The cost escalation of construction materials is likely to have a significant impact on the value of not only the new constructed buildings, but also on the existing ones
Construction costs, which have continued to grow due to rising material costs and labor shortage, are further expected to augment with the drastic increase in fuel prices recently.
In Thimphu, the price of petrol and diesel increased by more than Nu 10 and Nu 17 respectively, whereas a liter of petrol today costs Nu 95.19 and diesel Nu 100.55.
Many in the construction business believe that the expenses of construction materials will eventually be passed on to the tenants in the form of increased rents by house owners, who must cover the cost of constructing a building.
While there are many factors that influence commercial property values, one of the most notable in recent times has been the increase in the costs of construction materials.
According to one of the contractors working on a project in Thimphu, because it costs more to build, the cost of replacement rises as well. This would increase the value of existing buildings in the trade area.
He added that the new buildings that are coming up would require more rents, and that older buildings will be able to boost rents depending on the information.
“House owners may be unable to bear rising costs and, as a result, may be forced to pass the burden on to tenants or house buyers,” he added.
According to the Managing Director of the Bhutan Real Estate, Ranjit Tamang, residential property prices are expected to grow by 8-15 % as builders try to keep up with escalating costs.
Currently, a two-Bedroom Kitchen Hall (2 BHK) flat for residential purposes costs around Nu 3mn to Nu 3.5mn. However, with the cost escalation of construction material, it is expected to go up to Nu 3.2mn to Nu 4mn.
“While the prices of new projects will undoubtedly rise, the prices of existing buildings will rise in phases as well,” Ranjit Tamang said.
Another property dealer from the PD Real Estate said that the unusual price differences in construction materials will actively contribute to determining the price of a house, while also keeping construction costs and land prices in mind.
Meanwhile, a resident of Thimphu, who is constructing a rental building said, “Pricing is under great pressure; we are reviewing our input costs and, if required, we will have to raise the rent prices.”
According to another contractor, the costs of several construction products increased by 15-20% in just a few days, with merely transportation costs increasing owing to an increase in fuel prices. However, the increase is excessive once labor costs are factored in.
Just a few days ago, an official from the Lhaki Steels & Rolling Pvt. Ltd. told Business Bhutan that the price of one Metric Ton (MT) of steel was Nu 73,000 and with the prices of materials from India having had risen sharply in the last few days, the price of steel is now 78,000 per MT.
“The price increased by 6.8% in just two days,” he said.
“The highest price of steel that we have seen is Nu 51,000 per MT before, but now it’s only going up,” he said, adding that they raise the price due to the increase in the prices of all raw materials from India, which causes the price of finished goods to rise as well.
While the price of steel, one of the most prominent building materials, is rising at a high pace, the scenario is the same with cement.
Meanwhile, a truckload of cement costs anywhere between Nu 93,340 to Nu 124,800, excluding the cost of transportation and labor.
One truck ferries approximately 260 bags of cement, with each bag costing between Nu 359 and Nu 480 at the source in Dungsum and Nganglam.
“By the time cement comes here, the cost of a truckload of cement has risen to Nu 130,000, including labor and transportation,” said the owner of NT Construction Materials Supplier in Thimphu.
Meanwhile, many believe that if the government could explore enabling input tax credits or rationalizing the Goods and Service Tax (GST) rates on certain building raw materials from their existing levels, then this would reduce the cost of residential properties instantly.
“If these efforts are not implemented promptly, property values will skyrocket, posing a direct threat to affordable housing. Property buyers will have to put more money on their desired home, canceling out the savings,” said an official from the Bhutan Real Estate.
Tshering Pelden from Thimphu