Construction costs lowered during 2020

Construction costs lowered during 2020

Construction costs for housing remained at 3.8% in 2020, a decrease which contrasts with the previous year’s increase, when prices grew 5.2%. That is the information that can be found on the company’s: Índice de Costes Directos de Construcción (Index of Direct Costs in Construction), where it is explained that this drop was caused by the Covid-19 pandemic.

«These numbers should be taken with great care and responsibility, because they were inflated by the sanitary crisis and it is not clear whether they will remain as they are for much longer», remarked Guillermo Jiménez, the company’s CEO. Some trades had their prices lowered following the example of other market segments and the predictable drop in new housing projects for sale.

Nevertheless, once the situation improves and the levels of production recover, it is possible that prices will return to the growth path started in 2015, albeit in a moderate fashion, according to the report. «Under this situation, construction companies which excessively forced their limits in terms of hiring, estimating price decreases which, ultimately, will not last forever, might find themselves in trouble», remarked the director.

Although the macroeconomic prospects are not the best and the end of the current situation seems to be taking its time, the real estate sector remains dynamic, but cautious. The hiring processes are extended, but the projects are not cancelled.

«At ACR we are moderately optimistic», stated Jiménez, who further added that «we detected demand for housing, interest amongst investors and developers willing to initiate projects. Besides, players are increasingly more exploring new business lines, such as build to rent and new ways of working, such as collaborative construction».

The possible drop in terms of housing sales could be compensated with housing construction for rental, which would place prices back on track.

Nor can we lose sight of the structural problem that is the lack of manpower, which has been the main cause for the constant increase in construction costs during the last few years. This condition will produce once again an imbalance between the demand to carry out new projects and the lack of workforce to meet it.

With a 3.8% drop in 2020, the Índice de Precios Pagados (Paid Prices Index) - IPP reached 128.51 points, going back to the same level it had in 2019. Despite this, the items are well above the levels registered in 2018 and at the beginning of 2019.

Prices drop on six of the 11 items

The data reflects the irregular behaviour of each of the items analysed. The drops occurred on the items which are first used during construction works, especially related to the correction of the costs with the workforce and, to a lesser extent, to the price of some materials. The exception is the cost of steel, which increased more than 40% in the last few months.

The most remarkable decreases affected interior divisions (-7.9%), structure (-7.1%) and foundations (-6.6%). Prices connected to earthwork and glass dropped 4.5% and façades around 1.6%.

On the other hand, four items registered price increases, but not as high as in 2019. Thus, painting increased 5.1%, followed by false ceilings and wall coverings (+3.1%), flooring and tiling (+2%) and roofs and waterproofing (+1.8%). Direct costs represent around 85% of the construction works’ full cost.

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