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Sunday 22.04.2018 | Name days: Armanda, Armands
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LEC: construction costs to surge this year

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RU

Construction cost will keep climbing this year not only due to changes in taxes and surging construction raw material prices, but also because of increasing labour costs, SIA Latvijas Energoceltnieks (the construction company LEC) Chairman Andris Asars-Asarovskis predicts.

The maximum possible cost optimization in the construction sector has already taken place and there no longer are grounds to await dropping costs. On the contrary, we can expect spiking construction costs, along with tax increases, and building material and labour cost surge. The sector has already reported construction cost increases in certain segments, largely due to tax, resource and labour surcharge, Andris Asars – Asarovskis informs the business news portal BNN.

He projects that the cost increase will be seen not only in the construction industry, but also in other sectors of the national economy, because uncertainty and inconsistency in the tax policy, and the government’s support for the national economy without any further actions, do not facilitate the economic recovery. It rather creates additional burden on businesses and chaos in all the sectors.

Asars – Asarovskis emphasizes the key factor, affecting not only the construction costs, but also other sectors, is the government’s planned tax changes to attain the fiscal consolidation.

Definitely, the construction costs will mount along with the tax rise. Similalry, they will be influenced by the scheduled changes in the price of energy, natural gas, fuel and other resources. I believe that imposing additional tax burden is not a solution, besides, it is illogical, because when starting a new business year each company plans its expenses, including predictable surcharges. This is important in planning construction costs. However, if the government’s actions, such as raising taxes, are not predictable, it is even harder for a company to do it, especially if the enterprise intends to participate in tenders for long-term projects, because it is practically impossible to plan and forecast price fluctuations in the long run, the expert specifies.

The sector is already facing a shortage of qualified specialists, because they are literally snatched out. This may result in increased labour costs determined by the catastrophic lack of qualified engineering professionals. I believe that the government should provide more support to boost the employment, for example, by developing support programmes to businesses that offer new jobs. It is vital to create an environment where entrepreneurs are motivated to provide jobs and pay taxes, thus, increasing budget revenues. I think that the shortage of human resources will manifest itself the most when the season starts, Asars – Asarovskis indicates.

Building material wholesalers have not created several material stockpiles along with the drop in construction output. Consequently, often a situation arises where the necessary construction materials have to be ordered from other countries, thus, surcharging the costs, as well as requiring a longer period of delivery. Moreover, the global market trends show metal and wood prices will gain, also impacting construction material price growth in the Latvian market.

With growing construction material prices, construction costs will also augment, complicating performance of construction companies offering the lowest prices – dumping prices. This is still a big problem in tenders, resulting in overall degradation of the construction industry, because separate construction companies are still willing to sacrifice their company’s sustainability to win a tender by offering the lowest price without objective grounds, the expert says.


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