The Belgian Construction Confederation calculated that raw material prices rose by an average of 12% between January and the beginning of March, which was before the impact of the Ukraine crisis started to be felt. Project developers such as ION are doing everything they can to keep the impact under control.
There's no two ways about it: the prices for raw materials and building materials are skyrocketing, and the entire real-estate sector is facing considerable challenges. Suppliers will continue to raise their prices, contractors and project developers will have to follow suit, and customers will inevitably have to dig deeper into their pockets. 2021 was dominated by price hikes, inflation, and increased interest rates. And these trends are continuing for the time being.
How did we end up in this situation? I'm sure it won't surprise you to hear that part of the reason is the coronavirus crisis. The pandemic caused logistical problems, which led to delays in the production of raw materials and end products, and consequently soaring transport costs. Furthermore, the mismatch between supply and demand caused scarcity and thus upward price pressure on materials, including construction materials. The war in Ukraine and the resulting uncertainty mean that these developments will continue, perhaps even at an accelerated pace.
In addition, we are experiencing significantly greater energy costs, and rising inflation. Because of the indexation system, higher inflation results in higher wages. In other words, construction companies are being forced into a corner: costly materials plus higher wages mean construction costs are inevitably higher. And it is not only the customers who are impacted.
For many developers and construction companies, this is a new trend. In recent years, we always experienced a growing economy: interest rates were low, construction costs were not extremely high, and buyers were found without problems, partly thanks to the low interest rates. The increases we are now seeing are quite unprecedented, and there are no ready-made solutions. Due to the uncertainty, it is becoming increasingly difficult to conclude fixed-price contracts with contractors. We are evolving towards variable price contracts that take indexation into account. Developers are considering indexing sales prices or increasing them to some extent. In any case, it is inevitable that each link in the property development chain will have to absorb part of the price increase: the supplier, the contractor, the project developer, and the buyer. At ION, we're continually striving to work this out together. We keep a close eye on trends and are vigilant for further changes.
Central banks are also responding to high inflation in order to keep it under control. They have raised interest rates, which again makes it harder to borrow. Nevertheless, periods of inflation offer great opportunities to invest in residential real-estate. People buy less and therefore enter the rental market faster. Real-estate usually retains its value and rental income is indexed, which in turn protects the landlord from inflation. So now is a great time to consider an investment!
History teaches us that this inflationary period will not last forever, but also that inflation will return again in the future. We are doing everything we can to deal with the current situation as effectively as possible, and to ensure that all parties continue to function. Additionally, we are monitoring further developments to intervene in a timely manner where necessary. As always, we have a positive outlook on the future!