Construction industry wants banks to go easy
‘GUARANTEE MARGINS’ RAISED TO 30% OF PROJECT VALUE
The UAE’s construction sector is in need for some urgent help — from banks — to manage their cash positions and get cracking on projects. But the situation right now is not helping their cause.
“Banks have steadily increased the ‘guarantee margins’ from contractors on projects — from 5-10 per cent earlier to 25-30 per cent of the project value now,” said the general manager at one of country’s Top 5 construction firms. “This means that the 2530 per cent of what the bank provides is stuck as deposits with them.
“This in no way helps the contractors, unless they are flush with cash reserves. In today’s market, that’s not the reality.”
Emirates Steel strives to support the UAE’s construction sector by providing a reliable and sustainable supply of steel products, maintaining the balance across the local market.”
Heavy on guarantees
Banks take the guarantee margins as a hedge against any difficulties the contracting business might fall into and which prevents it from meeting financial obligations. Contractors have no issues with the need to place these deposits with their lenders — but having to put up to 30 per cent is what’s hurting them.
Apart from the guarantee to the banks, the contractors will also have to take out performance bonds on behalf of the project promoter.
Saeed Ghumran Al Rumaithi | CEO of Emirates Steel
Burdened by costs
These upfront requirements only add to the contractors’ plight – the most alarming is seeing the continuing increase in building material costs since October last year.
Building materials that are mostly imported have seen their delivery costs increase by more than 20 per cent in these 12 months. So far, contractors are not passing on these costs in full, fearing that if they do so, they might lose projects to someone who will underprice.
A helping hand
This is why the decision by Emirates Steel to reduce the price on its core product will offer some respite for contractors. More so, if other leading manufacturers/suppliers play their part in keeping a lid on costs.
“We reduced the prices of rebar (8-32 mm) for September delivery to Dh2,610 compared to Dh2,956 for August delivery,” said Saeed Ghumran Al Rumaithi, CEO of Emirates Steel. “Due to our continued efforts, the prices of rebar in the UAE are among the lowest regionally and globally.
“Emirates Steel strives to support the UAE’s construction sector by providing a reliable and sustainable supply of steel products, maintaining the balance across the local market, and ensuring the best prices of rebars.”
This is one message that will resonate with the construction sector...