Year 2011 saw significant hike in cost of construction following 2 years of decline in year 2009 and 2010. There seems to be no immediate respite in sight for construction industry as the costs of building materials continue to rise from an year to another. To ensure survivability, mid-size contractors reduced profit margins to meet the rising supply costs in the year of 2011.
What figures have to say
What figures have to say
The prices of all basic raw materials shot up last year with steel rising up by 10%, diesel 39% and copper by 17%. In addition, United States and European nations have to face competition from faster-growing economies like China and India which seem to be preferred choice of raw material producers. Ken Simonson, the chief economist for The Associated General Contractors of America (AGCA) mentioned in an interview that materials costs for construction greatly outstripped the Consumer Price Index and even the overall Producer Price Index in the first four months of 2011.
Taking figures into account, for developed economies the construction index rose by 7.5 percent in May 2011 while the Consumer Price Index during the same time period only rose by a modest 3.6 percent. The widening supply-demand gap in developed economies can be considered as one of the major factors leading to the lower sales. The construction cost index (CCI), an indicator showing the trend in the costs incurred by contractors in the construction of buildings across EU countries, also shot up by 2.5% in year 2011 as compared to 2010.
Averaged across the year, costs for 2011 were +1.6% higher than the mean for 2010 in US. According to an independent study, Switzerland has the highest cost of construction because of its expensive labor and the strength of Swiss franc.
The uncertainty in global oil markets led to a hike in fuel prices, which increased the cost to transport building material from manufacturing unit to the construction site. Apparently the increment was big enough to significantly affect the overall cost of construction.
Other side of the story
For the developing nations, however, the scenario was much more relaxed as they continue to invest in significant new-build programs to fuel further GDP growth. With the newly found purchasing capacity, the demand for real-estate has seen a regular hike year-on-year. Cheaper labor in these nations significantly decreases the overall cost of construction.
Though in China there is a lot of speculation on the Real-estate bubble, a claimed boost in real estate sector induced by government, with claims that Chinese Property Crash may already have started with the tipping point starting in Sept 2011.
Speculation of future
Market suppliers stubbornly attempting to increase commodity prices and make those price increases stick in a sullen market isn’t offering much help either. The good news, however, is that opening channels for a friendly discussion with suppliers may result in some relief for the builders soon. The real estate market across globe is in desperate need of measures that can boost up sales and economize building and supply cost.