Home builders

Homebuilders reeling from rising cost of building materials

When Ram Krishna Gurung started building his house at Sahayogi Nagar in Koteshwar about nine months ago, he estimated that the price would be between Rs 7 and 8 million, depending on the cost of materials at the time.

But his calculation turned out to be very wrong.

“I had thought that a three and a half storey house could be completed for Rs7 to Rs8 million,” Gurung said. Then the prices of building materials started to skyrocket. “Now it looks like the cost will be over Rs 10 million.” He is still trying to finish his house.

Industry insiders say serious demand and supply chain issues emerged immediately after countries began lifting Covid restrictions. Limited distribution has led to inflationary pressures globally.

Then the world was faced with an energy crisis. The cost of steel, cement, glass and other energy-intensive products have all started to rise due to the energy crisis.

In India, more than half of its 135 coal-fired power plants are running on smoke while coal stocks are extremely low. The southern neighbor burns coal to produce 70% of its electricity.

As the energy crisis puts pressure on India’s energy-intensive industries, Nepal is also feeling the effects. Nepal imports most of its building materials from India.

The prices of aggregates, steel, wire and cement have exploded. Many private homes remain unfinished due to the high cost of building materials, contractors say.

“Prices of cement and iron bars have increased by 10 and 20 percent respectively in the past three months,” said engineer Kunjani Rai, program manager at Kuto Construction and Consultancy.

“The price of sand and pebbles has increased by Rs3,500 per truck. Three months ago the price was Rs24,000 per truck, now it costs Rs27,500. With the increase in the prices of building materials, the cost construction of a house has increased by 20%”, explains Rai.

“Three months ago, you could build a one-story house in Kathmandu for Rs 4 million. Now you have to spend Rs 4.8 million.”

Prices for goods, including building materials, surged in January last year after the first wave of Covid-19 waned, triggering a burst in construction activity.

As a result, demand for building materials surged, but supply remained subdued due to low production.

The emergence of the Delta variant prompted the government to impose a second lockdown in April last year. After the restrictions were lifted in September, construction activities picked up strongly again.

“Building material production was relatively low during the lockdown and restriction period,” said contractor Prakash Karki. “As soon as the Covid restrictions were lifted, demand surged and there was a huge gap between supply and demand. Materials have become expensive.

Monthly consumer price inflation in Nepal hit its highest level in 64 months in December last year, rising to 7.11% from 5.32% in November, according to the Nepal Rastra Bank.

Prices started to rise at the end of February due to the Russian-Ukrainian war. “The war has disrupted the global fuel supply chain,” Rai said. “With the exponential growth in fuel prices, transportation costs have also increased, making each product more expensive.”

In July 2021, the Department of Transport Management authorized freight carriers serving the Tarai and hill routes to raise freight charges by 26 and 20 percent respectively.

Again in April this year, the government allowed them to increase transport charges by Rs 13.45 per km per tonne, a 13% increase. Over the past two years, transport costs have increased by at least 40%, according to transport contractors.

The international market price of Brent crude oil produced in the North Sea jumped 60.3% to $110.39 a barrel in mid-March 2022, from $68.87 a barrel a year ago, according to Nepal Rastra Bank.

the diesel price in Nepal, the key driver of inflation, swelled to Rs143 per liter from Rs85 in April 2020.

After the rise in prices of foreign goods entering Nepal, the country’s foreign exchange reserves began to deplete faster. Nepal Rastra Bank then issued a guideline requiring importers to maintain 100% margin amount to open Letter of Credit (LC) to import 10 types of listed goods.

“It made building materials even more expensive,” Rai said.

According to the central bank, Nepal’s import bill reached 1,308.73 billion rupees in the first eight months of the current fiscal year, a jump of 38.6 percent from last year.

The country’s foreign exchange reserves fell by 16.3% to 1,171 billion rupees in mid-March 2022 from 1,399.03 billion rupees in mid-July 2021.

Building materials such as bricks, marble, tiles and ceramics are among the 10 goods listed. “While it discouraged imports, demand grew so much that building materials became more expensive,” Rai said.

According to Nepal Rastra Bankwholesale building materials prices rose 24.24 percent year-on-year in the first eight months of the current fiscal year ending mid-March.

“Five or six years ago, it cost between 2 and 2.5 million rupees to build a four-room, one-storey house in the valley. Until six months ago, a house with basic facilities could be built for around 3 million rupees,” said Karki, who has been a building contractor for 10 years.

“Six months ago, I got a contract to build a one-storey house in Lokanthali, Bhaktapur. It’s still not over, but the cost has already exceeded Rs3 million.

The price of iron bars was Rs 94 per kg six months ago. Now it costs Rs 135 per kg. Similarly, the price of cement, both Portland Pozzolana Cement (PPC) and Ordinary Portland Cement (OPC), has increased by Rs 100 per bag over the past three months.

The period between mid-February and mid-June is the peak construction season in Nepal.

While most building materials have become expensive, the price of bricks has not changed much.

“Considering the increase in coal coins, the price of bricks should have increased as well, but it did not increase due to strong competition and low demand,” said Mahendra Bahadur Chitrakar, Chairman of the Federation of Nepal Brick Industries.

“Brick manufacturers suffer losses. Many factories could close in the coming days. Therefore, the price of bricks may see a big increase next year, according to Chitrakar.

Rai also thinks the price of bricks will increase in the coming days.

“Brick factories will be closed with the onset of the monsoon,” Rai said. “Since they will have inventory to sell and no workers to pay daily, they could raise prices. We too have encountered difficulties in completing contracts on time due to rising prices. »

Contractors say people who have started building their homes are taking a break, waiting to see if prices will come down. New projects have been put on hold due to the high cost of building materials.

“Rising prices have depleted my savings,” said homebuilder Gurung. “I also took out loans to manage my household expenses.”