Lhe increase in the cost of building materials is a real headache for companies operating in the construction and real estate development sectors. Operators are between a rock and a hard place. On the one hand, there is the surge in production costs and, on the other, the regression of demand under the effect of the economic crisis. Consequence: their margins and their volumes of activity should take a serious blow, pushing them to make difficult arbitrations.
A survey by the Ministry of Industry and Commerce recently published reports an unprecedented increase, which affected the main materials: glass (+189%), copper (+61%), aluminum (+51%), stainless steel (+39%), electric cables (+32%), wood (+25%) and concrete iron (+19%). Other products experienced a slight increase, such as cement, concrete and ceramics.
“The surge in building materials is not cyclical, but seems to be taking place over a long period. Everything suggests that prices will rise further. The pandemic has disrupted value chains that are still unable to regain cruising speed. As a result, the supply of products and inputs shrinks. Rising transport and logistics costs as well as geostrategic tensions around the world, particularly between Russia and Ukraine, two major exporters of raw materials, have further accentuated this outbreak. This is a situation very dreaded by operators in the construction sector, as it significantly reduces visibility and puts them in uncertainty and instability. When we launch a project, we make projections, in particular the cost price to set the margin, and then establish the selling prices in order to ensure a return on investment. This operation is currently very difficult. Most professionals navigate by sight and cannot adopt well-crafted development plans,” emphasizes Mohamed Alaoui, real estate expert. IWhen asked regarding this, real estate developers are perplexed.
Several of them have decided to revise their investment programs downwards. Moreover, loans granted to promoters are part of a downward trend. They fell by 5% in January 2022, following -7% at the end of December 2021 and a virtual stagnation a year earlier. “With the reduction in health restrictions, we thought that the situation in the sector would improve and that activity would resume its normal rhythm. But it seems that the economic slump will last at least for the current year. The increase in inputs has further complicated the situation, as it will be passed on to selling prices. With the current level, this should deal a serious blow to the market which shows several signs of running out of steam.underlines Mohamed Regragui, promoter in Casablanca.
Under the effect of these constraints, several professionals in the sector have deemed it appropriate to postpone the launch of new projects until better days. Among construction operators, the same feeling of concern prevails. The assurances given by the government, such as the strengthening of public procurement, 75% of which goes to the sector, do not seem to be enough for them. Because it is difficult to respond to a call for tenders by establishing projections in line with reality and the evolution of the market.