Filenews 19 April 2022 - by TheanoThiopoulou
Land development entrepreneurs, contractors and citizens trying to get a home for themselves or their children are in despair, as since November 2020, when the increase in the cost of construction materials began, there has been no price containment break until last March.
Without any exaggeration, all construction materials and with them related services are showing a serious increase month by month, now threatening to freeze housing demand. For many buildings under construction, it is possible that they will remain unfinished, as other costs were calculated by the owners and a much higher cost arises today.
The continuing increase in the cost of purchasing building materials begins to affect the housing loans of natural and legal persons in the construction sector, as in many cases it is proved that the money secured through loans for building construction is not enough, compared to the initial calculations of households and land developers, resulting in borrowers being forced to knock back on the door of banks to request an increase in the initial amount of borrowing.
According to information gathered by "F" from banks, the first quarter of 2022 went very well in terms of loan demand and disbursements made, as the housing market was still under the influence of the state subsidy plan for housing interest rates, which expired at the end of 2021. From the first quarter of '21, however, onwards, the housing market began to become somewhat... strange and unpredictable and according to banking sources some risks are emerging. One of the key factors that upsets the housing market, and especially those who have begun to build and are in the middle of the process, is the identification of extraordinary problems caused by inflationary pressures and especially the rising prices of construction products, while there is widespread uncertainty regarding the impact on the Cypriot economy of the Russian invasion of Ukraine and the sanctions against Russian interests.
As for the first part, which concerns the increase of construction materials, it seems that households and land development entrepreneurs calculated them differently and otherwise it comes out to them afterwards, seeing that the bill for the purchase of materials and services is growing and the initial cost has been exceeded. In several cases, loan money from banks is not enough to complete a building or a building complex, and land development entrepreneurs are forced to request an extension of the credit to complete the project is underway. The extra costs incurred due to the continuous increase of construction materials are borne in many cases by the buyer, who is required to pay a larger amount than what he originally agreed with the developer. However, there are also cases where the contracts signed oblige the land development entrepreneur to bear the additional cost of the materials himself.
Even citizens who have decided to build on their own - with partial agreements - see that the initial amount of lending is not enough and ask for new credit from the banks with which they cooperate. Banking institutions examine all cases of borrowers returning to them and try to see if the customer can cope with an additional financial burden and even greater borrowing.
Indicative of the situation prevailing in the market is that the rise in building costs continues month by month, as shown by the data announced yesterday by the Statistical Service (read relevant news below).
Concerns about the continuous increases in building materials, which also lead to an increase in the sale prices of houses and apartments, were also developed at the conference organized by fmw financial media way for real estate last week in Nicosia, where the challenges of concern to the market, such as the war in Ukraine and the large increase in inflation, were recognized, which may lead to a reduction in the demand for buildings.
Continuous increase in construction materials
The prices of construction materials continued in March 2022 the upward trend of the last 14 months, with the relevant index recording an increase of 19.08% compared to the corresponding month of 2021.
According to a press release issued by the Statistical Service of Cyprus, the Index of Prices of Construction Materials for March 2022 stood at 125.65 points (based on 2015=100), recording an increase of 2.22% compared to the previous month. Compared to the same month last year, the index recorded an increase of 19.08%.
By main product category, increases were recorded in metal products (31.60%), wood, insulation, chemical and plastic products (20.87%), electromechanical items (14.79%), minerals (7.38%) and mineral products (6.68%). In particular, in iron and steel products the increase from March 2021 was 34.24% and in aluminium products 19.5%. The increase in electrical materials (23.64%) was also significant.
According to data from the Statistical Service, the increase in construction costs began in November 2020 and continues... unstoppable since then, with visible growth trends and for the continuation. It is a matter of (little) time before the price index of construction materials, which in November 2020 was slightly above 100 points to touch and exceed 130 points.
