Inflation: Main Threat for the Construction Sector in 2022

As inflation rates in Mexico have increased to levels not seen in 20 years, industries are struggling with tightened budgets. The construction sector might have experienced one of the worst impacts since the material costs soared because of both inflation and a disruption in the supply chains of steel and other key inputs. 

According to Tinsa, a real estate valuation and consultancy agency, the residential construction subsector saw a 14.8% inflation rate in May 2022, the highest figure recorded in that period. By the end of 2022, the construction sector had an inflation of 10.13%. The firm forecasts a downward trend for 2023, which drop to 4% and remain stable. 

Tinsa’s data shows that 56% of real estate company directors consider that the sector performed better in 2022 than in the year before. However, inflation was a key issue, as over 17% of the respondents considered it the main factor impacting the industry. Similarly, 16% of the respondents considered the effects of public policies as relevant for the sector’s performance, 16% voted for the increase of interest rates, 14% for the effects of the pandemic, 13% for the risk of recession in the US, 13% for supply chain disruptions and 11% for the war in Ukraine. 

Tinsa highlighted that 6 out of 10 directors were forced to adjust their budgets in several areas, jeopardizing the sector’s productive chain. Other actions taken include rescheduling delivery dates, renegotiation with suppliers, alternative supplier research and looking for new construction methods. Only 14% of the industry leaders accelerated the construction of their projects. 

The firm said the construction sector is moderately positive since the market remains complex due to economic and political threats. However, it also offers opportunities for companies that dare to reinvent themselves. 

Tinsa forecasts the value of houses to increase by 8% to 10% depending on the location and other characteristics. Tinsa added that the construction sector could remain stable if macroeconomic drivers push demand. 

According to Poncho Aguilar, CEO and Co-Founder, Perfilan, the digitalization of the selling process will be trending in 2023. Aguilar said that relying on a digital channel communication strategy is not enough to close a deal, rather companies must invest in specialized software to have better control of appointments and sales.