Financing | The cost of construction is increasing!

The construction price index rose from 108.8 in April 2021 to 132.8 in March 2023. This represents a colossal increase of almost 20% in just 2 years. This increase in construction costs can be attributed to several factors, including inflation, rising raw material costs, and increasing demand for construction services.

Indeed, Mauritius is currently experiencing a period of rampant inflation. On the one hand, as national debt increases, the rupee depreciates. On the other hand, the exchange rates of the currencies needed for our imports, which are the Euro and the Dollar, are increasing. These two phenomena combined create an exponential inflation problem that affects almost all sectors of activity.

As far as construction is concerned, this results in raw material costs that have been rising steadily for two years. Furthermore, production costs are also increasing and are being affected by the global increase in all prices.

On the other hand, as the economy continues to recover from the impacts of the COVID-19 pandemic and activity picks up, the construction sector is experiencing continued growth, which inevitably impacts construction costs as well.

To mitigate the impact of this increase, it is important that both developers and owners carefully plan their projects and consider alternative materials and construction methods where possible. In addition, the government can play a role in supporting the construction sector through targeted consumer support policies.

In conclusion, the Mauritian construction industry has seen a significant increase in costs over the past two years. While this poses an additional challenge to Mauritian households which have been hit hard by the rapid decline in their purchasing power, there are solutions to offset these increases that seem to have no end in sight. It is high time that the government takes steps to help a growing portion of the population which is being deprived of access to property.

From an investment point of view, for those who would be in the research phase, it is probably safer at the moment to turn to already built properties or "turnkey" projects with a fixed price. Indeed, even if the rise in construction costs also has an influence on the overall price of the real estate market, embarking on the construction of a property today is a risk as costs continue to rise. As an example, someone who started a construction project two years ago will have seen their overall cost increase by more or less 15% at the end of their construction. Investing in the existing will avoid this kind of bad surprise.