Construction & Real Estate

Rising construction costs stall many projects in Saudi Arabia

These include investment projects belonging to private firms as well as residential projects of citizens, Al-Eqtisadiah daily reported. Speaking to the newspaper, a number of experts in the construction and engineering fields attributed this phenomenon to a crisis involving main construction ingredients. They noted that there was a steep hike in prices of cement as well as in the wage of laborers due to scarcity of skilled workers. The experts called for urgent intervention of the Ministry of Commerce and Industry to address this problem. They also stressed the need for active involvement of the Consumer Protection Association (CPA) in the matter, as the problem is affecting a large number of citizens. Bassam Ghulman, associate professor of construction engineering and an expert in management of contracts and projects at Umm Al-Qura University, said a hike in prices of construction materials, especially cement and steel, would have a negative impact on the Kingdom's development in general and the current construction boom in particular. According to field reports of engineering offices and contracting firms in Makkah, the percentage of delayed projects belonging to both private firms and individuals has shot up with a steep hike in cement price, he noted. There is a possibility for delay in many mega real estate projects that are under various phases of implementation in the central Haram area, mainly because of the current cement crisis. Bassam Ghulman said that construction projects depend mainly on three components: workers, materials and equipment. Any shortfall in their supply or price rise would affect the projects adversely. Any shortage of workers leads to an increase in their wages. Similar is the case with equipment and construction materials, he said. According to Ghulman, an increase in prices of cement was instrumental in delaying implementation of several construction projects within the stipulated period of time, and this creates a bad impression on the excellent position of the Saudi economy. He also stressed the need for intensifying inspection raids so as to curb the current unreasonable hike in the price of cement. If we tap the optimum utilization of the productive capacity of cement factories in the Kingdom, we can meet the huge demand for this major construction material. Moreover, we have to ensure that all the sales and distribution outlets are making the product available to consumers at reasonable prices, he said. Ghulman rejected cement producers' arguments for the increase in prices. Their claims about shortage of raw materials are entirely unacceptable, as the Kingdom abounds in them. Moreover, the government is giving all incentives to producers, especially land to build factories at a nominal price, he said. Ghulman also noted that fluctuation in the prices of construction materials has forced several contractors to conclude real estate contracts at a much higher rate so as to avoid incurring any losses in future. This would affect badly many ordinary citizens who want to build houses, either through raising construction costs or delaying implementation of the projects on time,  he said, while urging the ministry to intensify raids by its inspection squads to detect any artificial shortage of construction materials and black marketing. Apart from the ministry's role, Ghulman said, other agencies, such as the CPA, have to play a major role in monitoring the market and curbing unreasonable hike in prices. Echoing the same view, Maher Jamal, member of the Makkah Chamber of Commerce and Industry, said that strict market monitoring is a must to serve the interests of both real estate investors and consumers. Prices of cement and other construction materials are stable in some cities and regions in the Kingdom, thanks to the presence of an effective monitoring mechanism. There are government inspectors at cement factories as well as at sales and distribution outlets in these cities. These inspectors are keen to ensure that sufficient quantities of the product reach consumers at reasonable prices, he said while noting that the flaw in monitoring mechanism in some major cities resulted in mushrooming black markets and a steep hike in prices of construction materials. Jamal also suggested allowing the cement companies to export their surplus products. The cement companies must increase their output to the maximum and make available sufficient quantity of the product in the local market before exporting the surplus quantity. The authorities should also give permission to import cement from some neighboring countries, where some factories use only less than 30 percent of their capacity, he said while urging the ministry to ensure adequate supply of cement in the local market. Commenting on the matter, Muhammad Bakar Malaibari, director general of the Project for the Development of Jabal Khandama and Shaab Amer in the central Haram area, said the rise in cement price would spur a crisis by delaying development projects all over the Kingdom. Several mega development projects in major Saudi cities, especially those in Makkah, have been delayed due to a steep hike in cement price. Many contractors will incur losses due to their inability to complete real estate projects within the stipulated period of time because of the cement crisis. Owners of projects are also not in a position to take advantage of their projects, he said. According to Malaibari, both owners and contractors will be the ultimate losers. Owners of real estate projects need to find additional funds to implement the projects while contractors have to incur losses due to their inability to complete the projects before ending the contract term." Source: TradeArabia News Service

Seef Properties posts $23 million net profit

Seef Properties, a leading real estate group in Bahrain, has posted a net profit of BD8.59 million ($22.7 million) last year compared with BD9.37 million in 2010. The company's total assets grew marginally reaching BD119.26 million compared with BD114.08 million for the same period last year with the earnings per share valued at 19 fils compared with 20 fils in 2010. The operating profit for 2011 was BD10.35 million after eliminating the one month rent relief provided to tenants against BD10.29 million the previous year. The board has recommended distributing cash dividend of 7.5 per cent to shareholders for the year 2011, subject to approval at the annual general meeting. "Despite the challenging conditions in the Bahraini market throughout last year, we have succeeded in remaining profitable," said Chairman Shaikh Abdulla bin Khalifa Al Khalifa." Our results reflect the soundness of our business strategy and pragmatic approach which have enabled us to strengthen our financial position and ensure sustainable growth for our shareholders. “The strategy applied this year has been successful and is evident from the positive results we reported today," said general manager Robert Addison. "I am confident that we will overcome all obstacles and will continue building on our successful track record and place ourselves in an even stronger position in the coming months." The financial results for the year were based on overall performance of Seef Properties, which owns and manages Seef Mall, Isa Town Mall, Fraser Suites, Magic Island and a total of 800 retail units across 45 locations in Bahrain. Source: TradeArabia News Service

