Construction sector in EP faces nervous lull

Rents, real estate prices dip

August 08, 2017

Saeed Haider

Saudi Gazette

DAMMAM — Real estate prices in the Eastern Province have declined sharply, causing a nervous lull in the construction industry and bringing down drastically the price of construction material.

According to real estate agencies, prices of land and houses have been declining sharply since the end of 2016. The market was hopeful that the beginning of the year would see stability in prices but the first quarter results showed worsening figures.

According to trade analysts and real estate agents, prime land rates in Al-Khobar and Dammam witnessed a decline of around 18 percent. In remote areas the rates went down by more than 20 percent.

Khalid Al-Rabea, real estate agent in Dammam, said the situation is expected to remain the same till the end of this year's third quarter. “It will be a bonus if prices do not slide further,” he said.

Ali Al-Zahrani, real estate agent involved in sale of plots of land in Petromin District in Dammam and an upcoming township near King Faisal University, too expressed his pessimism. “Just a year ago plots in Petromin District were being sold as a hot cakes. Today there are hardly any takers despite the price dropping by 16 percent.”

Al-Zahrani and Al-Rabea attributed several reasons to the slump but the major reason they cited was nervousness in the market over large-scale exodus of expatriates from the Kingdom.

“We are looking at one side of the picture and not considering the overall situation,” said Al-Rabea. “No doubt that new fee on expatriates, increase in visa fee and other expat-related hikes will bring in huge revenue and will also help in Saudization campaign,” he said, adding there was a need to keep the expatriates in the equation.

Al-Rabea said: "When planning a project, a supermarket, a housing complex or a township we always take into consideration the population...a basic demand and supply theory.

“The flight of expatriate workers has disturbed the projected population ratio. The impact will not be restricted to real estate but will spread to consumer items, services and even industrial products.”

Alongside the real estate price, the region has also witnessed a sharp dip in house rents in the past 8 months. According to an estimate, house rents in prime locations in Al- Khobar and Dammam have gone down by 15 to 20 percent and real estate agents fear further slide as there are more vacant houses and less takers.

The locations in Rakah where the International Indian School is situated or in Al-Khobar where the Pakistani school is situated were always considered prime locations with high rents and huge demand. But today despite a decline of nearly 15 percent dozens of houses are lying vacant with no takers.

Similarly flats in Dammam Housing (Iskan), which were fetching rent as high as SR35,000 a year until last year, are now lying vacant with a rent tag of SR25,000 per annum.

The declining land prices and house rents have impacted the construction industry adversely.

Since construction on several projects has either slowed down or completely stopped, the construction-related material industry has also suffered a major setback.

The worst affected is the cement industry which has witnessed lowest price decline since 2008. According to market retail rate a cement bag that was costing SR240 is now costing between SR130-170. The high quality Sulfur Resistant Cement, which was being sold in retail market for SR260, has gone down to SR150-190.

Almost all cement companies including Yamama Cement, Eastern Cement, Qassim Cement have experienced a decline in profit from 46 percent to 81 percent in the first six months of 2017.

Industry expert say that these declines will eventually impact other industries as well and unless some drastic corrective measures are taken, the situation is likely to worsen further.

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