Author Archives: admin

property in cyprus

What is the cause of the recent increase in building costs, and what is the next step?

The cost of building in Cyprus has skyrocketed. The recent increase in fuel costs has exacerbated the problem, since the price has a domino effect on the pricing of all materials used in construction.

Steel, cement, sand, stone aggregates, and wood-oriented products have all witnessed price increases in the previous year, raising the entire building cost.

Aside from the current housing demand, we have classified the key variables that lead to growing building prices below.

Oil

Since October 2020, crude oil prices have risen by about 80%. Oil is critical to the construction industry since it is used in the manufacture of building materials, their transportation, and the operation of construction site machinery.

Increased home improvement activity and a supply delay

During the global lockdowns and semi-lockdowns, householders were confined to their homes and were unable to enjoy vacations or incur social costs. With more time and money on their hands, there was certain to be a surge in house remodelling activities (renovations of some rooms, extensions of current ones etc.).

At the same time, the lockdowns create a delay in material output. This has resulted in a supply-demand mismatch that has persisted to some extent to the present day.

Finally, the combination of cheap mortgage rates and the trend of working remotely prompted some apartment owners to buy a house, resulting in increased demand for more space.

Planned infrastructure expenditure and electric cars

Governments are increasing their investment in infrastructure projects throughout the world (mostly USA and China). This move is seen as the safest and quickest approach to create a large number of jobs, while also providing a greater fiscal multiplier on a country’s GDP.

Looking ahead, the investment in infrastructure projects is sucking up a lot of resources, causing a significant increase in all building materials.

Furthermore, the rising demand for automobiles, particularly electric vehicles, is creating a growth in the use of steel, aluminium, and, in particular, copper, which is a vital element in the building sector in the form of pipes, plumbing, wiring, heating, and cooling systems.

Transportation As an importing country, current transportation difficulties such as capacity limits, container shortages (container crisis), an increase in the demand for transportation space, and port labour shortages are creating increased importing prices, which are then passed on to consumers.

Costs of construction What comes next?

The fast growth in building costs worsens affordability for consumers while creating economic difficulties for developers because their estimates may be completely wrong once the project begins or during the development phase.

While there is limited opportunity to modify pricing for current contracts, expenses for new projects are being passed on. Following that, rising building costs are slowing sales of off-the-plan new houses while raising demand and prices for resale and key ready properties.

Unfortunately, increased building costs occurred at an inopportune moment, as a robust supply of dwellings is the solution to the current housing shortfall.

Regarding the future of building costs, while demand is likely to stay up for some time, the major factor is whether and how quickly production and transportation will return to full capacity.

In this regard, based on market expectations, we believe that building costs will stay high for another 1-2 years before returning to pre-pandemic levels by 2023. By that time, building prices will have slowed to a more typical annual rise rate of 3% – 5%.