LÊ TÙNG CONSTRUCTION INSIGHT
The adverse confluence of escalating gasoline prices and surging construction material costs is significantly impacting construction logistics cost margins and the real estate supply chain. Lê Tùng Construction proposes smart prefabrication solutions and internal mixing plant planning as highly effective technical approaches to eliminate unintended transportation costs.
The military conflict in the Middle East is having a ripple effect on many sectors of the global economy, including the construction industry and the real estate market. Rising gasoline prices are driving up construction material costs. Compared to the period before Tết, many types of materials have increased by approximately 20-30%, significantly raising project input costs and increasing pressure on housing product prices.
According to the latest price adjustment by the inter-Ministry of Industry and Trade – Ministry of Finance on the evening of March 10, domestic gasoline prices surged – marking the 6th consecutive increase. Specifically, E5RON92 gasoline increased by 1,344 VND/liter, reaching a maximum of 26,570 VND/liter; RON95-III gasoline increased by 2,073 VND/liter, reaching 29,120 VND/liter. Meanwhile, diesel increased slightly by 478 VND/liter to 30,717 VND/liter. Mazut oil sharply increased by 3,380 VND/kg to 24,707 VND/kg, while kerosene decreased by 2,706 VND/liter to 32,385 VND/liter.
Fluctuations in gasoline prices and logistics fees directly affect the unit price of construction steel beams.
The domestic construction steel market just saw a new price adjustment as a series of manufacturers simultaneously announced price increases from March 9. The common adjustment level was about 300,000 VND/ton, equivalent to 300 VND/kg, applied immediately after the announcement.
According to Mr. Trần Xuân Lượng – Deputy Director of the Vietnam Real Estate Research and Valuation Institute, amidst the tense Middle East conflict, global prices of gasoline, steel, and many other construction materials are rising sharply. This is an exogenous force majeure factor for the economy in general and the real estate market in particular.
According to Mr. Lượng, first and foremost, the input costs for the construction industry will increase significantly. In the structure of construction costs, materials such as steel, cement, asphalt, and transportation fuel account for a large proportion. When energy prices increase, transportation costs, construction costs, and material costs all rise accordingly, putting many projects at risk of having their total investment exceed the initial estimate.
Mr. Trần Xuân Lượng – Deputy Director of the Vietnam Real Estate Research and Valuation Institute.
For infrastructure and public works projects, cost pressure can lead to risks of delays or the need to adjust the total investment. Without a timely adjustment mechanism, many contractors may face cash flow difficulties.
From the perspective of the real estate market, when input costs rise, product prices are also under upward pressure. However, whether housing prices will increase sharply depends on many other factors such as market purchasing power, credit policies, project supply, and investor sentiment.
The Adverse Confluence of Logistics Transportation Costs and Soaring Material Prices
“If not properly regulated, the biggest risk is that homebuyers – the end consumers – will bear most of this increased cost,” Mr. Lượng stated.
According to experts, in the context of strong fluctuations in input costs due to external factors, the State’s regulatory role becomes particularly important. All stakeholders need to come together to share difficulties under the State’s coordination as a “policy arbiter.”
Mr. Lượng suggested considering solutions such as reducing or deferring various taxes, fees, land use fees, and land lease payments for ongoing projects to ease cost pressures on businesses. Furthermore, there needs to be a mechanism to adjust construction contract prices and material price indices for infrastructure and public investment projects, to help contractors avoid the risk of losses when material prices fluctuate sharply.
According to experts, a regulatory mechanism is needed to prevent price shocks for homebuyers.
The banking system could also consider reducing interest rates or restructuring debt repayment terms for real estate and construction businesses currently undertaking projects, in order to maintain capital flow for the market.
On the part of real estate businesses, developers need to share difficulties with the market, proactively extend payment schedules for customers, and optimize costs instead of transferring the entire cost pressure to selling prices.
“If there is harmonious coordination between the State – businesses – banks, the real estate market can absolutely overcome this period of cost volatility without creating a major price shock for homebuyers and the economy,” Mr. Lượng emphasized.
Sharing the same view, Nguyễn Văn Đính – Vice Chairman of the Vietnam Real Estate Association – stated that construction material costs currently account for about 50% of the total construction cost of a project. Therefore, along with market supply-demand and land prices, fluctuations in material prices are one of the important factors affecting housing prices. If the situation of rising material prices persists, cost pressure will make it difficult for housing prices to decrease in the near future.
Direct Consequences for the Output Cost of Construction Projects
Speaking with reporters, a representative from Hợp Lực Construction JSC said that rising gasoline prices have led to a series of increases in material and construction supply costs.
“But the contracts signed by contractors with investors still have to be implemented. If doing so slowly risks progress penalties. Compared to the period before Tết, many types of materials have increased by about 20-30%,” this representative said.
According to the business representative, amidst sharply rising input costs, many contractors are in a difficult position, having to both ensure contract progress and bear additional incurred costs.
A major contractor in Hanoi, currently executing numerous real estate projects in Hanoi, Hưng Yên… stated that fluctuations in fuel and construction material prices are directly affecting project implementation progress.
According to this company, when costs soar, contractors and developers are forced to recalculate construction plans, and even extend schedules to avoid financial risks. “It’s not the time when gasoline and construction material prices are escalating to rush into work. This period is essentially a domino effect where many material suppliers exploit market volatility to hoard goods and push up prices,” the contractor representative said, adding that instead of accelerating construction, many businesses are choosing to implement projects at a stable pace, avoiding the risk of costs rising too quickly.
The contractor also recommended that investors and regulatory agencies provide supportive policies to boost construction activities, and simultaneously urged the State to implement solutions to regulate and stabilize gasoline prices. According to businesses, when fuel prices are controlled, the prices of many construction materials will also gradually return to a stable trajectory.
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Original article source: CafeF
