Building material cost has gone up – Hard time for contractors
|The building material price has increased dramatically from the end of 2022 until now. That leads to high construction costs for housing projects and causes many people to struggle in building their homes.|
The prices of raw materials have increased across the board
Price situation for some building materials
According to data from the General Statistics Office, cement prices in Q3 and Q4 of 2022 are expected to increase by 4% to 6% compared to the same period in 2021.
Specifically, according to a report from VIRAC, the production cost of cement is concentrated with 45% on rocks, 40% on coal, 10% on electricity, and 5% on other factors. Coal is a worrying factor as the domestic coal supply has not yet met the demand, forcing imports from foreign countries. However, with coal prices fluctuating around $400/ton while cement companies only use coal at $40-50/ton, it will continue to pose difficulties for production enterprises.
The price of home maintenance materials rose by 0.99% in February, making a significant contribution to the increase in the CPI of the economy. Steel prices have increased due to the rise in the prices of input materials such as iron ore, coking coal, and scrap steel, but the actual consumption demand is still low.
Mr. Dinh Hong Ky – Vice Chairman of the Vietnam Building Materials Association said: “Although steel prices have risen, consumption demand tends to be opposite. Currently, steel consumption only reaches about 50% of the capacity of manufacturers in Vietnam.”
Reasons for the increase in building material prices
The main reason for the increase in cement prices, as stated by manufacturers, distributors, and agents, is due to the increase in input material prices during cement production, along with the high transportation costs of imported raw materials due to the rising price of fuel. Additionally, the scarcity of coal supply has led to a gradual increase in coal prices, causing the production cost of cement to rise accordingly.
Difficulties for construction contractors
Impact on the real estate industry
Facing the trend of soaring steel prices, securities companies believe this is an opportunity for steel companies, but it also poses difficulties for the construction and real estate industries.
The sharp increase in steel and other construction materials prices has affected the investment costs of many projects, constructions, and the real estate market. Many construction companies and contractors are facing difficulties in implementing their construction activities, especially in fulfilling signed contracts.
According to calculations by construction investors, for one construction contract, building materials (including steel, cement, stone, construction sand, etc.) account for 60-70%. Steel accounts for about 20-25% of the cost of constructing an apartment building and about 30% of the cost of constructing a row house. Therefore, high steel prices, along with other costs, will increase the construction cost by about 15%.
The cost of steel accounts for 15-20%, and the rest is the cost of land, construction, management, and profit of the enterprise. With real estate products, all of these costs will be factored into the selling price, which will be borne by homebuyers.
As an inevitable consequence, when building material prices increase, investors are forced to adjust property prices to compensate for the rising material costs. This will make customers hesitant to pay. In case the selling price is not adjusted, the investor must accept a decrease in expected profits.
Moreover, the cost of project implementation also increases due to legal issues causing the project timeline to be prolonged. Finally, high bank interest rates also increase the cost of project development. Even if investors accept a greater reduction in profit, it is difficult to reduce the price of affordable housing.
Currently, housing prices are high, and if all input costs cannot be controlled, it is even more challenging to lower selling prices. With the current inflation rate, it is even more challenging for low- and middle-income earners to afford affordable housing because their income increases at a slower pace than the rising prices.
Suggestions from the government
Firstly, it is necessary to focus on implementing large-value projects first to avoid disrupting the construction timeline.
In the official dispatch on April 1st, Prime Minister Pham Minh Chinh emphasized that expressway projects are national projects that serve the common interests of the whole country. Therefore, the chairmen of provinces and cities must give the highest priority to resources and materials to accelerate the progress of the projects.
Localities are responsible to the Prime Minister if there is a situation where mining licenses expire, are not eligible for renewal, or there is a lack of materials for the project.
The Chairman of the Provincial People’s Committee directs the departments, industries, districts, and towns, along with investors and contractors, to negotiate with property owners on compensation prices, support, land rentals, tree, and flower compensation, etc. for new mines identified in surveys for construction materials to serve projects, ensuring compliance with the state’s regulated compensation rates.
In particular, the price needs to be strictly managed, not to be raised, pressured, or sold at higher prices than those announced by local authorities.
Development of material prices in the near future
In the past month, the steel price surge has tended to weaken and stabilize again.
Following the declining trend of steel prices worldwide, domestic steel brands have simultaneously adjusted their construction steel prices downwards after six consecutive increases since the beginning of this year, with a decrease of over 600,000 VND/ton.
Specifically, Vietnamese steel brands such as Viet Duc, Hoa Phat, Viet Y, and Viet Sing have adjusted their prices with an average decrease of 100,000-610,000 VND/ton. Currently, the price for this commodity is around 15-17.6 million VND/ton depending on the brand and type of steel.
Notably, the “big player” Hoa Phat has reduced the price of CB240 coil steel by 300,000 VND/ton in the northern region, after adjusting its price to 15.66 million VND/ton. Similarly, the price of D10 CB300 steel bars has slightly decreased by 100,000 VND/ton, from 15.99 million VND/ton to 15.89 million VND/ton. Hoa Phat’s steel products in the southern region have also seen similar price reductions.
The construction materials group is still regarded as a potential commodity due to the impact of expectations for the recovery of the construction market (especially infrastructure construction).
The expected GDP growth is around 6.5%, while global economic growth is forecasted to reach only about 1.5%, with an average of about 5% for Southeast Asian countries.
In the domestic market, the National Assembly has passed a 350 trillion VND economic recovery support package for the 2022-2023 period. Of this, 113.84 trillion VND is allocated for infrastructure development, focusing on key projects such as the North-South expressway, Long Thanh airport, and large logistics ports. This will lead to a high increase in steel consumption in the near future.
– Business research
– Market research
– VIRACE data platform