The construction margin, which decreased from 19 to 12% for mass housing developers in St. Petersburg during the crisis, continues to fall. The profitability of the construction business was most affected by the increase in the cost of bank lending and building materials. During the crisis, loans for builders increased in price by 9%, and construction materials by 20%. As DP has already reported, the sharpest increase - 2 times since the beginning of this year - was demonstrated by metal fittings. But other basic materials are also becoming more expensive.
Builders are forced to revise project estimates. At the same time, developers still do not have the opportunity to increase housing prices. Demand for real estate decreased by 30-50% over the year, and the revival of sales in the first quarter of 2016 occurred only due to the threat of the abolition of state support for mortgages and is not a sign of stabilization in the industry.
Rebar madness
Project financing has also become significantly more expensive for developers. “Before the crisis, businesses could get loans from banks at 11%, in private cases even lower. And now the rates offered by banks vary between 18-20%. They are restrictive - builders can agree to such conditions only out of desperation,” says one of the market participants.
At the same time, the cost of design, which depends mainly on the salaries of designers, according to the founder of the Finnish design bureau RUMPU Evgeniy Bogdanov, has not changed, and land has even become cheaper, although there are practically no monetary transactions. Installments, offsets and barter are practiced.
“Prices for land within a radius of 3 km from the Ring Road fell by 45%. Land plots without documentation in some places are no longer worth anything,” says co-owner of SVP Group Denis Zhukov.
According to Peterland experts, over the past year, St. Petersburg developers bought more than 270 hectares of land for residential development worth almost 30 billion rubles.
“There is no way out: if you want to develop, buy land,” explains Roman Miroshnikov from the Oycumena company.
In general, the cost of construction, according to market participants, has increased by 20-25% over the past year.
“And the Ministry of Construction recently announced that the cost of construction of houses that start today will be approximately 1.5 times higher than the cost of just completed projects,” concluded Arseny Vasiliev, general director of “Russia”.
No excess profits
Before the crisis, builders boldly factored growing costs into the price of a square meter of housing, shifting them onto the shoulders of buyers.
But during the crisis, the demand for economy-class real estate decreased by 30-50% over the past year. Real incomes of the population fell.
“In such a situation, it is impossible to raise prices. The maximum task is to keep them at the same level. So builders have to sacrifice their margins,” they say.
The margin in construction can be judged by the reports of public companies, for example, Andrei Molchanov’s “Dynamics of Economic Indicators”. But this estimate is very approximate.
“If before the crisis we received a profit of 15 thousand rubles from each “square,” now it is no more than 10 thousand rubles. So we can talk about a decrease in margin from 19 to 12% in 2 years,” said one of the large developers, with whose assessment the majority of other developers surveyed by DP agreed. The number of construction companies going bankrupt in 2015 increased 5 times.
A decrease in supply in 2-3 years will lead to a housing shortage, as a result of which real estate prices may rise sharply.
The cost of projects increases due to an increase in the cost of money, and the selling price of a “square” falls due to a decrease in the number of solvent buyers. These scissors are slowing down a number of current projects and cutting off some new ones with low returns. The trend is noticeable in the mass market; the high-end housing segment is more stable. The situation can be compared to filling a pond with water: if one stream is blocked by the ruble exchange rate, then the pond will become shallow until the inflation barrier on the other stream is reduced. The builders are in this shallowing pond, and they cannot get out.
Igor Onokov
General Director of the Leontievsky Mys company
Marginal income is directly affected by the increase in the cost of project financing. Now average lending rates range from 14 to 18?%. In this case, the “extra interest” can be transferred either to the buyer or compensated from the company’s profits. And since it is problematic to pass it on to the buyer in this situation, all additional costs fall on the construction organizations. As a result, we are witnessing the process of washing out small and medium-sized companies from the market. A decrease in supply in 2-3 years will lead to a housing shortage, as a result of which real estate prices will rise sharply.
