Construction

Falls in Saudi building costs set to ease

Construction costs are forecast to decline by just 3.9% next year after double-digit drop in 2016 – Colliers

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The rate of decline in construction costs in Saudi Arabia is set to ease next year, according to figures from real estate firm Colliers.

Building costs have been on the decline in the kingdom due to the crash in oil prices and the subsequent slowdown in the Saudi construction industry.

Average construction costs fell by 3.1% in 2015, and a further 11.5% this year, Colliers said.

But that rate is expected to slow, with average construction costs falling by 3.9% next year, the firm forecasts in its KSA Construction Cost Benchmarking and Forecasting update.

The slowdown in the market and fall in construction costs has brought down Saudi contractors’ profit margins – something Colliers expects to continue in the short term.

“Contractors’ profit and overhead pricing plummeted throughout 2016, in some cases to negative margins,” it said.

“Strong competition will continue due to extensive cuts in capital expenditure, thereby forcing continued downward pressure on contractors’ margins.”

Colliers said the price of some construction materials fell in 2016, with rebar prices down 13% and concrete down 3%, although cement prices have “remained stable”.

Construction material costs are however expected to rise.

“As global construction related commodity pricing creeps up in 2017, this will affect the pricing of copper, aluminum and steel,” it said.

“Subsidy cuts will be further passed onto increase material costs, which are manufactured within the GCC.”

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