The cost of construction costs in Cyprus has skyrocketed in recent months. In addition, the recent rise in oil prices has further worsened the situation.
The rise in prices for building materials on the world market is causing significant concern in Cyprus.
The industry estimates that an increase in prices for basic building materials at the international level (building iron, building steel, wood, copper) will have deeper implications as it affects the industry as a whole. The changes have already affected both private and public, large projects.
Charalambos Pitros, member of the Royal Institution of Chartered Surveyors (MRICS) and the European Real Estate Society (ERES), named several factors that contributed to this development. Among them:
Since October 2020, crude oil prices have risen by about 80%. Petroleum plays an important role in the construction industry, since the production of building materials, their transportation and the operation of construction equipment depend directly on it.
Active home improvement
During global and partial lockdowns, property owners were forced to stay at home for a long time, unable to go on vacation or spend money on their social needs.
Therefore, having the time and money available, they began to actively carry out the reconstruction of their home (repair of facades and rooms, expansion of the existing area of the building, etc.).
This caused an imbalance between supply and demand for building materials, which to some extent persists to this day. Finally, the combination of low mortgage rates and remote work has convinced some apartment owners to buy homes. Thus, the growing demand for large areas has prompted further activity in the construction and renovation sector.
Around the world, there is a surge in investment in infrastructure projects from the government and Cyprus is no exception!
This method is considered the safest and fastest way to create a large number of jobs, offering a higher fiscal multiplier of national GDP. In turn, investments in infrastructure projects involve the use of a large amount of building materials and, thus, cause further price increases for them.
Moreover, the growing demand in the automotive industry around the world, especially for electric vehicles, is driving a further increase in the consumption of steel, aluminum and especially copper, which is an important element in the construction industry of pipes, plumbing, electrical wiring, heating and cooling.
The increase in the cost of transporting goods by sea at the end of last year has already begun to affect the cost of certain categories of imported building materials to Cyprus. The main reason is a pandemic, which caused a variety of disruptions to economic activity: production stoppages, disruption to supply chains (including due to the shortage of containers in China), a surge in e-commerce, and a shortage of labor in ports. All this together has increased the cost of imports and, therefore, influenced the final prices of materials that reach the consumer.
The rapid rise in construction costs makes it less affordable for the residents of the island. At the same time, this creates big problems for developers who can make mistakes when calculating the cost of building new housing at the initial stage of launching a project and lose some income.
Following this, rising construction costs are causing a slowdown in sales of new homes which are now under construction, increasing the demand and prices for secondary and finished properties in Cyprus.
According to Pitros, the rise in material prices occurred at the wrong time, since a large number of houses under construction could be a solution to the existing problem of housing shortages in the country.
In terms of future construction costs, while demand is expected to persist for some time, the key determinant will be how quickly normal production and transportation of building materials around the world will resume.
Pitros is confident that prices for building materials will remain high for at least 1-2 years. We can hope that the cost will return to the pre-crisis level only by 2023, and construction costs will decrease, the growth rate will be from 3% to 5% per year.
You can find profitable options for buying real estate in Cyprus on the DOM Real Estate portal. The website also has a large number of rental properties - from residential to commercial real estate. Choose and contact professionals who will help you make the right choice!
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