Dubai: Building materials cost hike 'may push up property prices'
An increase in building materials price could push up property prices if not addressed in the next few months, said a Dubai-based property developer.
“The escalation of certain building materials prices will push construction cost upwards that might have a ripple effect on the property prices going forward. Those considering investing in real estate should decide soon before developers and contractors start revising prices upwards to adjust to the new prices,” said Rizwan Sajan, the founder and chairman of Danube Group and Danube Properties.
Prices of steel – a major cost component in the building industry – jumped 20 percent in the last quarter of 2016, up from the first in 2016, according to market indices. According to Mesteel.com, prices of reinforced steel bars jumped from $330 in January 2016 to $440 at the end of 2016 – rising 33.33 percent. Saudi Iron and Steel Company (Hadeed) also increased wire rod prices for the domestic market by SR150 ($40) per tonne, now reaching to SR1,850 ($493) per tonne.
Plywood prices also rose 5 percent and sanitary ware increased by 10 to 15 percent, which may have a knock-on effect on the prices of property.
Turner Building Cost Index - which measures costs in the non-residential building construction market in the US - has increased to a value of 1006 in the fourth quarter of 2016, up from 970 in the first quarter. This reflects a 1.11 percent increase from the third quarter of 2016 and a 4.9 percent yearly increase from the fourth quarter of 2015.
However, experts say the effects of the price increase could be felt by the consumers only when materials suppliers, sub-contractors, contractors and developers factor in the increases in their future pricing of material cost.
The global building materials market totalled about $800 billion in 2015. The GCC accounts for approximately 3 percent of the global construction materials market today.
According to Sajan, 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," he observed.
"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 construction in the world, he added.