Developers are stalling home and office building in the face of soaring prices, according to a leading surveyors firm.
The price of key building materials continued soaring in recent months, adding to construction inflation that some estimates say has topped 20 per cent since the Government began easing Covid curbs last year.
Irish-based multinational surveyors firm Linesight said recent price volatility is showing signs of easing, particularly in some key materials, but warns that inflation has forced developers to stall projects, including residential building.
Speaking after Linesight published its Quarterly Commodity Report on Thursday, Stephen Ashe, the company’s senior director for Europe, said rising prices were endangering projects’ viability, forcing builders to hold off.
Ireland has won the corporation tax game for now, but will that last?
Corkman leading €11bn development of Battersea Power Station in London: ‘We’ve created a place to live, work and play’
Elf doors, carriage rides and boat cruises: Christmas in Ireland’s five-star hotels
One in four PAYE workers are overpaying tax. Can you claim money you’re owed?
“It’s hitting everything, any kind of building, offices, hotels, leisure centres and particularly residential development,” he added.
Inflation has added €40,000 to the cost of building a single apartment, according to Mr Ashe. Increased interest rates are adding to the pressure of rising prices and to the financial risks that residential builders face.
“Interest rates are rising as well, making it more expensive to raise money,” Mr Ashe said. He said anyone building houses or apartments cannot necessarily pass on the extra costs to buyers, as the market determines property prices.
“People will only pay more if they can afford to pay more, developers cannot really pass on the extra cost,” he said.
The surveyor suggested this could force an easing in land prices, or a possible market correction, rather than an outright recession.
However, he stressed the firm was seeing a levelling off of recent price rises in key materials, indicating that there was “light at the end of tunnel”.
Office building faces many of the same challenges as residential construction, as it uses many of the same materials, although the rate at which the Republic continues to lure overseas investment is aiding this market.
Meanwhile, the shift to online shopping that followed the pandemic continues to support industrial building, according to Mr Ashe.
Price volatility and high energy bills continued to weigh on builders over the three months to the end of June, Linesight said in its report.
In his commentary, Mr Ashe said the Central Bank expects inflation to moderate in the second half of this year and drop to about 2 per cent by 2024.
Steel rebar, a key material used to reinforce concrete, is heading for €858 a tonne in the current quarter, said the firm, a near 19 per cent increase over 12 months. Timber is costing €104 a tonne, a 16 per cent increase.
Energy costs and disruption to supplies are keeping steel prices high, but Linesight’s report said inflation has eased following sharp increases earlier this year.
Energy costs drove cement and concrete prices higher over recent months, Linesight said. These were previously subject to lower inflation than other materials.
Cement is up 7.7 per cent at €237 a tonne while concrete rose 9.2 per cent to €76 a tonne.
