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In Latin America, construction material costs have surged significantly over the last two years. The ongoing war in Ukraine, coupled with the rising inflation, has added even more pressure to the sector.
Mexico bearing the brunt of building materials price rise
Looking at specific materials, the Mexican Chamber of the Construction Industry (CMIC) indicated that cement, rebar, and steel experienced the greatest increases since December 2021. the prices of these building materials have surged by 15% to 25% in Mexico. As a result of this price rise, the construction budgets formulated in 2021 are expected to be too low in many cases in the country. This could leave some public and private sector projects short of the resources required for completion.
ConsTrack360 expects that the ongoing war in Ukraine can further increase the cost of materials such as rebar and steel. According to the National Statistics Agency, INEGI has increased by 100% over the past year, leading to Q2 2022. The Tijuana CMIC President, Jesús Octavio Ruiz Vargas, told Uniradio Informa that the steel prices had doubled over the past 12 months, leading to April 2022. During the same period, concrete prices increased by 40%, whereas wood prices surged by 20%. In addition to the building materials prices, the labor costs increased by 20% in Mexico.
This increase in the prices of building materials has a different impact in different country regions. For instance,
According to Sánchez, there has been a little bit of activity and growth in the construction sector in the region; however, the rise in prices has ended the recovery in the first quarter of 2022. Moreover, the war between Ukraine and Russia affects the availability and cost of materials such as aluminum, steel, glass, cement, and paint. Consequently, ConsTrack360 expects construction activities to remain subdued in Mexico from a short-term perspective.
Building material prices have skyrocketed in Brazil
Similar trends are visible in Brazil, where the cost of building materials has also skyrocketed. Notably, the cost per square meter of building a house has increased by almost 50% over the last five years.
According to the National System for Research on Costs and Indexes of Civil Construction (Sinapi), the average value of a square meter of a structure has surged by 47.3% from 2016 to 2021. The cumulative inflation over the same period in Brazil stood at 28.15%. The Sinapi Index has two main components, labor and material.
Over the last five years, labor cost has increased by 21.84%, whereas material spending is up 71.32%, which is two and half times inflation for the same period. While the prices have been on a constant increase since 2016, building material prices have surged significantly, especially during the last two years.
While the stay-at-home global pandemic restrictions supported the construction sector growth over the last two years, the constant increase in the prices of building materials is expected to affect the industry growth in 2022. This is because the construction costs are increasing, but the household income is not as high. Consequently, ConsTrack360 expects a muted demand in the residential construction space from the short-term perspective in Brazil.
To know more and gain a deeper understanding of the construction market in Latin America, click here.
