

Investors, developers, banks, practically all these operators have really taken some action (during the first wave – Delphi) and private investors blocked investment projects. Banks have begun to seek to tighten loan financing conditions. As a result, part of the construction has stopped because the general contractors have received messages from the clients, the builders that the latter are stopping their construction, they want to see what the situation will be in the market. Certainly there have been many such companies and projects of this type.

Today we see a slightly different situation: investors have resumed construction as in the summer. We can see from the building permits issued that the number of building permits has increased, but another problem has arisen. Contractors themselves can no longer work normally, and if they work responsibly and protect their staff, it practically translates into construction slowing down significantly and the supply of construction items to construction sites begins to stagnate because those who produce structures or some building materials cannot work normally. We have cases where only one of the three shifts is picked up because other people have to be isolated, those people have to be quarantined. Therefore, the construction stops today for other reasons ”, explains D. Gedvilas.

There is also a shortage of skilled workers. Attempts have been made to compensate for their shortage by workers from third countries, but the current situation has interrupted the introduction of these workers.

“At this point, the delivery started to get stuck because there was a stage where those people had to be quarantined here for two weeks. Generally, the builders and the general contractors themselves started to look closely at those people who were arriving at end of the year, because seeing that the Christmas season was approaching, they would have to stay with those people, because if they came back, they would have to quarantine them. There are many problems and it is quite difficult to get new work permits. That is the lack of those professionals today. If this trend continues, we think that some construction contractors will definitely not be able to fulfill their contracts on time just because of the lack of specialists, “says D. Gedvilas.

According to the interlocutor, 65 percent. contractors are planning smaller volumes of construction work, about 34 percent. private developers suspended or temporarily suspended construction.

“Clarity has been requested from the Ministry of Economy and Innovation. Contractors should be able to postpone agreements signed under public contracts, as there are cases where they sometimes fail to release workers to quarantine due to attempts to comply with those agreements. These are managers who act with sufficient responsibility, stop these constructions, but fear facing sanctions from the client, ”said D. Gedvilas.

As a result, according to D. Gedvilas, there are also cases in which the diseases are hidden. This does not happen often.

“There are employees who are not sick, but family members are sick, so they must be in self-isolation.” If you tell your employer that you have to stay home, do not come to the work, and the employer is pressured by the obligations of the public purchase contract, that’s what happens, “he added.

According to the interviewee, about 52 percent. Construction contractors plan to perform significantly worse, so this second wave will inevitably affect the construction industry. According to D. Gedvilas, the situation would improve if the tests of employees were carried out with state financial resources, which are not subject to personal income tax. So that contractors who demonstrate that they are delayed in the execution of works in public projects for important reasons would not be penalized.

More flexible contracts with contractors

M. Statulevičius, head of LNTPA, emphasized that there was a lot of uncertainty during the first wave of coronavirus, which is why companies decided to pause and temporarily not acquire plots.

“We really see that the Lithuanian economy, as well as the commercial and housing real estate market, have really dealt with those challenges quite quickly and successfully. Already at the beginning of the summer, we saw projects that are quietly recovering, plans for next year as well. The companies that had announced large projects that they were developing in stages also continued them. That optimism certainly held up into the summer and fall. Even more so when we saw an almost record October in terms of sales. In response to that demand, the supply was certainly active.

But of course, now that circumstances have changed, seeing those restrictions tighten in difficult conditions to recruit workers, it is natural for developers to work shoulder to shoulder with contractors and monitor how they can meet their obligations.

Actually the infections that we are seeing are, as a result, some projects face some challenges. From what the members of the association had to speak, the projects are planned in a more flexible way, that is, it is estimated that in autumn-winter the situation may be more difficult, there may be epidemiological rupture brigades and there is a certain tolerance to the project delays, some buffers. , maybe even two months on the project provide additional time. I had to ask if the terms of the contracts were made more difficult to request additional insurance or warranties from contractors. Often this is not done, but it is understood that there is a common situation, a challenge. Safety is the most important component: employees must be protected and their health must be maintained on the team, ”said M. Statulevičius.

According to the interlocutor, projects developed in metropolitan areas will not be significantly delayed, except in some isolated cases.

Construction will be more expensive for buyers

As noted by M. Statulevičius in the program, construction works in the total price is one of the main components.

“These rising construction prices have always determined the prices of equipment, raw materials, infrastructure and plots. The work component was always significant. Both the aggregation of results from this year and next will likely require a self-assessment in the budgets that construction prices will increase. As we know, now it is difficult to bring workers from third countries, our Lithuanian workers must be retained so that they do not go to foreign countries. It is necessary to offer really competitive salaries with the western states, not even to compete in your own country with another competing builder, but to compete with the salaries of the western metropolises and for the people who have been paid to stay here. So many new professionals are not entering the market. So many people are not retrained from other sectors, ”said the interlocutor.

He predicts that construction prices in private projects will grow between 5 and 7 percent. In public projects, as can be seen, the award of the lowest bid is valid, which later in the development of the project turns out that the price was too low, the work became more expensive.

“Individuals do not really buy at the lowest price, they buy according to the reliability, the inspection established in the companies, certain results of the past. Definitely don’t buy at the lowest price, buy quality. It is here that price growth is likely to be between 5-7 percent. It sure won’t surprise you.

It will definitely not be one to one carried over to the final price. The final price is also likely to increase, but for other reasons such as new energy requirements for buildings starting next year, infrastructure charges starting next year, land policy, etc. It should be understood that construction work alone is not the price of a project. It consists of both the plot and the infrastructure, as well as the prices and the competitive environment of the companies in the market. If construction can become more expensive, the purchase of a plot can be negotiated and the infrastructure can be cheaper. There are many active elements.

But that prices will not fall, and all the reasons and components show that their growth is a fact “, assured M. Statulevičius.

Gedvil said it was difficult to predict how much the construction would cost. However, as indicated, the results of a survey of the construction sector showed that 64 percent. all participants said that construction costs increased 10 percent. 23 percent of respondents said prices rose more than 10 percent. 41 percent. of all respondents confirmed that their wages had increased to 10% and 25%, respectively. more than 10% of those surveyed confirmed that prices have risen.

“Today’s construction contractors are monitoring, trending all price growth and we see that 87 percent. all respondents unequivocally confirm that construction costs have increased. When forecasting the future, there must be a change in public procurement, because whoever built today runs a great risk for the lower price, ”said D. Gedvilas.