Due to the rise in prices of materials, construction in the real estate sector has not been easy lately. There has been a rise in cost in labour, equipment, transport, and civil engineering. Data from the Economic Survey 2021 shows that the overall construction index increased by 0.3 percent from 102.37 in the third quarter to 102.64 in the fourth quarter of 2020. There were evident increases in the indices of materials and labour that grew by 0.1 percent and 0.5 percent, respectively, while the index of equipment remained constant at 99.80 in the same period.
The Kenya National Bureau of Statistics (KNBS) confirmed that the rise in the material index was as a result of the increase in prices of steel bars, machine cut stones and timber. When the demand for the materials increases especially post- Covid- 19, the index will rise higher.
Steel has gained a high demand this year causing its price to rise sharply by 50 per cent globally. Real estate owners are shocked by the sudden increase which has been caused by high demand and supply chain disruptions in India and China due to Covid-19.
A ton of steel bars that was initially Sh40,000 is now Sh81,000. This is according to data from the London Metal Exchange. On the other side, in the status of the built environment report, the Architectural Association of Kenya (AAK) said that a kilogramme of construction metal had risen to Sh125 from the initial Sh85. This will automatically lead to higher costs for builders, developers, real estate owners and real estate builders, especially those who had already signed contracts that puts into account the previous lower prices of the materials.
Steel is an important component in the construction industry and must be used in the construction process. It is used to make roofing sheets, reinforcement bars, steel beams and columns, windows, and doors, and other products, since it is widely used, it means that any change in the price of steel, means a change in the cost of projects. In this case, the change is an upward increment which will lead to higher cost of construction, which will in turn weigh down the real estate sector.