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Fuel prices increase construction costs by 15% Recent economic reform decisions raised administrative expenses and profits of contracting companies by 30%, says Abdellah
Despite the high prices of real estate, especially after the liberalisation of the exchange rate, there has been great movement of buying and selling in the housing units. While experts and real estate developers stressed the negative repercussions of the decision of the cabinet to raise the prices of petroleum products and natural gas on the real estate sector (hence increasing construction costs and housing unit prices), they expected prices to increase by 10% to 15%. The Egyptian cabinet approved an increase in the prices of petroleum products and natural gas on Thursday morning, as follows: gasoline 80 from EGP 2.35 to EGP 3.65 per litre, petrol 92 from EGP 3.5 to EGP 5 per litre, diesel from EGP 2.35 to EGP 3.65 per litre. The price of gas metres for cars rose from EGP 1.6 to EGP 2. The price of gas cylinders rose from EGP 15 to EGP 30. The member of the Real Estate Investment Division and chairperson of the board at Wadi Degla Developments, Maged Helmy, said that the cabinet's decisions will be directly reflected on the cost of carrying out real estate projects. He called on investors and real estate companies not to add the increase in fuel prices on unit prices, which may lead to halting sales and purchases, due to lack of appropriate prices, then the purchasing power of citizens will decrease. Daker Abdellah, member of the board of directors of the Egyptian Federation for Construction and Building Contractors (EFCBC), noted that the recent economic decisions will increase the prices of building materials of the construction process, but the negative impact will be limited to construction contracts that have been concluded a month ago. Abdellah explained that all the contracts were signed a month ago, but the financial decision is not decided; yet their owners will be protected from high prices, and these contracts have become immune because the administrative bodies will take into consideration all the conditions of the elements of change. Therefore, inputs such as diesel, bitumen, steel, and cement are protected from any change in price. Abdellah added that the problem will be clear in the projects and contracts concluded since 1 March 2016 until now, where the increase in prices of raw materials as a result of cutting subsidies on energy or liberalisation of the exchange rate will be accumulated on these contracts, pointing out that the only saviour of these companies is the Compensation Law, which the parliament approved recently. He said that the Minister of Housing, Utilities, and Urban Communities, in the form of compensation committees after President Abdel Fattah Al-Sisi's approval, has to spend 25% of compensation for construction companies until the completion of the work. "There is another reflection of the decisions of economic reform, which is the high prices of life requirements. The administrative expenses and profits of the contracting company rose from 20% of the contract value to 50%," Abdellah added. Mohammed Al Bustani, chairperson of Al Bustani Real Estate and Tourism Development Company, said that the raw materials are expected to rise following the recent increase in fuel prices. Al Bustani added that serious real estate companies compensate construction companies periodically for increases in the prices of building materials and inputs of the units' construction to not harm the contractors and guarantee the continuation of the projects' implementation according to the schedule and time plan. He pointed out that the adoption of the Compensation Law and the speed of implementation will contribute to saving many companies operating in the construction sector, especially small and medium-sized enterprises (SMEs), from collapse and bankruptcy in light of the major increases in the prices of building materials following the rise of the dollar value and the difference in the cost of implementation of real projects from the value of contracts.
