Rising construction costs stall many projects in Saudi Arabia
These include investment projects belonging to private firms as well as residential projects of citizens, Al-Eqtisadiah daily reported. Speaking to the newspaper, a number of experts in the construction and engineering fields attributed this phenomenon to a crisis involving main construction ingredients. They noted that there was a steep hike in prices of cement as well as in the wage of laborers due to scarcity of skilled workers.
The experts called for urgent intervention of the Ministry of Commerce and Industry to address this problem. They also stressed the need for active involvement of the Consumer Protection Association (CPA) in the matter, as the problem is affecting a large number of citizens. Bassam Ghulman, associate professor of construction engineering and an expert in management of contracts and projects at Umm Al-Qura University, said a hike in prices of construction materials, especially cement and steel, would have a negative impact on the Kingdom's development in general and the current construction boom in particular.
According to field reports of engineering offices and contracting firms in Makkah, the percentage of delayed projects belonging to both private firms and individuals has shot up with a steep hike in cement price, he noted. There is a possibility for delay in many mega real estate projects that are under various phases of implementation in the central Haram area, mainly because of the current cement crisis.
Bassam Ghulman said that construction projects depend mainly on three components: workers, materials and equipment. Any shortfall in their supply or price rise would affect the projects adversely. Any shortage of workers leads to an increase in their wages. Similar is the case with equipment and construction materials, he said. According to Ghulman, an increase in prices of cement was instrumental in delaying implementation of several construction projects within the stipulated period of time, and this creates a bad impression on the excellent position of the Saudi economy. He also stressed the need for intensifying inspection raids so as to curb the current unreasonable hike in the price of cement. If we tap the optimum utilization of the productive capacity of cement factories in the Kingdom, we can meet the huge demand for this major construction material. Moreover, we have to ensure that all the sales and distribution outlets are making the product available to consumers at reasonable prices, he said. Ghulman rejected cement producers' arguments for the increase in prices. Their claims about shortage of raw materials are entirely unacceptable, as the Kingdom abounds in them. Moreover, the government is giving all incentives to producers, especially land to build factories at a nominal price, he said.
Ghulman also noted that fluctuation in the prices of construction materials has forced several contractors to conclude real estate contracts at a much higher rate so as to avoid incurring any losses in future. This would affect badly many ordinary citizens who want to build houses, either through raising construction costs or delaying implementation of the projects on time, he said, while urging the ministry to intensify raids by its inspection squads to detect any artificial shortage of construction materials and black marketing. Apart from the ministry's role, Ghulman said, other agencies, such as the CPA, have to play a major role in monitoring the market and curbing unreasonable hike in prices.
Echoing the same view, Maher Jamal, member of the Makkah Chamber of Commerce and Industry, said that strict market monitoring is a must to serve the interests of both real estate investors and consumers. Prices of cement and other construction materials are stable in some cities and regions in the Kingdom, thanks to the presence of an effective monitoring mechanism. There are government inspectors at cement factories as well as at sales and distribution outlets in these cities. These inspectors are keen to ensure that sufficient quantities of the product reach consumers at reasonable prices, he said while noting that the flaw in monitoring mechanism in some major cities resulted in mushrooming black markets and a steep hike in prices of construction materials. Jamal also suggested allowing the cement companies to export their surplus products.
The cement companies must increase their output to the maximum and make available sufficient quantity of the product in the local market before exporting the surplus quantity. The authorities should also give permission to import cement from some neighboring countries, where some factories use only less than 30 percent of their capacity, he said while urging the ministry to ensure adequate supply of cement in the local market.
Commenting on the matter, Muhammad Bakar Malaibari, director general of the Project for the Development of Jabal Khandama and Shaab Amer in the central Haram area, said the rise in cement price would spur a crisis by delaying development projects all over the Kingdom. Several mega development projects in major Saudi cities, especially those in Makkah, have been delayed due to a steep hike in cement price. Many contractors will incur losses due to their inability to complete real estate projects within the stipulated period of time because of the cement crisis. Owners of projects are also not in a position to take advantage of their projects, he said.
According to Malaibari, both owners and contractors will be the ultimate losers. Owners of real estate projects need to find additional funds to implement the projects while contractors have to incur losses due to their inability to complete the projects before ending the contract term."
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