The growth in demand for real estate in Cyprus, especially high growth in the suburban segment, combined with a strong increase in prices for building materials, has greatly destabilized the country's construction industry. Builders already refuse to make any forecasts, but prices for new buildings (which have already skyrocketed in some segments by 1.5-2 times) - they will continue to grow.
According to the Cyprus Statistical Office, in June 2021, prices for building materials in the country increased by 11.59% during the year.
The first six months of this year have a 6.15% rise in prices over the same period last year.
The building materials price index for June 2021 reached 112.54 points (in 2015 = 100.00), an increase of 2.95% versus the previous month and 6.15% versus June 2020.
As you may know, the price index of construction products reflects the change in prices in the construction of objects of various types of economic activity.
It should be noted that the largest increase in prices for building materials was recorded in the following categories:
- metal products - by 24.76%,
- wood products, insulation materials, chemicals and plastics - by 9.63%,
- minerals - by 2.87%,
- electromechanical products - by 10.66%,
- mineral products - by 1.14%.
It should be noted that the growth in the cost of building materials used in residential construction on the island is primarily due to the dynamics of prices in the world market, in which the construction sector of Cyprus is deeply integrated.
Experts argue that the main reason for the rise in prices for building materials is the pandemic, which caused various disruptions to economic activity: production stops, supply chain disruptions.
At the same time, a sharp rise in the cost of building materials is one of the main problems of construction, especially cheap one. The existing pricing system does not take into account market fluctuations and requires revision.
By the way, if the prices established by the new contracts are not adjusted towards their reasonable increase, then the vast majority of them will not be fulfilled. The construction of new housing units runs the risk of becoming unprofitable.
However, developers say that there is a way out of any situation.
Another question is due to what and with what consequences. In conditions of such instability, it is especially important to regulate the processes, and this can be done, among other things, with the help of comprehensive government measures.
Otherwise, in the residential real estate sector, in addition to rising prices per square meter, a wave of developers' bankruptcies may arise in the future, which will provoke an increase in the number of defrauded clients. There will be long-term construction projects in the commercial segment of the market that will at least spoil the appearance of the cities of Cyprus. By the way, it is wrong to stop running construction processes from the point of view of technology - a long downtime affects the quality of the further operation of buildings.
Unfortunately, the rise in prices for building materials eats up a significant part of the profit that local developers were counting on. And it seems that this is not the limit. There is no doubt that further increases in the cost of building materials will have a negative impact on the real estate sector. and hence the economy of Cyprus as a whole.