5 reasons cost of construction in Kenya will rise in 2023

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The cost of construction in Kenya has been every project developer’s worst nightmare year in and year out. According to Wilson Mugambi, the president of the Architectural Association of Kenya (AAK), the cost of construction has been increasing over the years, reaching a record high in recent times.

In 2022 for example, the construction costs in the East African country ranged between Sh34,650 to Sh77,500 per square meter. This was up from between Sh33,450 and Sh72,400 per square meter the previous year.

This year is not expected to be any better. Actually, the prices will rise even more. This is why.

1. Rising inflation

A rise in inflation means a rise in the cost of construction materials. For instance, if the cost of steel increases the price of a steel-framed building will also increase. The same goes for other materials used in the building and construction, such as concrete, lumber, glass, etc.

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Inflation is also directly proportional to the cost of living. If inflation increases the cost-of-living increases and so does the cost of labor. Contractors will therefore be forced to pay their workers more, which in turn, raises the overall cost of the implementation of construction projects.

2. Ongoing Russia/Ukraine conflict

While Russia and Ukraine are not key exporters of finished building and construction products, the majority of raw materials come from these countries.

The ongoing conflict between the two countries resulted in the closure of factories or reduced production and a limited supply of building materials since all shipping lines were not allowed within the countries’ 200-mile radius.

This led to an increase in the cost of construction materials due to limited supply and an increase in the overall construction cost not only in Kenya but in all parts of the world. It is unclear when the Russia/Ukraine conflict that is making developers pay more for construction will end.

3. Increased tax

All imported items in Kenya are subject to tax rates that vary between 0%, 10%, and 25% as provided by the East Africa Community Common External Tariff (CET).

Recently the country increased the rates for some of the materials used in the manufacture of construction products. These materials include resin whose exercise tax was set at 10%. The Value Added Tax (VAT) on petroleum-based ingredients used in the manufacture of paints was set at 16%.

These changes led to the increase of paint in Kenya. There have not been any changes to these rates, therefore construction costs will remain the same or even increase.

4. High fuel costs

The cost of construction in Kenya is also expected to increase due to the high fuel costs. Currently, super petrol is retailing at Ksh177.3 per liter while diesel is retailing at Ksh162 according to the Energy and Petroleum Regulatory Authority (EPRA).

Project developers are therefore expected to spend more on vehicles used to transport materials from the hardware to the project sites. This will mean an increase in the overall cost of construction in Kenya.

5. Rising cost of land

Project developers are expected to pay up to 16% more for land that makes up between 40 percent and 60 percent of the total cost of a construction project in Kenya. The high cost of land is a result of demand and the development of infrastructure in the country.

It is unlikely that construction costs will go down in the near future. For this reason, it is important to budget accordingly before undertaking any construction projects in Kenya or elsewhere. By planning ahead and budgeting accordingly, you can ensure that your project stays on track and within budget.