Impact of Inflation in Real Estate Sector in Pakistan
Next to the agriculture sector, the real estate and the construction industry both provide a number of job opportunities for the lower-income class worldwide. Even in Pakistan, the real estate industry and the construction industry are providing the most jobs to people who are uneducated and but have the labor force and skills. However, with the Covid-19 Pandemic, this industry has been heavily impacted.
Due to the pandemic, the price of almost everything has been affected by inflation and the rise in prices is causing anxiety in the business and industrial sectors.
Real estate investors, builders, construction workers, and stakeholders in the real estate industry all consider inflation as their worst nightmare. This is because of the increase in raw material prices, labor wages, and the cost of construction machines.
The inflation rate in the country is also the main reason why property prices are also increasing. And with the increase in real estate property prices, construction services have also raised their prices. You may also like to learn about the Blue World City.
Impacts of high inflation rate on the construction market.
As of now, the construction business has suffered majorly because of the inflation rates. In the previous years, the cost of construction in the residential sectors as well as commercial sectors has increased massively, by almost 21%. Due to inflation, the prices of construction materials and real estate plots have increased by 30%. This caused many real estate investors to sell their assets at a higher price. This also urged construction builders to sell their services at higher prices.
Apart from the increase in construction material prices, the cost of labor has also increased. This results in the investor or home-owner being able to only hire half the number of laborers and slow down the development progress of the building or home.
Increase in construction material costs
The cost of building materials has increased dramatically over the last few years. Real estate developers are expected to make massive investments in the construction process of new projects due to the prices of construction materials increases. This increase in building materials from local and overseas suppliers leads to a rise in the market value of real estate property.
About 55% of the construction cost of a new residential or commercial real estate project is spent on construction material. The rest of the funding is spent on the plot and the construction workers. The most common building material is steel and over the last few years, the price of steel has increased majorly. With inflation rates increasing regularly, contractors, laborers, and engineers feel compelled to reassess the cost of starting a new construction project. This causes them to face several delays in their plans.
Increase in construction machinery costs
Construction machinery is a fundamental resource for both commercial and residential building projects. Be it small-scale development projects or large scale, they cannot be completed without the help of construction machines. When the development and material costs are being assessed, the budget for construction machinery is also calculated. With the inflation rate having an impact on everything else, it also has an impact on the costs of construction machinery. With the increase in construction machinery costs, most projects either slow down their progress or abandon them for months before starting construction again.
Increase in labor wages
Just like every other sector in the real estate industry being impacted by inflation rates, construction workers also demanded an increase in their daily wages. This is because due to inflation, the cost of living also increases, which means that if the daily labor wages are not increased, the laborers would not survive. This increase in the cost of the labor force also increases the final cost of construction project
Some ways to reduce the cost of construction are to modify the design of the construction to be minimal and modern, use fewer materials or try to find affordable alternatives, and lastly try to avoid wasting materials and only purchase the materials that are needed. Despite the increase in building materials and real estate plots, it is still the best investment to make as the inflation prices will also increase the market value of your house.
Muhammad Junaid is a senior Analyst and Search Engine Expert. Extensive experience being a lead writer in GreyBricks Marketing | Kingdom Valley. Work for years with local and international enterprises. Also, represent well-known brands in the UAE.