Current economic conditions have caused volatility in the construction markets during the fourth quarter of 2016; which in turn affected construction prices, causing them to drop significantly. Contractors attributed this change to the slump in the market for raw construction materials, which they said had fallen by 40%.

Construction costs down 35%

In this context, investors and contractors confirmed that construction costs have fallen by approximately 1000 riyals per square meter, whereas the price had previously been around 1500 riyals per meter, which automatically led to a 35% reduction in the cost of building residential units during the fourth quarter of 2016, Contractors attributed this decline to several factors, foremost among which was a 40% drop in the prices of raw construction materials, in addition to the current slump in the construction sector, taking into account the positive reaction to the decision to impose fees on undeveloped land, which has led to a decline in land prices on the outskirts of major cities, They added that the lower cost of construction is contributing to an increase in the construction of residential units and villas that meet citizens" needs, along with an acceleration in the pace of housing projects and a recovery in the construction sector.

Positive Indicators for Residential Unit Prices

For his part, Engineer Abdullah Radwan, Chairman of the Construction and Building Committee at the Jeddah Chamber of Commerce, confirmed that the recession in the contracting sector is due to falling oil prices, which has contributed to a decline in demand for basic construction materials such as bricks, cement, ready-mix concrete, and rebar, in addition to a drop in total sales of these materials over the past four months. He explained that prices are determined by supply and demand, as well as the specifications required by the client.
The former Vice Chairman of the Jeddah Chamber of Commerce and Industry’s Contracting Committee, Engineer Raed Al-Aqili, that the decline in prices of basic construction materials and the reduction in construction costs would contribute to an increase in the construction of residential units that meet citizens" needs, as well as accelerate the pace of housing projects, He added that most companies dealing in basic construction materials have begun selling their products below the set price and have halted some production lines to clear their surplus inventory, especially since these materials cannot be stored for long periods due to their susceptibility to weather conditions.

Decline in Demand for Building Materials

Contractor Abdulaziz Manshawi, in turn, noted that the cost of constructing residential units fell to 35% during the last quarter of this year, explaining that the construction price reached 1,000 riyals per square meter, compared to approximately 1,500 riyals previously. He attributed the decline to lower prices for raw construction materials, as well as the current slump in the construction sector, and the drop in land prices on the outskirts of major cities. He noted that the lower construction costs are contributing to an increase in the construction of residential units and villas that meet citizens’ needs, as well as accelerating the pace of housing projects and the recovery of the Kingdom’s construction sector.

Contractor Abdullah Al-Sahli added that the 20% decline in demand for construction materials is due to the recession in the Kingdom’s construction sector, raw materials have been affected by global prices, in addition to a decline in private and individual projects, and citizens waiting for raw land prices to fall; this has contributed to a 40% drop in the prices of these materials over the past four months.