30.03.2022
The vertical and continuous rise in the cost of construction, which in many cases burdens the contractor and/or the buyer, public works that are threatened with the suspension of works, and the numbness or postponement of private developments, paint a bleak picture in the construction sector.
At the same time, those involved in the construction industry, in cooperation with the state, are looking for a formula to absorb the increased cost of building materials in public works, which currently places a burden on contractors, otherwise projects risk stalling.
Suspension of work and reduction in the production of construction products (such as metals, iron, wood) by factories and delays in the delivery of materials, combined with rapidly rising energy costs, disruptions in the supply chain and the onset of the crisis in Ukraine, worsened the situation in the construction industry, even contractors lack of containers used to transport materials.
Require change in the oscillation formula
In a statement, the President of the Federation of Construction Contractors Associations of Cyprus (OSEOK), Stelios Gabriel, said that large public works, which are noted on the one hand, are facing a serious problem, delays in the delivery of materials and, on the other hand, rising prices for building materials, which reach 130%-150%, especially for metals.
The increase concerns, among others, products such as iron, steel and aluminium. Therefore, the contractors are asking for additional costs for the construction of a facility that was offered at a lower price a few years ago, since the contractor himself now bears the additional costs.
“There should be a correction and revision of the price fluctuation formula while adding new building materials to cover both current and new projects,” Mr. Gabriel explained, stressing that based on the available data, the contractor is obliged to implement the developments for an additional fee.
Suspension risk
An interim commission set up to study price fluctuations and include new materials in the implementation of public works will meet today, March 30, with the participation of the Ministry of Transport, Communications and Works, as well as participants in the construction industry.
At the same time, contractors are starting a series of contacts with the parties, the Control and Auditing Service and the General Accounting Department, to inform and convince them of the need to revise the oscillation formula and add new materials to cover both projects under construction and new developments.
“If the tide of rising construction costs continues, without revising the hesitation formula and without government assistance to cover emerging additional costs, then some major public works may be suspended or frozen,” the president of InBusinessNews said.
He also stressed that terminating contracts or changing contractors does not seem to be a solution, as in this case, projects can lead to a vicious cycle of delays, with the additional costs that arise being borne by the state.
New developments stall
To a lesser extent, but no less important, is the problem associated with the implementation of private projects, since contractors who signed development contracts before the start of the building materials price rally are now called upon to bear additional costs.
It is noted that in some private developments there is either stagnation or stagnation with the construction of fewer houses than originally planned, due to the Russian-Ukrainian crisis and the continuing rise in construction costs.
“Some private projects are on ice, others are stagnating as their start or completion is being rescheduled due to skyrocketing building product prices, material delivery delays and the invasion of Ukraine,” Stelios Gabriel said.
How to cover extra expenses
Stagnation seems inevitable in every city, both for foreign buyers in Paphos and for projects financed with Russian funds, at a time when demand for housing in the capital is somewhat reduced.
Proposal to introduce a reduced VAT rate of 5% for the first 140 sq.m. at home instead of the first 200 sq.m. the main and permanent place of residence, valid until today, which finally did not receive the approval of parliament, pushed the construction sector participants to rush to issue building permits with the existing reduced VAT in order to take advantage of the transition period. it would be provided.
When asked what would be incur in connection with the absorption of additional costs for obtaining the first home, the president of OSEOK. it is anticipated that site prices will be subject to downward pressure, while additional costs are expected to be borne jointly by both contractors and owners/buyers.
