Impact assessment timely for construction sector

THE Public Works Ministry recently said that it would undertake an impact assessment on rising construction costs, following news that geopolitical tensions in West Asia were causing energy prices to rise while disrupting supply chains.

Needless to say, the construction industry is one of those most affected as construction inputs like steel, cement and even transportation are highly sensitive to fuel cost movements.

An impact assessment is timely and it should not merely be a review but should involve industry-wide views and strategies, including that of property developers.

So far, it has been suggested that engagement with agencies and private sector players will be done, implying that the assessment is intended to lead to targeted interventions, and not so much generic policy responses.

But the ultimate question in all of this is – who bears the cost?

One of the main issues is whether the cost will be passed on to developers, and ultimately, property buyers.

In theory, cost transmission occurs along the value chain, but most of the time, this is uneven as contractors are generally the first to face margin compression, especially when it comes to fixed-price contracts where cost increases cannot be easily renegotiated.

In turn, the developers, will face the higher construction costs when they launch their new projects.

That said, when the market is soft and consumers are already struggling with the increasing cost of living – is this even feasible or should contractors just absorb the short-term shocks while the developers adjust their margins?

This doesn’t seem very fair too although socialists will beg to differ.

Nevertheless, the government’s decision to call for an impact assessment suggests a preventive and data-driven policy stance.

What it could do is perhaps introduce more regulatory adjustments to increase efficiency and lower costs, and perhaps introduce some temporary tax relief on key construction materials.

All said, the impact assessment is an important step toward stabilising the country’s construction industry during the current period of global uncertainty.

Nevertheless, while it may soften the immediate impact via key targeted interventions, a certain level of cost pass-through will be unavoidable.