Saudi Gazette reported that the prices of steel and other construction materials in the country continue to fluctuate despite government intervention including providing a trillion riyals worth of development projects causing further delays to public initiatives and hampering people building their own homes.
The rise in prices is also affecting many other businesses, including those dealing in plumbing, electric fittings and painting. It is now more difficult for people to build their dream homes and so put an end to years of spending an average of 30% of their salaries on rent.
Economists said that most crises and shortages in the Saudi economy, particularly in construction materials are most likely caused simply by some merchants’ desire to achieve higher profits by hoarding goods until demand grows. When the stock market collapsed in February 2006 many shifted to real estate businesses. From 2003 until the collapse the highest liquidity was in the stock market and construction costs were stable.
After people sought refuge in real estate businesses after the crash, prices rose, and, according to economists, 30% of government projects were delayed and residential units started to cost more as a result. As usual, contractors complained and demanded the Ministry of Finance to reconsider their contracts and compensate them for the rise in steel prices which rose from SAR 3,000 to more than SAR 5,200 per tonne.
With the debate raging on how to tackle prices, the government moved into action in 2008. In June, a Royal Decree was issued banning the export of construction material and forcing merchants to sell their stocks. Some local factories had been found selling their production to neighboring countries like Bahrain for higher prices, sometimes three times higher than prices on the local market.
The steel crisis worsened when the difference between supply and demand reached three million tons. Economists say the difference ranges now between 1 million tonne and 2 million tonnes.
In 2009, the global economic crisis led to a notable reduction in liquidity in the real estate market which reduced steel prices from SAR 5,500 per tonne to SAR 2,256 and consequently saw drop in house rentals. In 2010, as a result of fears that the global crisis would extend to local markets price pressures hit the construction materials market again and contractors started complaining as the price of a tonne of steel reached SAR 3,200.
The Ministry of Trade then ordered that companies and distributors stick to a government price list. In January 2011, the ministry said that it would take measures against anyone involved in raising prices unjustifiably. The measures include naming the party and halting its activities.
Some people expect the market to witness a new wave of price hikes this year given the recent decision to disburse government real estate loans estimated to number 133,000 loans accompanied by the government’s intention to build thousands of residential units.
( Source: www.steelguru.com )