JEDDAH, 7 April 2008 — Work has stopped on a number of construction sites in the Kingdom due to the rise in the prices of building materials. Conflicts between contractors and clients have resulted due to agreed upon project price tags.
Contractors argue that the rise in price of construction material will cause major losses if they proceed with the previously agreed upon contract terms while their clients demand that the contractors stick to their original agreement.
“The main problem is with government-funded projects; the contract form is very old and does not protect contractors’ investments against the steep rise in the cost of construction material,” said Abdulaziz Abdullah Hafani, the president of the Contractor Committee at the Jeddah Chamber of Commerce and Industry (JCCI). “It takes a long time before a government contract is awarded to a bidding company and in that period alone, the prices of construction material rise,” he said.
He added that the Contractors Committee at the Riyadh Chamber discussed the problem with the minister of trade and industry last week.
Hafani said that most complaints received involve government-funded projects due to the old contract form, which the committee has requested be reviewed and changed. He added that the annual inflation percentage is not announced in the Kingdom but in the new requested contract format, the committee believes the inflation percentage is essential in light of its direct effect on the final price, he added.
The committee has requested the ministry to take this into consideration. There have been complaints from private investors but they are minor, he said. Some clients take government contract forms in preference to their own, he added. Local media reports said the increase would paralyze several thousand real-estate projects, many of which are owned by middle-income families.
According to real-estate investors, middle-income families with loans from the Real Estate Development Fund are finding themselves in trouble due to the rapid increase in prices; their loans are not covering the expenses. Real-estate investor Mubarak Al-Hadi said the price increase had resulted in great losses for real estate companies.
According to Sa’ad Al-Suwaihri, a Makkah resident, the new prices are an obstacle in the way of citizens building their houses as the loans from the Real Estate Development Fund are not sufficient. Media reports, for example, show that local factories produce 4 million tons of steel annually.
The daily demand for steel is huge, especially with the boom in the real estate sector. Raw materials used in steel production have increased in price, manufacturers say.
