The high prices of construction materials cause thousands of construction projects in the Central of Vietnam to increase investment capital. (Photo: SGGP)
Plans of construction costs fall through
In flood-hit regions in the Central of Vietnam, local people have been building tens of thousands of permanent houses to withstand storms and floods. However, the price of construction materials, such as iron and steel, bricks, and cement, and labor prices soared too high, causing a wide gap in the estimates of the housing construction costs.
While clearing the pile of building materials next to her unfinished house, Mrs. Hoang Thi Tinh, 42, a resident in Ky Nam Commune in Ky Anh Town of Ha Tinh Province, said that she planned to spend VND1 billion on building a two-story house with three bedrooms and a roof, not including interior furniture. However, the price of construction materials and labor costs jumped by 40-45 percent, making everything more expensive. After recalculating, now she can only afford to finish the house with plastering instead of painting it. The roof must also be left until she has money to complete it. The investment costs of her house have increased by VND300 million, but it has not finished yet.
After many years of working and accumulating, in early 2021, Mr. Nguyen Van Hoa, a resident in Cat Tai Commune in Phu Cat District of Binh Dinh Province, started building his house with an estimated cost of VND500 million. However, the price of building materials escalated rapidly, causing all of his plans to fail. “Steel prices rose too fast, so our plans failed. Now the costs have surged to nearly VND100 million, it is very difficult for people who do not have much money," said Mr. Hoa.
In Binh Dinh province, many enterprises are crying because the price of construction materials, especially steel, has simultaneously increased. According to research, steel prices have galloped by 40-50 percent. From VND12,00 per kg in 2020, up to now, steel coil has risen to VND18,000-VND20,000 per kg. According to the Department of Construction of Binh Dinh Province, the high steel prices have had a great impact on local projects and works. This department acknowledged that steel prices in the second quarter of this year surged suddenly, nearing the peak of the steel crisis that occurred in 2008.
A representative of KingHome Architecture and Construction Co., Ltd in Quy Nhon City of Binh Dinh Province said that from the middle of the end of 2020, the company had signed over ten turnkey contracts for customers with the unit prices of 2020, applicable in 2021. However, everything unexpectedly hiked, making the company unable to handle and face many difficulties, especially during the pandemic.
Finding ways to remove difficulties
According to Mr. Le Anh Son, Deputy Director of the Department of Construction of Binh Dinh Province, the unit has sent a document to the Ministry of Construction, reporting the impact of steel price fluctuations on local construction activities. The strongest impact is on projects using public investment capital, as when steel prices climb, the construction value and total investment of these works increase correspondingly. The costs for agricultural projects, technical infrastructure, and transportation edged up by 2-4 percent, making the total investment cost 2-3 percent higher. Especially, the construction costs of roads and bridges rose by over 10 percent, so the total investment costs increased by nearly 7 percent; those of civil works went up by nearly 11 percent, so total investment added up by nearly 9 percent. These two types of construction works exceed the provisioning costs for the maximum slippage factor of 5 percent.
The Department of Construction of Binh Dinh Province proposed the Ministry of Construction to soon issue the guide on the organization of construction works, contributing to ensuring construction progress and limiting the impact of rising building material prices. In addition, the ministry should provide specific guidance on the adjustment of contract prices for projects signed in the form of package contracts and fixed unit price contracts. In the coming time, the State needs to issue a policy to guide price compensation for construction materials with a sudden price increase in the second quarter of this year and have a macro regulatory policy to stabilize the price of construction materials in the coming time.
Mr. Hoang Minh Thai, Deputy Director of the Department of Construction of Quang Binh Province, said that the price of construction materials has been fairly high, with the sudden rise in steel prices affecting public investment in particular and construction investment in general. The rising construction material price might cause the investment level to increase or some contractors to fail to perform their contracts. Currently, the department is updating construction material prices in the province to promptly announce once a month for organizations and individuals to reference and apply.
According to Mr. Thai, the Department of Construction of Quang Binh Province will continue to monitor, survey, and announce the original price of construction materials in the province in accordance with market price movements as prescribed. The department will carefully check the price announcements to avoid the situation that some organizations and individuals take advantage of the price increase of some construction materials to raise their prices while there is not enough basis for the price increase. The department will refuse to announce the original construction material prices of organizations and individuals if the notices of price increase are not appropriate.
In flood-hit regions in the Central of Vietnam, local people have been building tens of thousands of permanent houses to withstand storms and floods. However, the price of construction materials, such as iron and steel, bricks, and cement, and labor prices soared too high, causing a wide gap in the estimates of the housing construction costs.
