Soaring construction costs a disincentive

By Hiran H. Senewiratne

 Sri Lanka is one of the most expensive countries in the region where construction costs are concerned. Prices will further go up with building material costs climbing by 10 per to 15 percent in the recent past. 

 International Construction Cost Report 2011 released last year indicates that India and Sri Lanka share 13th position for the most expensive countries in Asia to build, and are placed 55th in the world.

 Therefore, Sri Lanka’s construction industry is now in a crisis due to the increase of building material costs by 10 to 15 percent in the recent past due to the depreciation of the rupee against the dollar, along with the hike  in transport costs due to recent fuel  prices increases

 "It is sad that 90 percent of raw materials for the construction industry are being imported and the devaluation of rupee has resulted in an increase of the cost. In addition, the recent fuel increase also adds insult to injury," President of the Chamber of Construction industry of Sri Lanka Surath Wickramasinghe said.

He said the increase of construction costs would mainly affect those contractors who had already contracted at previous prices, in which case they have to either renegotiate with their clients or go for litigation to avoid losses.

Wickramasinghe said that contractors now had to adjust their future projects by 10 per cent to 15 percent, which was a major increase when it comes to massive construction projects in the country. With the increase of the construction cost Sri Lanka will not be able to attract foreign direct investments. Therefore, other countries in the region will take the advantage to promote foreign investment into their country, he said  

He said that fixed price contractors were now going through a difficulty due to the price escalations in raw materials and such contracts cover considerable number of such projects in the country. Therefore, some workable solution was needed to protect them from financial ruin.     

 To cushion the blow from the cost increase the Chamber was now in the process of suggesting a workable solution for the government by also taking bank interest rates also into consideration because the most of construction projects have raised funds through bank loans, he said. 

 Cement which was one of the main components in the construction industry has gone up in price due to the appreciation of the dollar. The current increase would be between Rs. 5.00 and Rs. 10.00 per bag and added that a further price hike would take place after the next consignment of cement was imported into the country, industry sources said.

 According to the report Japan, Hong Kong, Singapore, South Korea, Macau, Thailand, China, Malaysia, Philippines, Vietnam, Indonesia and Taiwan are ahead of India and Sri Lanka in this segment.

 The report released by built asset consultancy, EC Harris has named Japan, Hong Kong and Singapore as the most expensive places in Asia to build and are amongst the world’s top twenty most costly countries.

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