SME Focus

Construction Material Prices on the Rise

In this article, RIZWAN SAJAN focuses on the continued escalation of building materials prices and its impact on property rates.

Construction--Intelligent-SME

As we move into the first quarter of 2017, we witness an increase in building materials price, which could push up the prices of apartments, villas and office space, if not contained in the next few months. The escalation of certain building materials prices will push the construction cost upwards that might have a knock-on effect on the property prices going forward. Therefore, those property buyers contemplating investing in real estate should not waste time. They should fast-track their buying decision, before developers and contractors start revising prices upwards to adjust to the new prices.

Prices of steel – a major cost component in the building industry – has jumped 20 per cent in the fourth quarter of 2016, up from the first quarter of 2016, according to market indices, while prices of plywood increased by five per cent and sanitary ware increased by 10-15 per cent – that will have a knock-on effect on the prices of property.

According to Mesteel.com, prices of reinforced steel bars jumped from $330 in January 2016 to $440 at the end of 2016 – jumping 33.33 per cent. Saudi Iron and Steel Company (Hadeed) has increased wire rod prices for the domestic market by SAR 150 (USD 40) per ton, now reaching to SR1,850 ($493) per ton. The company has increased its steel prices both in long and flat steel products due to an upward trend in global steel prices. Chinese wire rod offers for Saudi Arabia is in the range of $475-480 per ton CFR Dammam as compared to $455-465 per ton CFR a month before.

Turner Building Cost Index — which measures costs in the non-residential building construction market in the United States — has increased to a value of 1006 in the fourth quarter of 2016, up from 970 in the first quarter of 2016. This reflects a 1.11 per cent increase from the third quarter 2016 and a 4.9 per cent yearly increase from the fourth quarter 2015.

The global building materials market totaled about $800 billion in 2015. The GCC accounts for approximately three per cent of the global construction materials market today. The building materials market is made up of stone, bricks, cement, concrete, glass, steel and aluminum.

The increase of building materials prices is an indication that the construction sector is growing at a higher pace as the building industry is expanding with new projects and properties.

Cement is a lead indicator of construction activity and health in the region. Cement accounts for about 15-20 per cent, or  about $4 billion of the total value of building materials sold in the GCC today. Cement demand has grown at 5-6 per cent over the last five years. Saudi Arabia and the UAE account for most demand for cement in the GCC, about 84 per cent in total. The preponderance of local demand shows an industry getting healthier.

The increase of building materials prices is an indication that the construction sector is growing at a higher pace as the building industry is expanding with new projects and properties. This reflects a healthy outlook for the construction and the real estate sectors. Going forward, the projects needed to support the Expo 2020 in Dubai and World Cup Football in 2022 to be held in Qatar, will keep the pace of demand up. So, in a way, the industry started with a positive outlook. However, before the prices are factored in to the property prices, buyers should block their purchase with initial payments at current prices.

Building materials suppliers serving the GCC can expect future growth, but it will be ‘lumpy’. The UAE is the largest construction market in the GCC. Prior to 2009, Dubai alone accounted for 25 per cent of all the construction in the world.

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