While clearing the pile of building materials next to her unfinished house, Mrs. Hoang Thi Tinh, 42, a resident in Ky Nam Commune in Ky Anh Town of Ha Tinh Province, said that she planned to spend VND1 billion on building a two-story house with three bedrooms and a roof, not including interior furniture. However, the price of construction materials and labor costs jumped by 40-45 percent, making everything more expensive. After recalculating, now she can only afford to finish the house with plastering instead of painting it. The roof must also be left until she has money to complete it. The investment costs of her house have increased by VND300 million, but it has not finished yet.
After many years of working and accumulating, in early 2021, Mr. Nguyen Van Hoa, a resident in Cat Tai Commune in Phu Cat District of Binh Dinh Province, started building his house with an estimated cost of VND500 million. However, the price of building materials escalated rapidly, causing all of his plans to fail. “Steel prices rose too fast, so our plans failed. Now the costs have surged to nearly VND100 million, it is very difficult for people who do not have much money," said Mr. Hoa.
In Binh Dinh province, many enterprises are crying because the price of construction materials, especially steel, has simultaneously increased. According to research, steel prices have galloped by 40-50 percent. From VND12,00 per kg in 2020, up to now, steel coil has risen to VND18,000-VND20,000 per kg. According to the Department of Construction of Binh Dinh Province, the high steel prices have had a great impact on local projects and works. This department acknowledged that steel prices in the second quarter of this year surged suddenly, nearing the peak of the steel crisis that occurred in 2008.
A representative of KingHome Architecture and Construction Co., Ltd in Quy Nhon City of Binh Dinh Province said that from the middle of the end of 2020, the company had signed over ten turnkey contracts for customers with the unit prices of 2020, applicable in 2021. However, everything unexpectedly hiked, making the company unable to handle and face many difficulties, especially during the pandemic.
Finding ways to remove difficulties
According to Mr. Le Anh Son, Deputy Director of the Department of Construction of Binh Dinh Province, the unit has sent a document to the Ministry of Construction, reporting the impact of steel price fluctuations on local construction activities. The strongest impact is on projects using public investment capital, as when steel prices climb, the construction value and total investment of these works increase correspondingly. The costs for agricultural projects, technical infrastructure, and transportation edged up by 2-4 percent, making the total investment cost 2-3 percent higher. Especially, the construction costs of roads and bridges rose by over 10 percent, so the total investment costs increased by nearly 7 percent; those of civil works went up by nearly 11 percent, so total investment added up by nearly 9 percent. These two types of construction works exceed the provisioning costs for the maximum slippage factor of 5 percent.
The Department of Construction of Binh Dinh Province proposed the Ministry of Construction to soon issue the guide on the organization of construction works, contributing to ensuring construction progress and limiting the impact of rising building material prices. In addition, the ministry should provide specific guidance on the adjustment of contract prices for projects signed in the form of package contracts and fixed unit price contracts. In the coming time, the State needs to issue a policy to guide price compensation for construction materials with a sudden price increase in the second quarter of this year and have a macro regulatory policy to stabilize the price of construction materials in the coming time.
Mr. Hoang Minh Thai, Deputy Director of the Department of Construction of Quang Binh Province, said that the price of construction materials has been fairly high, with the sudden rise in steel prices affecting public investment in particular and construction investment in general. The rising construction material price might cause the investment level to increase or some contractors to fail to perform their contracts. Currently, the department is updating construction material prices in the province to promptly announce once a month for organizations and individuals to reference and apply.
According to Mr. Thai, the Department of Construction of Quang Binh Province will continue to monitor, survey, and announce the original price of construction materials in the province in accordance with market price movements as prescribed. The department will carefully check the price announcements to avoid the situation that some organizations and individuals take advantage of the price increase of some construction materials to raise their prices while there is not enough basis for the price increase. The department will refuse to announce the original construction material prices of organizations and individuals if the notices of price increase are not appropriate.
The South Central region has several construction projects under construction. During this time, the prices of steel and some other construction materials have simultaneously soared, causing difficulties for localities and enterprises. A similar situation also took place in the Northern Central provinces. Mr. Luong Ngoc Hung, Director of Truong Minh Construction Joint Stock Company in Quang Binh Province, said that the bidders were stuck because the unit price of construction materials approved from 2020, which had already been lower than the market prices, now has galloped. As a result, no works are profitable and are being constructed perfunctorily.
