Real estate and construction are important sectors in our economy, with supply chains ranging from small and medium-sized enterprises (SMEs) to major manufacturing entities that provide building materials. In Sri Lanka, the construction industry contributes 7.1% to the GDP of the country and is considered to be one of the major drivers of economic development in Sri Lanka. However, from lumber to paint to concrete, the cost of almost every single item that goes into building a house in Sri Lanka is soaring.

In general, rising construction costs would likely result in more construction claims, downstream conflicts, and postponed start dates as owners reassess project schedule in response to rising bids. Tariffs on imported lumber, steel, and aluminum are also raising prices. Furthermore, rising Chinese material costs have raised concerns about moving production costs and contracts to other parts of the world. Some analysts have questioned if those materials can be manufactured in Sri Lanka, or whether contractors should reevaluate supply chains and restructure contracts to accommodate for cost inflation and material delays. These challenges will undoubtedly have an influence on the construction industry countrywide.

However, According to Ceylon Today, Sri Lanka will most likely be able to endure rising world costs for metals such as aluminum, copper, and iron ore because local importers did not lower selling prices last year, when global prices plummeted in 2020. When global metal prices fell in the first quarter of 2020, local importers did not lower their prices, but instead raised them due to import limitations. As a result, they may have acquired some loss-absorbing ability to keep prices stable in the medium run.

In a recent assessment on the global commodity price recovery and its implications for Sri Lanka, the local ratings agency (ICRA) identified a growing trend in metal prices, which are a mainstay in the construction and industrial sectors. Base metal markets are likely to return to normalcy by the end of 2021, aided by increased government investment spending and rebounding global industrial activity. Copper, aluminum, and iron ore — essential industrial metals – are expected to see price increases of 14 to 16% this year, according to projections. Sri Lanka imported around US$ 563 million in base metals in 2019, and the 2020 figures are still being determined because they are recognized based on HS codes.

However, the rating agency believes that many large-scale building contractors are less likely to incur marginal erosion as a result of higher raw material prices, even if some losses are absorbed by small and medium-sized firms.

What is the cost impact on projects?

The financial impact will vary depending on whether the project is new or renovated. However, some items in both categories will be sensitive to changes in commodity pricing. At the time of writing, it appears that many contractors are absorbing the additional expenses imposed by the supply chain as part of their competitive pricing. However, as long as this situation persists, it is quite unlikely that contractors will continue to absorb these cost surcharges.

According to Arcadis NV, material supply constraints and commodity price hikes will contribute between 2% and 4% to total project costs by the end of this year, depending on the project’s material content. We also expect that logistics and transportation will add between 1% and 3% to project expenses, depending on the volume of overseas imports required to complete the project.

Why to chose MVIVO?

Your home is most likely the most significant investment you will ever make. On the other hand, the construction procedure does not reflect the importance of the investment. Far too frequently, there is a lack of transparency in actual costs as a result of surprise price rises and extra bills, which has bizarrely become an industry norm. We are defying this tendency. MVIVO homes are sold at a predetermined price before we even begin construction. Prices in the traditional technique of building houses may fluctuate, but not with us. When you choose a design, we set a price and stick to it.

MVIVO buyers know exactly how much their home will cost before they put down the first payment because all sections of the house are manufactured off-site. Whatever occurs, the payment remains fixed, as stated in the company’s contractual obligations. It provides MVIVO clients with peace of mind that they cannot obtain elsewhere.