Kingdom Tower project in Jeddah gets final go-ahead

A Jeddah-based project to build the tallest tower in the world has been given the go-ahead after it received its final license, Chairman of Kingdom Holding Company (KHC) Prince Alwaleed bin Talal confirmed. The SR4.6 billion Kingdom Tower, which will stand over 1,000 meters tall, is the centerpiece and the first construction phase of Kingdom City, Jeddah Economic Company's (JEC) new urban development covering more than 5.3 million square meters of land in the north of Jeddah overlooking the Red Sea and Obhur Creek. Work on the project began on Jan. 1. Partners of JEC include KHC, Samaual Bakhsh, Abraar, International Holding Company, prominent Jeddah businessman Abdulrahman Hassan Sharbatly and Saudi Binladin Group (SBG). "This project will provide sustainable profits to shareholders," said Prince Alwaleed. He also thanked various supporters of the project, including Makkah Gov. Prince Khaled Al-Faisal, Minister of Municipal and Rural Affairs Prince Mansour bin Miteb, Jeddah Mayor Hani Aburass, and Gen. Adil Zamzami and Lt. Gen. Abdalah Jedawi from the General Directorate of the Civil Defense. "The vision of constructing the tallest tower in the world in Jeddah belongs to Prince Alwaleed bin Talal, who was closely involved in the selection of the scheme currently under design," said Talal Al-Maiman, a board member of KHC and Jeddah Economic Company, which was formed in 2009 to develop Kingdom City in Jeddah. "Kingdom Tower's height is remarkable, obviously, but the building's iconic status will not depend solely on that. Its form is brilliantly sculpted, making it quite simply the most beautiful building in the world of any height. The decision of the partners to build the world's tallest building further demonstrates their belief in investing in this nation." Five contractors were invited to offer proposals for the Kingdom Tower and a shortlist of three firms submitted final offers for the tower construction. SBG was chosen for the project. Source: Arab News

Abu Dhabi rents set to drop on new supplies

With supply expected to outstrip demand over the next 12 months, rental rates in Abu Dhabi will drop further this year as the emirate gears up for a growth of five per cent in 2012, real-estate consultant CB Richard Ellis said on Tuesday. "Sound macro-economic fundamentals, a solid fiscal stance and a stable political environment offer an encouraging outlook for Abu Dhabi. However, amidst a more positive outlook, downside risks still persist with the imminent delivery of a significant volume of new developments covering both the residential and commercial sectors," the CBRE said in its Market View. In Abu Dhabi's office sector, which has seen a steady decline in lease rates in 2011, further deflationary pressures should be anticipated over the next 12 months as significant new supply enters the market causing vacancy rate to rise, it said. "Landlords are becoming increasingly flexible and realistic in their approach to leasing with rent free periods offered as standard market practice. By year-end total office supply had reached 2.74 million square meters. Smaller office units remain in highest demand. Larger space requirements in excess of 1,000 square meters are less common. "As rental pressures have started to ease and as the local economy has improved, the market has witnessed some renewed interest from commercial occupiers seeking to either upscale or expand their operations," it said. The review said Abu Dhabi's residential sector continued to witness modest rental declines. "However, delivery delays during 2011 have arguably helped to alleviate the onset of more aggressive deflationary pressures, and with this in mind, the outlook for the year is for further downside," it said. "With a considerable development pipeline looming for handover during 2012, we anticipate that rents will continue to fall, although the rate of decline is likely to be more moderate than in previous years," CBRE said. The capital's hotel sector witnessed a year-to-year growth in occupancy rates driven by tourist arrivals estimated at over 2.1 million hotel guests, mostly from Asia and the GCC. ING Investment Management said troubled countries in the Middle East are pouring money into the UAE, helping to shore up real estate activity. The UAE's real estate sector appears to have "selectively bottomed", with key financials are poised for growth. Abu Dhabi's banks are well positioned to benefit, the fund manager said. "In terms of UAE real estate, we believe the market bottomed in 2011 in some segments. While most of the price decline was witnessed in the first half of 2011 -- falling by six per cent in the year-to-date -- the money flow from politically troubled neighbors, into the more stable environment in the UAE, has actually helped stabilize some high-end residential segments of the markets," said Fadi al Said, head of investments and senior fund manager at ING Investment Management. Leading real estate specialists said on Monday that investment in the UAE property sector by GCC nationals was growing as more banks return to property financing. The property specialist observed that there has seen an upward trend of local buyers looking to invest in a property market, which many analysts believe is currently at the bottom, on the backdrop of increased property financing activity. Cluttons observed a return to property financing by the banks since the downturn of 2008 when 70 per cent of lenders withdrew from this type of finance. Now 95 per cent of those lenders have returned to the market, famously led by Tamweel who returned to mortgage finance in November 2010. Source: Khaleej Times