Inflation has emerged as our worst enemy in the past few years. The global economy is experiencing unstable healing after the pandemic. The global economic crisis has plunged the countries into long years of struggle and instability. The inflation and rising prices around the world are spurring up agitation and anxiety among people, businesses and industrial sectors right now.
Inflation often seems like the worst nightmare for investors, contractors, builders and other major stakeholders in real estate businesses. This is mainly due to the raised prices of raw materials, construction machinery and labor wages.
Under the current circumstances, the increased inflation rate in Pakistan appears to be the primary reason behind the spiked up prices of property, construction operations and services. However, its resulting outcomes are not only limited to the consumer’s cost of living but it has also rendered several other noticeable negative impacts for the society as a whole.
Contribution of real estate in Pakistan’s economy
The construction sector in Pakistan is one of the main industries driving the economy of the country. The findings of the World Bank calculation suggest that the real estate market in Pakistan is worth nearly $400 and $300 billion. Moreover, the total wealth of real estate in Pakistan accounts for 60% and 70% of the complete assets of the country. The turbulence in the real estate market is also due to political, economic and financial challenges faced by the country.
Negative impacts of high inflation rate on the construction market.
Currently, the construction business is stained with massive disparity mainly due to inflation. Before diving deep into inflation’s impact on the construction sector, the quick highlights of the subject of as follow
In the past year, residential construction costs in independent and multipurpose structures have increased by 21%. Inflation has spiked up the prices of building materials and land by 30% that urged the builders to sell the properties and services at higher rates.
- An unusual rise in construction material prices.
- Increased labor costs.
- Staffing challenges as a result of inflation.
- High-cost construction material.
- Soaring cost of transportation costs and labor expenses.
Inflation in construction material
The construction material costs is undergoing an upsurge in the past few years. Developers are expected to invest more in the construction of new projects due to the increased cost of construction material from domestic and international suppliers which leads to a looming rise in prices for all real estate assets.
Building material is responsible for 35% to 65% of the total cost of a construction project. Steel, being the common material used in the construction project has recently undergone a major upsurge in price. These circumstances have threatened the contractors and builders and compelled them to reevaluate their budget of initiating the construction project that often lead them to delay their plans.
Inflation in construction machinery
Construction machinery act as an essential resource in the project in both small scale as well as large scale projects. While assessing the project development cost, the construction machinery cost is also evaluated wisely. Due to the rapid inflation rate, the cost of construction machinery is also rising rapidly which has emerged as a common cause of cost overruns and project delays for contractors and builders.
Inflation in labor wages
Like all other sectors, the workers in the construction industry are also demanding increased wages for the labor. This is mainly due to increased living and food costs and the low buying power of workers that compel them to increase their compensation costs. The increased labor cost accelerates the initial and final cost of the project.
We have adequately learned about how inflation negatively impacts the construction sector. Now let’s peer into the ways to overcome these impacts and reap some benefits through this imminent situation.
Recommendations to combat the impact of inflation on the construction sector
Do not be afraid though, there are several ways to work around that can you protect yourself from the negative consequences of increasing inflation rate.
- Modify the design smartly to a more modern and minimal form.
- Less material usage.
- Avoid material wastage.
- Get higher income from a rental property due to high property prices.
Needless to say, real estate is still the most ideal choice to secure your future and shield yourself from the overall adverse repercussions of inflation.