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Costly materials weigh down the real estate sector

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A construction site in Nairobi. FILE PHOTO | NMG

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Summary

  • The cost of construction shot up last year driven by a rise in prices of materials, labour, equipment, transport, and civil engineering.
  • Data from the Economic Survey 2021 shows that the overall construction index increased by 0.3 percent from 102.37 in the third quarter to 102.64 in the fourth quarter of 2020.
  • There were notable increases in the indices of materials and labour that grew by 0.1 percent and 0.5 percent, respectively, while the index of equipment remained constant at 99.80 in the same period.

The cost of construction shot up last year driven by a rise in prices of materials, labour, equipment, transport, and civil engineering.

Data from the Economic Survey 2021 shows that the overall construction index increased by 0.3 percent from 102.37 in the third quarter to 102.64 in the fourth quarter of 2020.

There were notable increases in the indices of materials and labour that grew by 0.1 percent and 0.5 percent, respectively, while the index of equipment remained constant at 99.80 in the same period.

The index is poised to rise sharper this year over the increase in prices especially as demand picks up post-Covid-19 period.

“The rise in the material index was as a result of an increase in prices of reinforcement steel bars, machine cut stones, and timber,” KNBS said.

The end of Covid-19 restrictions this year has seen a resumption in demand that has fueled a sharp rise in building materials especially steel.

Real estate project owners are staring at higher costs following a 50 percent increase in global steel prices, driven by rising demand amid supply chain disruptions in India and China due to Covid-19.

Data from the London Metal Exchange, the centre for industrial metals trading, shows that a tonne of steel bars has risen from Sh40,000 in April 2020 to Sh81,000.

In its 2021 January-June status of the built environment report, the Architectural Association of Kenya (AAK) said a kilogramme of construction metal had risen to Sh125 from Sh85 in December 2020.

This will translate to higher costs for builders, some of whom have already inked contracts that factor in lower prices of the material.

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.