One of the major drawbacks of building in the Middle East from the point of view of property developers has been the rising price of material. With consistent hikes in the prices of basic materials needed in building construction having taken place over the last few months, property values and prices in the area have predictably gone up with them.
Now, another hike in the price of those same basic building materials threatens to send property prices in the area skyrocketing.
According to the CEO of Rakaa, a development company based in Saudi Arabia, the price hikes on materials in the country has gotten to the point where it is threatening to the stability of many property developers in the area.
Over the last few months, the prices of steel, cement and oil have all gone through the roof, with an almost 20% increase in the average of the per unit price of all three commodities. This is threatening to the stability of property developers because it directly affects what they have to charge for property. With higher prices in basic commodities, property developers are forced to charge higher prices for development and that in turn results in higher market prices overall.
High commodity prices in Saudi Arabia and other Middle Eastern countries combined with the still increasing demand that those countries are facing for property is a definite recipe for hyperinflation and when that happens it definitely has the ability to bring a property market crashing downwards fast.
Ironically, the root cause of the building material shortage that is now threatening the positive aspects of the property boom is actually the property boom itself. In particular, countries like the United Arab Emirates have been using raw materials at a rate far ahead of any consumption the countries have seen before. Ultimately, the demand these countries have for raw materials are directly influencing raw material shortage and in turn that shortage is driving prices up.
