Housing prices and construction expenses may rise in the coming months with the expected price hike of raw material prices, such as cement, because of the ongoing conflict between Russia and Ukraine.
According to construction companies, costs that were estimated before the current spike in gasoline prices are at risk of spiraling out of control, and end-users will eventually have to help them recover the costs.
In an email with BusinessWorld, vice-president for business generation and technical services Aboitiz Construction Levi B. Agoncillo said the rising cost of fuel will have a significant impact on their company, especially in equipment-intensive projects like site development.
Fuel costs directly affect the cost of nearly half of Aboitiz Construction’s operations. According to Agoncillo, the company won previous projects won based on previous fuel costs. They are now purchasing at higher costs to feed their trucks, excavators, graders, and other heavy equipment; this is one reason construction costs will probably rise in the future.
Holcim Philippines, Inc., one of the leading supplier of cement and aggregates in the Philippines, cited that surging commodity prices are obviously hurting cement manufacturing costs. Fuel and electricity costs account for much of their total manufacturing costs.
According to Holcim, it “cannot fully absorb” the cost hikes and will have to pass these on to customers. Despite their operational efficiency measures and alternative fuel and raw material use in recent years to help control energy commodity price volatility and promote sustainability, these do not counteract the tremendous price increases we are experiencing. Somehow the same thing that Aboitiz Construction stated.
The cost of building factories to produce goods and infrastructure to deliver the items will be more costly, as Mr. Agoncillo of Aboitiz Construction stated, and cost hikes will be “indirectly passed on” to consumers.
Real Estate Costs
One crucial component of construction costs, real estate prices, “would undoubtedly increase if fuel or energy prices remain on an upward trend”. This is according to Claro dG. Cordero, Jr., director and head of research at Cushman & Wakefield.
According to Aboitiz Construction, the government can ease increasing fuel prices by temporarily lowering the fuel tax to soften the impact on business.
For the real estate sector, according to Cushman & Wakefield’s Mr. Cordero, data-driven forecasting on the movement of construction input prices can help stabilize real estate values, and may require hedging against price swings.
He also advocated strategic agreements with contractors and suppliers to share the risk and returns associated with construction cost variations.