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Choose allGravel, per cubic meter Other natural sands, cubic meters Sand-gravel mixture, per cubic meter Crushed stone, cubic meters Ordinary lumber, not included in other groups, other, cubic meters Continuously pressed particle boards, sq.m. m Summer diesel fuel, ton Winter diesel fuel, ton Other diesel fuel, ton Bitumen, t Motor gasoline, ton Diesel fuel., t Diesel fuel - winter, t Diesel fuel - summer, t Diesel fuel - other, t Paints, t Mastics , t Drying oil, t Pipes made of polyethylene, per m Pipes made of polypropylene, per m Pipes made of vinyl plastic (polyvinyl chloride), per m Windows and their frames, polymer window sills, per sq. m. m Polymer doors and their frames, per sq. m Cast and rolled profiled glass, sq. m. Faience washbasins, set. Glazed ceramic tiles for interior wall cladding, sq.m. Glazed ceramic tiles for floors, per sq.m. m Unglazed ceramic tiles for floors, per sq.m. Non-fireproof ceramic building brick, thousand standard bricks. Cement, tons Silicate brick, thousand conventional bricks. Large wall blocks (including basement wall blocks) made of heavy cement concrete, cubic meters Reinforced concrete grillage details, per cubic meter Reinforced concrete piles, per cubic meter External reinforced concrete wall panels, cubic meters Internal reinforced concrete wall panels, cubic meters Span structures reinforced concrete bridge structures, per cubic meter Blocks and tubings for tunnels and mine support, per cubic meter Ribbed and flat flooring slabs, ribbed and flat, cubic meter Hollow-core floor slabs, cubic meter Slabs, sheets, panels, tiles and similar products from gypsum or mixtures based on it, not covered or reinforced with paper or... Concrete, ready for pouring (ready-mixed concrete), cubic meters Construction mortars, cubic meters. m Corrugated asbestos-cement sheets (slate) Asbestos-cement pipes and couplings, m Ruberoid, sq.m. Other expanded mineral materials (expanded clay gravel), cubic m. Mixtures and products from heat-insulating and sound-proofing materials, not included in other groups, cubic meters. m Asphalt concrete mixture, t Rolled section and shaped hot-rolled, hot-drawn, extruded and forged from non-alloy steel, t Periodic profile reinforcement of class AIII Pipes and hollow profiles made of cast iron, t Seamless pipes for oil and gas pipelines of ferrous metals (except cast iron), t Steel water and gas pipes, t Electric-welded steel pipes, t Prefabricated building kits (modules) with coverings made of space-rod structures made of steel, per ton Prefabricated building kits (modules) with frame structures made of steel Other prefabricated building structures made of steel, t Retaining walls and mine support made of ferrous metals, per ton Sections of railway bridges made of ferrous metals, per ton Sections of automobile bridges made of ferrous metals, per ton Central heating radiators with non-electric heating made of ferrous metals, per kW Bathtubs, set. Electrical distribution and control equipment, pcs. Wires, km Cables, km Lamps and lighting devices, pcs. Linoleum, sq.m. Electricity.., MWh.
There are a huge number of different materials on the market, their prices are constantly changing and sometimes it is very difficult to keep track of their growth. In order to build a house, you need to invest a huge amount of money, which will be needed to buy wood, cement, sand, bricks and many other little things that you can’t even count.
For larger organizations - developers, it is much more profitable to purchase building materials, because the volume is quite large and it is easier to bring a large shipment to its destination than to transport a small one at the same price. Renovation work for a home or office is no less cheap; some invest an amount that is equal to the purchase of the same property.
Construction of a new house and renovation work on existing premises is always quite difficult. Before this, it is necessary to determine the cost of building materials in order to assess the possibilities and analyze the benefits of the work done.
Current Trends
Analysts believe that a fall in prices for building materials should not be expected next year. According to some reports, the increase in cost could be significant, exceeding 40%. Most large manufacturers are focused on exporting goods due to low demand. At the same time, the cost of the building materials themselves has not changed for some time.
The situation with building materials has been on the pencil of the Prosecutor General's Office since 2014. Basically we are talking about the construction of social, educational, sports and other facilities that the customer cannot figure out on his own. The first of the serious problems is non-compliance with technology by manufacturers or developers: then even high-quality materials acquire dangerous properties. There are such violations throughout Russia - from the Moscow and Kostroma regions to Transbaikalia and the Komi Republic.
The second group of violations is the lack of documents confirming the quality of building materials. There is also a rich regional palette here - from the Chechen Republic and Khakassia to Tatarstan and the Leningrad region.
How will prices for building materials change in 2019?
The price of materials used for the construction of various objects is directly influenced by various factors, the main one of which is the unstable national currency. The ruble is constantly falling in value. Prices are expected to rise in the foreign exchange market in 2019. Experts believe that construction companies should be prepared for an unexpected turn of events - a price increase of up to 100%. Therefore, many manufacturers and buyers of building materials will increase the cost to the highest possible level. When the dollar rises, the price may increase several times.
Influence of external factors
The unstable economic situation is not surprising to anyone, and the crisis in recent years has significantly affected many industries. This also affected manufacturers of building materials, since the supply to the market did not decrease, but the demand for them decreased. The optimal solution was export, which slowly but surely reduces the saturation of the local market with the required goods. This, in turn, leads them to rise in price.
