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The period of the pandemic has disrupted the prospects of the traditional market in the business world; the construction sector is no exception.
Dalius Gedvilas, director of the Lithuanian Builders Association, explained the main reasons for the increase in raw material prices.
“I think it really has to do with the consequences of a pandemic and a quarantine. The suspension of production and the provision of services around the world has led those countries that were the first to manage the spread of the virus to return to the rhythm normal of the manufacturing business.
It turned out that the two largest markets, China and the United States, began to recover very strongly and to recover from the stagnation of the pandemic. These two large markets bought large amounts of raw materials on the stock market, so we see that this has thrown the construction markets out of balance around the world, ”said D. Gedvilas.
What has risen the most?
In supermarkets, shoppers could no doubt notice that most of the building materials went up as needed. Builders spokesman D. Gedvilas, when asked which raw material prices rose the most, said it would be easier to name those materials that had not become more expensive.
Among those raw materials, the price of which has not changed substantially, only raw materials found in Lithuania, such as sand, gravel or crushed stone, could be included. At that time, the prices of other construction tools increased significantly.
“Building materials and constructions, which are manufactured and used for the production of imported raw materials, have become very expensive.
For example, the price of good quality structural or structural steel has risen 110 percent from November last year to April this year. At that time, polystyrene and other materials became about 40 percent more expensive. All insulation films and materials became more than 100% more expensive. We see that the growth is very high ”, explained the interlocutor.
It can lead to an even bigger ‘price tsunami’
The commitment of construction contractors to perform work at an agreed price can also become a serious challenge. According to D. Gedvilas, such a situation is likely to lead to disagreements between customers and developers in the future.
“We think investors really have some risks: if they disagree, don’t talk to the contractors, there may be significant drawbacks. The contractor is likely to initiate the termination of the contract himself.
The contractor can also inform the builder of the situation due to the price increase. If you do not agree to the terms of the contract, it is believed that you will go to court and show that you could not foresee the circumstances in which prices will increase in this way during the pandemic, “said the representative of the builders.
Mr. Gedvil believes that the visible “price tsunami” in the market could continue and that, in the absence of major policy decisions, there would be even more confusion.
“It is very difficult to predict, but if major economic markets continue to rebound like China and the United States, we believe this could lead to an even larger price tsunami, leading to many negative market phenomena. Predict how this process will unfold. it is really very difficult.
We would really like the Bank of Lithuania or the Statistics Department to carry out monthly instead of annual reviews. The financial analysis must be done before so that not only market participants but also institutions can use, analyze, make certain decisions, because if they do not make those decisions, they will lack determination or political will, so we think that there can be a lot of confusion in the market ”, considered the interlocutor.
It’s not just building materials that are getting more expensive.
Mindaugas Statulevičius, president of the Lithuanian Real Estate Development Association, says that the rise in prices for building materials on the market is certainly significant, but it is worth noting that the real estate market is also distorted.
“The land market is shrinking a lot, so real estate objects have become more expensive and the development of projects on state lands becomes very risky, because such projects are stopped or additional taxes must be paid.
As long as there is no legal certainty about the setting of taxes, this is sometimes seen on a very individual basis, which makes companies feel insecure to develop certain projects. The owners of the private estate, seeing the market activity, have really raised prices a dozen or more times, ”said M. Statulevičius.
The interlocutor mentions even more new requirements that affect the total cost of ownership.
“This year the Municipal Infrastructure and Development Law came into force, which obliges developers to pay the infrastructure that is being developed to the city council, which are also additional costs that are included in the price of the property. Let’s remember that there are higher energy efficiency requirements ”, said the real estate expert.
Warns of corporate bankruptcies
M. Statulevičius believes that due to the current situation, it can be really difficult for construction contractors to stay active in the business market.
“Contractors that participate in tenders will have to raise the prices of their services and works because they buy materials, not developers. Materials are more expensive, their labor is also more expensive due to the need to hire workers, so they have little freedom to save and win bids at a lower price. Its price is higher everywhere and the competition for that, I think, will definitely be higher.
The risk is that there will be no orders, people will be left without work and in the end they will have to dissolve those brigades and think of something, whether it is looking for work abroad or changing the profile of their activities, ”said M. Statulevičius.
Developers would also expect restless days, so the fate of some companies could hang in their hair.
“The risk for developers is that the price of the property they sell will increase. As costs rise and compete, developers cannot appreciate the property that is being sold because no one will just buy it, so it is necessary to maintain that price. However, if the services were purchased expensively, then there may be no profit or the activity may stop at all – no investments or innovations will be possible.
There is a risk that certain companies simply cannot withstand this pressure and bankruptcies are likely to occur as well. At that time, the large developers will probably not suffer, because it is likely that they will have strong capital again ”, explained the interlocutor.
In a report from the Department of Statistics, M. Statulevičius hinted that a notable rise in prices in the real estate and construction sectors could be delayed until the autumn.
“There are signs that prices could stabilize in the fall. They may start to decline and there will be no such tensions in the market.
But if such a situation persists, it is natural that the rising construction costs are initially transferred to the contracts, and then to the contracts with the buyers, ”said the real estate specialist.
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