Contractors miserable due to increasing building material prices

The escalating prices of building materials are making contractors suffer. They are foreseeing big losses due to higher input material prices, high bank loan interest rates and lack of capital.

Hung and his wife, who were given a 50 square meter land plot from their parents, have been saving one billion dong after many years. They decided to build a 3-storey house. However, since the building material prices have increased dramatically, Hung can build only two stories. If he built three storeys, he would have to pay an additional sum of 150 million dong.

No one wants to lend Hung such a big sum of money at this moment.

Nguyen Van Long in Long Bien district in Hanoi, a professional builder, complained that many projects are idle, because he is waiting for the prices of building material to stabilize. Under the contracts Long signed with investors before Tet, in case the building material prices increase, the total expenses of the construction works must not be higher than the estimates. Meanwhile, the building material prices have already increased by 20-30 percent.

“The cement price has increased by 250,000 dong per ton to 18 million dong per ton, while the labor cost has also increased by 100,000 dong per day. I can foresee that I will incur a loss of 15-20 percent,” Long complained.

Unlike Long, Pham Thanh Son in Minh Khai commune in Hanoi, is not a builder, but an investor, i.e Son builds houses to sell to people. Therefore, in principle, Son can raise the sale prices to offset the building material price increases. Previously, one executed square meter had the cost of 4.5 million dong, while the figure has jumped to over five million dong. As such, the sale price of a 70 square meter would increase by 40-70 million dong.

“If I do not raise the sale prices, I would not be able to make a profit. But if I do, it would be very difficult to find buyers,” he complained.

Vu Quy Ha, Deputy General Director of Vinaconex, a big construction corporation, said that many construction companies are in big distress because they have to borrow money at high interest rates. Meanwhile, many others complain they cannot access bank loans.

According to Ha, investors only pay contractors 80 percent of the value of th contract, while the remaining 20 percent will be paid later. Therefore, construction companies have been relying on bank loans, because the companies’ legal capital is very small, just accounting for 10 percent of total capital.

Only prestigious companies can borrow capital at 16.5-17 percent per annum. However, the credit limits banks have reserved for companies has been narrowed in the policy to tighten monetary policies.

“I think that both contractors and owners have to renegotiate prices, because both of us are sitting on the same boat,” Ha said. “Besides, contractors need to be flexible in using capital”.

According to Nguyen Manh Huy, Assistant to General Director of Nam Cuong Group, a big real estate developer, real estate firms are facing “double difficulties”.

“What is happening now seems to be similar to what occurred in 2008: commercial banks tighten credit, and the building material prices escalate,” Huy noted.

He went on to say that the sharp oil price increase has kept construction companies on the tenterhooks. The oil price climbed to 108.83 dollar per barrel on April 6, which means that the price has increased sharply by 28 percent just within one month.

“Only big companies can stay firmly in such conditions, while small companies have fallen into big distress,” Huy said. “While the input costs have increased, companies dare not raise the sale prices because the market remains gloomy”. – Vietnamnet

Tags: Vietnam building material prices