Construction costs keep climbing

Construction costs in Bangladesh rose by 6.98 percent in August, making it costlier to implement both public and private construction projects, according to the Bangladesh Bureau of Statistics (BBS).

As per the Building Materials Price Index (BMPI), overall construction costs saw month-on-month growth of 0.80 percentage points from 6.18 percent in July.

The recent price hike was the highest since February earlier this year, when the average growth in construction costs stood at 6.03 percent, shows data of the state-run statistical agency.

The BBS released its updated BMPI after compiling the cost of three key components, namely building materials, transport and labour charges, during the February-August period.

Of these components, the price of building materials registered month-on-month growth of 0.95 percentage points to reach 7.27 percent in August.

Similarly, the growth in labour costs stood at 6.18 percent, up by 0.35 percentage points from July.

On the other hand, transportation charges reduced slightly, BBS data shows.

"We are in an adverse situation due to the higher price of building materials," said Bimal Chandra Roy, president of the Bangladesh Association of Construction Industry (BACI).

Most contractors are under pressure as their contracts were signed years earlier, when construction costs were lower, but prices have gone up since then while their funding has not risen at the same pace.

"We don't know where the solution is," said Roy, also managing director of Next Spaces Limited.

"We definitely need policy support in the domestic market to adjust the raw material prices at the same pace of the global market," he added.

Mir Nasir Hossain, managing director at Mir Akhter Hossain Limited, said the trend in growing construction costs has remained constant in recent times owing to the higher US dollar exchange rate.

"Most raw materials for construction, such as cement and stone, come from abroad. So, the freight and import costs directly hit the total value of building materials," Hossain added.

The price of steel rods for construction has also jumped to more than Tk 1 lakh per tonne from Tk 68,000 before the Covid-19 pandemic while cement prices have gone up by 47 per cent as well.

"The domestic gas price instability has also hit the total construction cost," said Hossain, also a former president of the Federation of Bangladesh Chambers of Commerce and Industry.

Kamal Mahmud, vice president of Real Estate and Housing Association of Bangladesh, said real estate companies are being cautious about taking up new projects for concerns about getting returns properly.

"We always remain in fear of which material's price will become high. So, the sector's entrepreneurs are just focusing on ongoing projects," he added.

Mahmud said the Russia-Ukraine war, ongoing strain on foreign currency reserves, US dollar shortage, runaway inflation and higher construction costs have cemented worries in the sector.

"When any price of raw material goes up, it does not want to drop," added Mahmud, also chairman of ISO Holdings Limited.