Construction: The unprecedented rise in prices for construction materials, which began before the outbreak of war in Ukraine and is accelerating, threatens to slow down the rally of construction activity in Greece.
The new scenario created by the war, with additional increases in energy costs and new price increases in materials that depend on the world market, are expressed fears that it will halt in the coming months the strong recovery dynamics of construction activity.
According to Alpha Bank, the Price Index of Construction Materials for New Residential Buildings increased by 9%, on an annual basis, in February 2022, while, in the previous three months, the annual increase exceeded 7%. Of the sub-categories of the index, the largest annual increases were recorded in February by the following: diesel , electricity, water (44.6%), basic processing metal materials (13.7%), electrical materials (12, 6%) and artificial stony materials (11.5%).
The general price index of materials is high
The take-off of building materials
|Categories of materials||% Change|
|Timber of buildings||8.4|
|Plastic, synthetic, fiber cement pipes||8.2|
|Plastic, acrylic, water||4.1|
Market participants are concerned about the impact that the increase in the cost of construction materials will have on the construction activity in the coming months, as this development coincides with the period of spring and summer, where construction work is seasonally increased.
Public works go out of budget
Already, they point out, in the field of small and medium-sized public works , the increased material costs have caused a “heart attack”, with companies pushing for budget revisions or even for a temporary cessation of project execution , as expensive materials completely overturn them. calculations, especially in projects that had been undertaken with large discounts.
In private construction projects, depending on the developments that will occur in the prices in the coming months, it is not even excluded that “freezes” constructions, in cases where the owners’ resistance to the price increases of the materials will be exhausted.
Alpha Bank notes that the percentage of entrepreneurs who estimate that shortages of material and / or equipment will reduce private construction activity has increased significantly, from May 2021 onwards. In March 2022, the relevant index stood at 13 points, while, from 2019 until April last year, the average value of the index was almost equal to one point.
At present, however, expectations remain high in the construction sector. Alpha Bank reports that business expectations in private construction (building construction) have shown resilience during the pandemic. They moved sharply downwards, during the first months of the pandemic, and then improved and went into positive territory in the last four months of 2021. In March 2022, this index stood at 6 points, significantly improved compared to January (- 10 points), but also in February (4 points).
In the field of construction and the real estate market in Greece, the consequences of the war in Ukraine are expected, as Alpha points out, through:
- Firstly, the possible postponement of the implementation of investment plans and foreign direct investment, due to the prevailing uncertainty, a development that compresses the supply of housing in the medium term.
- Secondly, the rise in prices of construction materials and energy costs and the possible transfer of part of it to house prices, which will move upwards
- Third, in the event of prolonged inflationary pressures, by turning investors away from securities into real estate, in order to protect themselves from the fear of strong inflation.
The bank appears moderately optimistic that the above three factors may slow down, but will hardly halt the upward trend in construction activity, while acting rather on rising real estate prices.