Saudi con­struc­tion costs tum­bling, says ex­ec­u­tive

Kuwait Times - - BUSINESS -

One of Saudi Ara­bia’s big­gest ur­ban devel­op­ment pro­jects is pay­ing as much as 15 per­cent less to­wards con­struc­tion costs as cuts in state spend­ing re­duce pres­sure on sup­plies of build­ing ma­te­ri­als and la­bor in the king­dom.

Fahd Al-Rasheed, group chief ex­ec­u­tive of Emaar the Eco­nomic City (EEC), said con­struc­tion firms’ pric­ing had be­come more com­pet­i­tive, lead­ing to a drop in costs of 10 per­cent to 15 per­cent per square me­tre. “Lo­cal pro­duc­tion lev­els for all build­ing ma­te­ri­als - as well as im­ports - were set for a time of boom in con­tract­ing,” which has caused over­sup­ply, Rasheed said in an in­ter­view in Dubai.

“Also, now that the num­ber of con­tracts be­ing is­sued by the govern­ment is much lower, con­trac­tor ca­pac­ity has also im­proved, lead­ing to con­trac­tors low­er­ing their mar­gins to com­pete for new work.”

The govern­ment has slashed spend­ing on its con­struc­tion pro­jects since last year as it curbs a big bud­get deficit caused by low oil prices. This has re­duced de­mand for con­struc­tion ma­te­ri­als; as a re­sult, Saudi Ara­bia lifted bans on ex­port­ing ce­ment and steel ear­lier this year. EEC, a con­sor­tium af­fil­i­ated with Dubai’s Emaar Prop­er­ties Group, is de­vel­op­ing King Ab­dul­lah Eco­nomic City, a mas­sive busi­ness, in­dus­trial and res­i­den­tial zone on the Red Sea coast near Jed­dah, with back­ing from the govern­ment.

EEC swung to a net loss of 81 mil­lion riyals ($21.6 mil­lion) for the third quar­ter from a profit of 8 mil­lion riyals a year ear­lier. “The loss was re­lated to a court case that was re­lated to a real es­tate pro­ject we did a while ago. It’s a one-time. So with­out it, I be­lieve we would have been pos­i­tive for the quar­ter,” Rasheed said with­out elab­o­rat­ing.

This year, some real es­tate de­vel­op­ers in Saudi Ara­bia have had dif­fi­culty ac­quir­ing per­mits to sell homes be­fore they are built. This prac­tice, known as off-plan sales, can make devel­op­ment eas­ier by al­low­ing com­pa­nies to use the pro­ceeds of sales to fund con­struc­tion.

“This is a prob­lem in the econ­omy in gen­eral, be­cause both the reg­u­la­tions and the own­ers of these reg­u­la­tions have changed,” Rasheed said. In the past, the Min­istry of Com­merce and In­vest­ment is­sued per­mits, while now the Min­istry of Hous­ing does so, he noted. How­ever, Rasheed added: “Be­cause we are such a large de­vel­oper and we have a very strong bal­ance sheet, we have been able to work through these is­sues.” — Reuters

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