House construction is the backbone of any developing or developed economy — it directly and indirectly generates millions of jobs and helps keep the economic wheel moving. During the COVID pandemic, when every other industry was at a complete halt, construction remained up and running and helped the labour force earn their living. In the recent economic turmoil the country has faced, however, the construction sector has been hit very hard, and house construction cost has increased drastically as a result. In this article we explain what is going wrong with house construction cost and the sector, largely due to the negligence of the concerned authorities. Currently, house construction cost and the prices of main construction materials such as cement, steel, crush and sand are literally out of control — and soon brick prices are expected to follow. Let us analyse each material separately.
Cement
The cement sector belongs to a powerful cartel — they create an artificial gap between supply and demand in the market whenever they wish to increase the price of cement bags at will. By 5th June 2022, cement's official price range in the Lahore region was Rs 865-890/bag, and it was easily available in bulk quantity at retail or dealership. Suddenly after 5th June 2022, cement bags were nowhere to be found in the market, and dealers who had a few bags left started selling them in black up to Rs 1,200/bag. To date, this artificial gap in the market continues, and each dealer or shopkeeper sells cement at their own rate and terms. The icing on the cake was breaking news that we thought we would be proud of — the export of cement to the US by DG Cement. According to a report, DG's CFO Inayat Ullah Niazi stated that 50,000 tons of cement would be exported to the US, with the first lot loading at Karachi Port for delivery to Houston. As Pakistanis, we should be genuinely proud of this export — but it is the state's responsibility to ensure the domestic user is not affected and that the price per bag remains in control. Unfortunately this is not happening at the moment, and domestic users are cursing both the government and the cartel.
Steel
This is the most important and expensive material used during house construction. Steel prices have already witnessed a very sharp increase over the past year and a half. In early 2021 it was at Rs 107,000/ton; by the end of 2021, steel prices were trading at Rs 193,000/ton. The prices remained stable around this figure for a couple of months, but currently — in June 2022 — steel prices for Grade 60 in and around Lahore stand at Rs 230,000/ton. With an expected price hike in diesel/petrol and increased taxes on the various raw materials required for steel production, it is being forecast that steel will reach a minimum of Rs 250,000/ton within the next 2-3 months.
Crush
Just like cement and steel, the price of crush (coarse aggregate) has also remained unstable over the last year and a half. In Pakistan, coarse aggregate is crushed from the mountain ranges of Margalla and Sargodha, with the majority of demand supplied from Sargodha's crushing stations. Good-quality graded crush from Sargodha was available in Lahore at Rs 75/cft in early 2021, which jumped directly to Rs 95/cft by December 2021, and currently stands at around Rs 120/cft. It is being forecast that if diesel prices are increased, this will rise to a minimum of Rs 130/cft within the next 2-3 months.
Sand
Sand prices are dependent almost entirely on diesel prices. Currently, good-quality Chenab sand in Lahore is available at around Rs 38-48/cft, compared to Rs 28-30/cft in early 2021.
Summary
Team Overc's recorded a detailed video on 2022 grey structure house construction cost, in which we told our viewers that grey structure cost was around Rs 1,150/sq.ft in 2017, the first year we uploaded a detailed grey structure cost video — which jumped to around Rs 1,859/sq.ft up till February 2022. At the time of writing this article, in June 2022, the grey structure cost per sq.ft has gone up to a minimum of Rs 2,125/sq.ft — an abnormal increase of Rs 266/sq.ft in the last 3-4 months alone. This is all due to political and economic uncertainty, and the arbitrary, dictatorial acts of the cement and steel cartel. The common man building his house on limited resources is already out of budget before completing it. Service providers and companies who signed contracts with clients without escalation clauses are now in disputes with their clients. It is chaos all around in this sector, and no state department or authority appears awake enough to notice what is going on and how people are suffering due to the poor decisions of a few elites and decision-makers.
What should we do in this situation?
If you are building your house yourself on labour contract while providing the material, please accommodate and adjust minor rates to cover extra fuel expenses with your labour contractors — it has become genuinely difficult for them to earn their daily livelihood. If you are at a stage where you can book material and offload it on site in advance, go for it — but remember that cement and steel should not be offloaded in bulk, as cement wastes after 25 days and steel begins to rust. Plan your roadmap, speed up construction, and offload only as much material as you can use within the next month. If you are at the finishing stage, it is better to buy and store finishing material — including steel and ceramic fixtures — now. But if you won't need such material for another 5-6 months, it is better to hold off, as the situation will likely normalise within 3-4 months; although prices will be higher by then, storing such materials on site for that long isn't advisable.
If you are a construction company that has agreed a lump-sum or per-sq.ft rate with a client (or vice versa) and a price escalation clause was clearly mentioned and communicated at the time of agreement, the client is bound to pay the escalated material cost. However, if no such clause was mentioned, the matter should be mutually discussed between the client and the construction company, and a middle way adopted where both parties share the cost equally. Very few — almost none — of the well-established house construction companies in Pakistan can absorb this recent cost escalation within their existing per-sq.ft or lump-sum contracts. And as a client, remember that it is your property being built — one you will use for the next few decades — while the company or contractor will build it and leave. To maintain construction quality, think and act wisely in this situation.