Building materials price increase may hike up property prices

Due to an increase in building materials price, prices of apartments, villas and office space in Dubai, if not contained in the next few months, may increase, according to Rizwan Sajan, founder chairman of Danube Group and Danube Properties.

“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,” Sajan said.

“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,” he stated.

The prices of steel, which is a major component for the building industry, has soared by 20 percent in the fourth quarter of 2016, an increase from the first. Prices of plywood had increased by five percent while sanitary ware had gone up by 10 to 15 percent, resulting in a knock-on effect on property prices.

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) has increased wire rod prices for the domestic market by SR150 ($40) per ton, now reaching to SR1,850 ($493) per ton.

The price increment was for both long and flat steel products due to the growth in steel prices. The Chinese wire rod offered to 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 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 per cent yearly increase from the fourth quarter of 2015.

But experts are saying that the effects of increment will only be felt by consumers when materials suppliers, sub-contractors, contractors and developers factor in the increases in their future pricing of material cost.

The global building materials market totaled about $800 billion in 2015 and the GCC accounts for approximately three 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.

“So, in a way, the industry started with a positive outlook. However, before the prices are factored into the property prices, buyers should block their purchase with initial payments at current prices,” said Sajan.

“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.

Source: TradeArabia News Service