Economy

House buyers face higher costs after steel prices jump

iron

Iron metal used for construction. PHOTO | FREDRICK ONYANGO | NMG

Real estate project owners and Kenyans seeking to acquire homes are staring at higher costs following a jump in global steel prices, driven by rising demand on supply fears related to Russia’s onslaught of Ukraine, with the ongoing war and an array of Western sanctions raising disruption fears.

Steel is a vital component in the construction industry, used to make roofing sheets, reinforcement bars, steel beams and columns, windows and doors, among other products.

Any upward change in the price of steel, therefore, means a higher cost of projects.

The prices of steel in the international market have moved up by about $135 (Sh15,255) a tonne according to a Business Daily spot-check and are moving up since the conflict started in the last week of February.

A section of developers said they may be forced to pass on the higher costs of construction should the trend persist.

Russia and Ukraine account for nearly 20 per cent of the global export of steel. In the aftermath of the war, the price of steel has gone up and this is tipped to affect construction prices, said some developers.

“We are in touch with some of our clients to engage them of the development with a view to amicably agree on the margins of adjustment on the overall costs of the projects they have signed on to,” said a developer who sought anonymity. “We cannot absorb all the higher margins alone.”

Metal prices have soared as global banks cut their exposure to Russian commodities and as shipping giants avoid the country’s key ports, some analysts said.

Alongside energy, Russia is a key producer and exporter of metals and grains.

An off-plan purchase is an arrangement where the purchaser invests their money into a project or a property that is yet to be developed or to be completed, on the promise that the property will be fully constructed within a particular period.

Most Kenyan buyers and investors have been attracted to off-plan purchases due to the relatively lower prices offered by the developers, as compared to investing in already constructed houses.

Under the off-plan model, the purchaser would ordinarily have to pay the entire purchase price or the larger portion of it, which is ideally supposed to be utilised in the construction of the project.

While this may be a reasonable allure, off-plan investments are rife with risks that some purchasers have had to bear.

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