Soaring construction cost hits uplift projects

Departments face budgetary constraints due to inflation

LAHORE:

Following consecutive increases in fuel and energy prices, rupee depreciation and overall inflation cost of all development and commercial projects have been increased by 30%-35%.

Contractors working on government development schemes and private commercial, residential projects have demanded escalation from their respective project owners.

Speaking to The Express Tribune, senior officials of the Lahore Development Authority (LDA) and Construction and Works (C&W) Department disclosed that contractors have demanded over 30% escalation in ongoing development schemes owing substantial increase in the prices of construction materials.

They indicated that there is no provision for escalation in small development projects and departments are making decision on case-to-case basis as per provision of the law and budgetary constraints.

Habib Construction Company Chief Executive Officer Shahid Saleem claimed that even after approval of the escalation estimates, contractors of most ongoing development projects would suffer losses owing to unprecedented increase in the price of construction materials.

“We, contractors, are just trying to save our reputation and as everything of our business is at stake right now. We have given performance guarantees, deposited retention fees and security deposits and everything is at stake in case of default or non-performance owing to any reason,” he said.

He pointed out that steel prices have been jacked up by nearly 20% in a month. Cement and crush rates have swelled by 50%, which has multiplied construction cost of almost all projects. Contractor working with private sector are still a bit comfortable as owners and businessmen understand current market situation but contractor working with the government department are under serious stress.

Prices of almost all construction materials have been increased but official government rates are still very low. Right now, steel is being sold for Rs235,000 per ton in market and the government’s notified rate is still at Rs200,000 per ton.

In addition, the government withheld 7% tax on its notified rate and escalation costs, which further causes loss to contractor.

“We understand that the current economic situation does not allow the government to give some bailout package to construction sector but the government should sympathetically allow contractors to give insurance guarantees instead of bank guarantees and review security deposits.

It will help easing out liquidity issue in the construction sector,” he maintained.

Pakistan Steel Re-rolling Mills Association former Chairman Asmat Pervaiz disclosed that steel prices are increasing on 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.

Another contractor, Ali Bilal, pointed out that price of cement has been increased by almost Rs400 per bag and still the commodity is hard to find in the market.

Cement rate has been increased from Rs800 to Rs1,100-1,200 per bag in market owing to consecutive increases in fuel and energy costs. Similar is the situation of other construction materials.

A housewife, Naheed Malik, indicated that she has started purchase of finishing materials though grey structure of her house is not yet completed.

“I know that I will require these materials after 3-4 month but I am trying to save the maximum on material cost since prices of all materials are jacking up rapidly,” she said.

“I was buying cement at below Rs800 per bag some weeks ago when the house construction was started now it is being supplied at over Rs1,100. If similar trend continues the dream of own shelter would remain an unfulfilled dream for a majority of the population,” she lamented.

Published in The Express Tribune, June 30^th, 2022.