Rising construction costs hit development projects

LAHORE: With the simultaneous increases in fuel and energy prices, rupee devaluation and overall inflationary pressures, the cost of all residential and commercial construction projects have grown by 30-35%. 

Contractors involved in these development projects have demanded escalation from the respective project owners. 

Senior representatives of the Lahore Development Authority (LDA) and Construction and Works (C&W) Department revealed that contractors are pushing for over 30% escalation due to the significant increase in prices of construction materials. 

However, there is no provision for escalation in small-scale projects, and the relevant departments are taking appropriate measures on a case-to-case basis, guided by the law and budgetary constraints. 

Habib Construction Company Chief Executive Officer Shahid Saleem stated that even after approval of escalation, contractors of most ongoing projects would continue to face losses because of the unprecedented increase in prices of construction materials.

He highlighted the 20% increase in steel prices in the duration of just a month. Cement and crush rates have also soared by 50%.

However, government rates for construction materials are still listed as lower. The government also withheld 7% tax on its notified rate and escalation costs, which has caused further losses.

“We understand that the current economic situation does not allow the government to give some bailout package to the construction sector but the government should sympathetically allow contractors to give insurance guarantees instead of bank guarantees and review security deposits. It will help ease out liquidity issue in the construction sector,” said Shahid Saleem.

Pakistan Steel Re-Rolling Mills Association former Chairman Asmat Pervaiz admitted that steel prices are increasing on a daily basis.

“We are unable to understand the current market dynamics as it never happened in the past. During a couple of weeks, steel products, bar, angle and girder rates have witnessed an increase of Rs25,000 to Rs30,000 per ton. Right now, grade steel products are being traded between Rs235,000 and Rs237,000 per ton. Similarly, local steel products are hovering between Rs205,000 to Rs215,000.”