Market Insights: Navigating Rising Construction Costs

As we progress through 2024, the construction sector in Mauritius, much like the rest of the world, continues to experience notable changes in cost dynamics.

Market Insights: Navigating Rising Construction Costs

As we progress through 2024, the construction sector in Mauritius, much like the rest of the world,
continues to experience notable changes in cost dynamics. According to the latest report from Statistics
Mauritius, the Construction Price Index (CPI) saw an increase from 136.7 points in the first quarter
to 137.3 points in the second quarter of 2024. This 0.4% rise is attributed to the escalating prices
of essential construction materials such as pre-mixed concrete (up by 0.9%), ceramic and granite tiles
(up by 1.9%), filling materials (up by 4.1%), aggregates (up by 0.4%), iron bars (up by 0.3%),
and structural timber (up by 2.6%)​.

Understanding the Local Impact

The construction sector remains a pivotal part of Mauritius’ economy, driving growth and development.
The sector grew by an estimated 37.4% at basic prices in 2023, significantly contributing to the
country’s GDP. This robust growth is expected to continue in 2024, supported by high levels of
fixed investment and public capital expenditure. However, the rising construction costs pose challenges
that need to be navigated carefully.

In the first quarter of 2024, labour costs increased by 8.5%, and material costs saw a 1.0% rise.
Specific materials like pre-mixed mortar experienced a 7.1% increase, while tiles and granite prices
rose by 1.6%, and plumbing materials went up by 2.0%. Despite these increases, the prices of some
materials like steel bars saw slight decreases in certain months, reflecting the complex nature of
construction cost fluctuations.

Global Comparison and Trends

To provide a comprehensive view, it’s important to compare these trends with global construction
cost dynamics. Geneva, Switzerland, currently holds the highest construction costs globally,
with expenses over 150% above the average. This surge is driven by high energy prices, inflation,
and labour shortages. London and New York City also experience significantly high construction costs
due to similar factors.

In the United States, the construction cost index slightly declined by 1.25% from Q3 2023 to Q1 2024,
primarily due to a fall in material costs, despite a rise in labour costs. This highlights the regional
variations and the importance of localised cost analysis for accurate project budgeting.

Globally, construction cost inflation is projected to stabilise around 3.3% this year. This easing of
pricing pressures is increasing the viability of new projects and boosting investment confidence across
various sectors, from industrial manufacturing to healthcare.

Mauritius-Specific Insights

Mauritius’ economic growth is heavily influenced by the construction sector. The country’s real GDP
growth is forecasted to slow to 4.5% in 2024 from an estimated 6.5% in 2023. Despite this slowdown,
the construction sector is expected to remain a major contributor to economic activity, driven by
strong demand for residential properties and significant government capital expenditure.

In 2023, the construction sector grew by an estimated 37.4% and contributed 1.9 percentage points
to GDP growth. While growth is expected to slow to 18.1% in 2024, the sector will continue to be a
key driver of economic activity. The government’s Public Investment Programme, which allocates substantial
funds to infrastructure projects such as the Metro Express line, social housing developments, and
flood management projects, will support this growth. Fixed investment is forecasted to contribute 2.8
percentage points to real GDP growth in 2024.

Inflation and Consumer Spending

Inflation in Mauritius is expected to moderate in 2024, with consumer price growth easing to an average
of 4.6%, down from 7.1% in 2023. This moderation is largely due to lower global grain prices and a slight
decrease in oil prices. Additionally, pensions increased by 12.5% in January 2024, supporting consumer
purchasing power. Despite these positive trends, private consumption growth is forecasted to slow from
2.4% in 2023 to 2.0% in 2024, influenced by tight monetary policy and high-interest rates discouraging
borrowing. Net exports are also expected to drag on growth due to high demand for imported building materials
and machinery, coupled with slowing export growth from the tourism sector.

Why This Matters to You as a Real Estate Investor

Increased Property Values: The rise in construction costs often translates to higher
property prices. Understanding this trend can help you adjust your buying and selling
strategies to maximize returns.

Budget Adjustments: If you’re planning new builds or renovations, it’s crucial to
account for these increased expenses in your budget. Staying ahead of cost
fluctuations can help avoid financial surprises.

Financing Implications: Rising construction costs can influence mortgage rates and
loan amounts. Lenders may adjust their offerings based on the increased cost of
building materials, affecting your financing options.

Market Competitiveness: Keeping abreast of market trends allows you to act
strategically. Whether you’re an investor, developer, or buyer, understanding these
dynamics can help you stay competitive and make informed decisions.

Actionable Steps for Investors

Before buying property, it is crucial to adopt a strategic approach to navigate rising
construction costs and dynamic market conditions. Here are key steps to ensure your
investment is sound and profitable:

Monitor Material Prices and Market Trends: Regularly update yourself with
reports from Statistics Mauritius and the Mauritius Chamber of Commerce and
Industry (MCCI). These sources provide essential data on local construction costs and
market trends.

Revise Financial Plans: Adjust your financial strategies to accommodate the rising
costs. This may include reassessing project scopes or seeking additional financing.

Engage with Experts: Connect with construction and real estate professionals to get
insights and advice on navigating these changes effectively.

Focus on Value-Added Investments: Invest in properties that offer potential for
value addition through renovations, upgrades, or repurposing. This can significantly enhance
market value and rental income. Evaluate opportunities for mixed-use developments that combine
residential, commercial, and recreational spaces.

Before making a purchase, ensure you have a comprehensive understanding of what the
project represents. This includes its financial viability, potential for value addition, and
alignment with market trends. We offer detailed project analyses from both financial and
investment perspectives to help you make informed decisions. By leveraging our expertise,
you can ensure that your investments remain sound and profitable, even in a fast-changing
market.

Future Outlook

Looking ahead, the construction sector in Mauritius is poised for continued growth, driven by
both public and private investments. However, the challenges posed by rising costs need
strategic planning and informed decision-making. Staying informed and proactive in response
to these market shifts will help you make better investment decisions and navigate the real
estate landscape with confidence.

Let’s connect and discuss how you can strategically adapt to these changes, ensuring
your investments remain sound and profitable in the face of dynamic market
conditions.