Building material prices to go up in Middle East by 20pc

By Anis Sajan

MD, Danube Group

The ongoing pandemic has created havoc in the global economy and has not spared any particular sector in any part of the world including construction. Although essential construction projects have continued functioning, the cost of construction has been drastically affected due to the lack of availability of building materials. With global supply chains buckling and trade tensions elevating, materials prices have soared considerably. Also, since the majority of the supply of the building materials is from China, India, Turkey and Europe, the economic conditions these regions are affecting the prices.

One of the biggest factors for the increase in the price of building materials is that the freight prices have risen exorbitantly due to the pandemic as the container operators are demanding high prices. The rate per container has increased 3 times, i.e. a 40 ft. container that used to earlier cost $1000 is now costing $3000 and might even reach $4000. A lot of companies have slowed down their imports, bearing in mind the fact that such high freight is affecting their overall landing cost. This will in turn lead to a shortage of materials. Another important reason for the prices to go up is the fact that the Chinese and European currency has become stronger against the dollar, the export prices have gone up.

The RMB which was earlier at 7.5 against a dollar has now become 6.5, that is a change of nearly 12 per cent and this has led to the increase of price from the supplier to the buyer. Additional factors are that the production capacity of the factory has gone down due to shortage of raw material.

The factories are using the available capacity very wisely by supplying materials only to those companies who are willing to pay the highest price. One of the main reasons for the competitive prices of goods from China was the fact that the labour cost was the lowest in the world as the population there is very high.

But since the onset of the pandemic there has been a shortage in the availability of labourers. Added to this, a lot of labourers are going on longer breaks due to the upcoming Chinese New Year. These labourers are now taking advantage of the situation and dictating terms & conditions to the factory owners as they now have the option to choose and work for the highest payer.

The increase in freight, currencies getting stronger, shortage of raw material and high labour cost has led to an increase in the eventual cost of the building material product by at least 20-25pc. Its simple economics; when prices go up, the economy goes up too and with the rise in demand against the lack of supply, the real estate prices will escalate due to the increase in the price of the building material.

Businesses who take calculated risks and have the right amount of stock and do not wait for the prices to reduce will be able to thrive when there is a shortage in the market.