The cost of materials produced for construction can be influenced by various factors. The most important of them is the unstable exchange rate of the ruble, which is constantly declining. In 2018, an increase is expected in the foreign exchange market and expert opinion is inclined to the most unexpected turn of events (from 50 to 100). For this reason, most manufacturers and sellers of building materials will increase the cost to the maximum. When the dollar rises, prices can increase several times.
Forecast for 2019
A slight increase may be observed for building materials such as cement, sand and crushed stone. The price may increase up to 20%. Blocks and bricks will rise in price by 10-20%. Such data depends on the region in which construction is planned. The maximum price for building materials in 2018 will be fixed in St. Petersburg and Moscow. Many materials continue to rise in price, reaching 60%. In small towns the price will increase by 15%. Regions that have their own producers of building materials will not experience a sharp rise in prices. In such cities it can only rise to 10%. At the same time, price growth in any region will depend on the price of gasoline, wages, and GDP.
Due to the unstable economic situation, or more precisely, the jumping exchange rate of the ruble, prices for building materials are expected to rise throughout 2017. However, this is far from the only factor that will contribute to this trend.
Let us note that every year the ruble falls, thereby forcing entrepreneurs to inflate the price of construction products. This has been going on for a long period, since the onset of the economic crisis.
However, the unreasonable increase in prices for certain products does not go unnoticed. Thus, officials drew attention to the fact that prices for door hardware are not objective, which caused a wave of inspections in hardware stores. Also, these checks will allow us to examine in more detail the reasons for such a strong increase in prices.
Separately, they note that materials not created for export have not increased in price for several years. However, this situation is expected to change for the worse for the buyer this year.
The greatest concern regarding the increase in prices for building materials was noticed among those organizations that entered into their contracts throughout 2016. This is due to the fact that the prices were agreed upon in advance and, accordingly, were fixed in contracts.
Among the main reasons for the upcoming rise in prices for building materials is inflation. In addition, it will cause an increase in energy prices.
Special emphasis is placed on the need to optimize the technological process. This will significantly reduce the cost of building materials.
As for more specific forecasts, most experts agree that construction materials will double in price throughout 2017. In addition, this applies not only to exported products, the prices of which depend on the ruble exchange rate, but also to domestic materials. The cost of Russian products may also increase because some enterprises will find it profitable to export their goods to Europe. Thus, the quantity supplied will decrease and the price will rise.
Thus, it is obvious that throughout 2017, prices for goods will continue to rise. Most likely, according to experts, they will not grow twice as much. The most plausible scenario would be a 25% increase in the cost of goods, worst case scenario. The construction industry in the Russian Federation tends to develop itself, and accordingly, it is extremely difficult to predict the exact turn of events.
During 2015, the cost of raw materials - cement, crushed stone, metal - decreased noticeably, which led to a decrease in prices for basic building materials - concrete and reinforcement. At the end of the year, the total cost of materials for the construction of 1 cubic meter of monolith decreased by 5-10%. This data is provided by the analytical center of the construction company RD Construction.
At the beginning of 2016, the average cost of materials for monolithic work varied from 8,000 to 15,000 rubles per 1 cubic meter. The final cost depends on a number of factors: the volume of construction, the quality and quantity of materials, the contractor company and the timing of the work. What causes such a price difference? To answer this question, the analytical center examined the most common materials and analyzed their price component.
Analysis of these data shows that the cost of work is most strongly influenced by two indicators: reinforcement coefficient and types of monolithic work. For example, the cost of a foundation monolith can be 40-50% lower than the cost of a column monolith. This is due to the amount of reinforcement, formwork, auxiliary and consumable materials used, as well as the complexity of the work performed: complex work is more expensive. At the same time, despite the decline in prices, a slight increase in the cost of materials is expected in the first half of 2016 due to increased demand.
In Moscow and the Moscow region, the total spread of minimum and maximum prices for building materials can be up to 25%. This is a significant amount for the overall construction budget.
How can a customer save on monolithic work? The opportunity for optimization opens up primarily through the selection of a high-quality general contractor who, on the one hand, has direct contracts with material manufacturers and, on the other hand, provides the best ratio of price, quality and timing of monolithic work.
The customer should be wary of companies that indicate a knowingly underestimated cost in their estimates. Dumping at the tender stage in order to “enter” the project, such a general contractor will close cost discrepancies with the help of numerous additional agreements.
Thus, in the current economic situation, the solution for developers is to responsibly select a partner - a construction company. The general contractor's task is not only to perform the work, but also to manage the construction. Such a partner can carry out optimization by simplifying (but not worsening) design solutions and reducing project timelines.
“In the situation of working with a high-quality and financially stable general contractor, the investor, being confident in the quality and final cost, retains only control functions and can concentrate on the successful implementation of the entire development project,” summarizes General Director of RD Construction Oleg Zhukov.