Could fluctuations in the price of building materials be the hidden factor behind rising real estate prices in Saudi Arabia? With the expansion of major projects and increased local and foreign investment, understanding the impact of construction material prices has become a necessity for any real estate developer or investor who wants to make profitable investment decisions.
In this article, we will explain the relationship between construction material prices and real estate market trends, and how this affects real estate valuations and future sale prices.
Why have real estate prices risen?
The real estate market in Saudi Arabia has seen a significant increase in land and real estate prices in recent years, as a result of a combination of factors, not just one. The most important of these factors are:
1.Supply and demand:
One of the most important factors affecting real estate prices, especially in major cities, is that demand is heavily concentrated in specific areas, such as northern Riyadh and some neighborhoods in Jeddah and Dammam, due to the quality of infrastructure, availability of services, and attractiveness of neighborhoods in terms of planning and location. Therefore, when demand increases and supply is low, competition increases and prices rise.
2.Population growth:
The Kingdom’s population is constantly increasing as a result of natural growth and internal migration to major cities. This has helped increase demand for land and residential units, especially in areas close to work and service centers.
3.Major government projects:
Vision 2030 has contributed to the growth of the real estate market, as the existence of important projects such as Neom and the Red Sea, and developed infrastructure projects, has contributed to the rise in real estate prices, especially with the growth of investment and the desire of investors to invest in these areas.
4.Inflation:
Rising global and local inflation has contributed to higher prices for construction materials, labor, and infrastructure costs. Prices for steel, cement, raw materials, and the construction materials market have made land development more expensive, which raises the price of developed land compared to raw land. The cost of constructing roads, water and electricity networks, and sewage systems also means that developed land is sold at higher prices to offset these investments.
5.Regulatory and legislative factors:
Government laws and regulations affect land and real estate prices. The Kingdom has enacted certain laws to regulate the real estate market, such as white land fees, which have helped develop unused land within urban areas by imposing annual fees ranging from 2.5% to 10%. The government has also contributed to regulating the land market by lifting restrictions north of Riyadh, which has enabled the sale and purchase of land and the issuance of building permits on a large scale. The Royal Commission has also directed the provision of 80,000–100,000 residential units annually to increase supply and meet demand. All these laws have helped to regulate prices within the Kingdom.
From the above, we conclude that real estate prices are affected by local and international factors such as supply and demand, population growth, government projects, inflation, and regulatory factors, all of which have a significant impact on real estate prices in the Saudi market. Therefore, before making any successful investment or development decision, these factors must be considered before purchasing or investing.
How do building material prices affect real estate prices?
We mentioned that inflation and global prices have significantly affected the prices of building materials, including cement, iron, aluminum, wood, glass, and other finishing materials. Building material prices have also risen due to increased demand for residential and commercial projects, urban expansion, and higher import and supply costs in global markets. This affects the real estate market through:
- Increased costs:
The rise in market prices for building materials such as iron, cement, and finishing materials leads to higher construction costs, forcing developers to raise real estate prices to offset costs, which reduces the purchasing power of some buyers.
- Impact on new projects:
Rising construction costs may lead to the slowdown or postponement of some projects, especially medium and small ones, which reduces supply and increases price pressure in the market.
- Pressure on the rental market and ready-to-move-in units:
The shortage of residential units resulting from delays in new projects leads to higher rents and increased demand in residential areas.
The prices of construction materials have a significant impact on real estate prices and the Saudi real estate market. They also affect real estate valuation, as the total cost of constructing a real estate is a key factor in determining its market value and is one of the factors that real estate valuers take into consideration. In addition, the cost method, which is one of the real estate valuation methods, relies heavily on the cost of construction and the materials used, making any increase in the prices of building materials a factor that directly affects the market value of the real estate and the expected return on investment.
In conclusion, with the rise in construction material prices and their impact on the Saudi real estate market, asset valuation service Saudi Arabia has become more than just a step for any investor. It is now a clear vision that charts your course, especially when working with a real estate valuation company or an accredited valuer with sufficient experience and thorough knowledge of all aspects of the Saudi real estate market.
At Aain valuation, we show you the way and help you make the right decision, as we have a team of accredited certified valuers. If you are an investor or a buyer, contact us now and get an accredited real estate valuation report.
Frequently asked questions:
- What are the main materials used in construction?
There are many construction materials used, such as cement, which is the main component of concrete; iron, which is used in reinforcement and structures; wood, which is used in carpentry and finishing; aluminum and glass in windows, doors, and facades, as well as stone, tiles, and other finishing materials that give the building the desired aesthetic appearance and durability. The quality and price of these materials depend on supply and demand in local and global markets, and their high cost directly affects the cost of construction and the value of real estate in the market.
- What is the purpose of a real estate valuation?
A real estate valuation is requested for many purposes, such as when buying or selling a real estate, real estate finance, mortgages, real estate division or inheritance, determining taxes or real estate fees, real estate development, and other real estate valuation purposes. This is done by a valuer accredited by the Saudi Authority of Accredited Valuers.
- What is the meaning of house valuation?
A real estate valuation is the determination of the actual market value at a specific time, based on professional standards and a thorough study of the real estate market. The valuation includes consideration of many factors, such as location, size, age of the home, condition of the building, finishes, and surrounding facilities, in addition to comparing prices with similar homes in the area. The purpose of the valuation is to determine the fair price for either purchase or sale, or as collateral for a mortgage, or to determine the value of the home in cases of inheritance or taxes. A real estate valuation gives the owner or investor a clear and accurate picture of the market value of their property.