Developers in the real estate sector are facing significant increases in project costs, with some contractors raising prices by as much as 20%. This adjustment is largely in response to anticipated tariffs imposed by the Trump administration on materials sourced from Canada and Mexico, particularly steel and aluminum.

Rising Costs Linked to Tariff Fears

According to Jon Paul Pérez, CEO of Related Group, the uncertainty surrounding these tariffs has led to a preemptive increase in bids from contractors involved in the company’s ongoing projects. “We’re seeing [subcontractors] throw an additional cushion into their numbers anticipating tariffs,” Pérez explained during a discussion with CNBC.

He further clarified that the price escalation is primarily speculative, as subcontractors attempt to safeguard their interests amidst unpredictable market conditions. “When you go through their numbers in detail and you start negotiating, you quickly find out they’re just sort of padding to protect themselves,” he remarked.

Potential Impacts on Housing Market

The ramifications of these cost increases could be significant for the housing market, which is already grappling with high prices and rising mortgage rates. A survey from the National Association of Home Builders indicated that escalating material costs could potentially increase the price of a typical home by approximately $9,200.

Related Group’s Position in the Market

Related Group, a leading developer in the United States, is actively managing over 90 projects across diverse categories, including affordable housing and luxury condos, primarily in South Florida. The company’s founder, Jorge Pérez, highlighted that tariff concerns, in conjunction with immigration policy shifts, could further inflate construction costs due to the industry’s reliance on a workforce from abroad.

“There will absolutely be a cost effect in our industry, in particular the construction industry,” Pérez stated. “Losing these people will have an inflationary effect.”

Market Segmentation and Buyer Behavior

In terms of buyer sentiment, the high-end real estate market remains resilient, particularly in Florida, with notable sales such as two penthouses on Fisher Island fetching a combined total of $150 million. Related Group is also developing an expansive luxury condo tower in Bal Harbour that could redefine high-end living.

However, the “middle market,” characterized by condominimum buyers within the $1 million to $3 million price range, is experiencing a more cautious approach. Many potential buyers from Canada and Latin America are hesitant, primarily due to the uncertainties surrounding immigration policies and tariffs, impacting their willingness to finalize purchases. “We had a project where we just lost seven or eight Canadian and Mexican buyers that were ready to sign contracts, but when all these things came from tariffs, they didn’t want to buy,” Pérez noted.