High cost of construction materials may stunt realty growth

Oil prices go up weekly, food prices follow, almost on a weekly basis as well. Before that, labor groups clamored, and got, hikes in wages, though nowhere near what they were demanding. Now, transportation has joined the bandwagon as well.

What next?

Don’t look now but the cost of some basic construction materials has gone up as well. What is alarming is how steel has gone up in leaps and bounds, all in a span of six months. We’re talking here of the ones we mostly use in constructing houses and buildings, and this includes round bars, steel plates, C-bars, reinforcing bars as well as steel sheets mostly used for roofing.

The Philippine Contractors Association is deathly worried about the scenario.  The association’s executive director Manolito Madrasto says this is unprecedented. They have been plotting the increases since February of this year, having noticed unusual activity since December of last year.  They showed us the graph, and what we saw was indeed alarming. They went back a few years to make a more complete study of the comparative prices.

To illustrate:  the price of reinforcing bars in December 2005 was P26/kilo. In December 2006, the going price was P30/kilo. By December 2007, it was still at a benign P34.90/kilo.  In one month’s time (by January of 2008), this jumped up to P36.80, already quite alarming if you compare the yearly increases from 2005 to 2007. By February of this year, again barely a month after, this same commodity was selling at roughly P38/kilo. The next month (March), it was selling at P46.50. By May, it became P59.50/kilo, and now it is selling at an unprecedented P67.30/kilo.

In a span of about six months, from December to early July, the price has more than doubled! If you ask me, that graphically illustrates Inflation with a capital I, and businessmen out there are terrified of the tremendous and rapid escalation.

How does this augur for the property sector which has been experiencing a boom lately? The contractors are at a loss because they are powerless against this surge in steel prices. They cannot very well cut down on steel, not when doing medium or high rise edifices without compromising safety. Actually, they say, once you go higher than a one-level structure, you can’t get away from steel. 

The contractors feel that if these increases continue, there might be a shift in building norms. Instead of using structural steel, builders may have to look at concrete as building base. Actually, cement, though it has likewise increased, has been fairly stable. The increase is only at 10 percent, far lower than steel, but we don’t know if this is going to hold much longer. As Mr. Madrasto explained, the price of cement was softened in the past by the strong peso which faired well against the global fuel prices. However, now that interest rates have gone up, together with coal, bunker fuel, etc., many think the next round of increases for this building material may not be too far away. As for the roofing materials where the preferred one is steel sheets, concrete is also a viable alternative. Otherwise, we can all go back in time and take a cue from our bucolic ancestors and turn to nipa for roofing.

They have been doubly hit, actually, because the likewise unprecedented oil price hikes have hit them squarely in the face as well. Most of their equipment run on diesel, and they use up quite a lot of it. They also use up a lot of electricity in construction sites, and the fact that we have one of the most expensive electricity in the region does not help any.

The increase in labor costs has likewise made a dent on their margins which have been set up long before construction has actually begun. The usual inflation rate factor of 10 percent no longer holds, and prices have to be renegotiated even before the reinforcing bars have been put in place, or the project will not be viable for the contractor.

The association worries that all these price increases will dampen the bullish property market. Who is going to buy if all these properties go sky high? Already, I understand that Ayala has factored in a 20 percent increase, and the rest of the pack is sure to follow suit in no time. They don’t have a choice. As for the developments which have been pre-sold, I can only venture a guess on the sleepless nights that these contractors and developers are having every night.

Some economists though say that these prices will be short-lived-manufacturers will be forced to bring them down in order to recover if building halts to a standstill because prices of construction materials have become prohibitive. It’s still a pleasant surprise that some investors are still willing to come in and continue with the building binge. The contractors say that perhaps they see something we don’t. Anyway, SM is planning on putting up more hypermarts, there are about 20 hotels in the drawing board, and a few big hospitals are going up as well. Mixed-use buildings for condos and commercial purposes are still feverishly sprouting up.

More and more...memories...memories

Our “Remember when?” series continues...

From my niece Rachel, established many years now in Canada and who caught my column in the web comes this-“To contribute to your nostalgic trip, I still have this sweet recollection of our yearly trip to Antipolo on Tito Ed’s (my brother) birthdays (May 1) where we would eat crispy lechon, suman and ripe mangoes in one of the many eateries lined up along the streets.  Then we would not go home without buying a bagful of roasted cashew nuts.”

From my poker buddies, especially my brother Rey-We had fun recollecting dinners at Panciteria Wah Nam in Quiapo, then a by-word when it came to authentic Chinese food. The meal would not be complete without the ubiquitous pinsec frito with its sweetish dip, and the asado halo-halo, a mix-up of meats in asado sauce.

And from our eldest brother, Roberto, Jr. is his recollection of ‘Aling Dencia’s’ restaurant located in Escolta St., Sta. Cruz, Manila which served fantastic Filipino food counting tokwa’t baboy (with pig’s ears) in its array of specialty dishes.

If you have memories of your own, write them in and share.

Mabuhay!!! Be proud to be a Filipino. 

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