The construction and real estate sectors are heavily impacted by sharp fluctuations in energy prices, forcing companies to reassess their strategies to tackle these challenges. According to the Economic Information Center at Siam Commercial Bank, the ongoing conflict in the Middle East has led to increased costs for energy and construction materials, adding pressure on these sectors.
Reports indicate that rising energy prices have resulted in higher production costs for construction materials, particularly those requiring high energy consumption such as steel, cement, and tiles, where energy costs account for between 35% to 50% of total expenses. Additionally, fluctuations in the prices of imported raw materials, along with rising transportation costs, are placing further strain on companies.
Event Details
It is expected that construction material prices will rise slightly over the next two months due to increased logistics costs, as many operators still hold stock accumulated before the outbreak of conflict. Meanwhile, large projects have stabilized material prices through advance orders.
However, any prolonged disruption in the Strait of Hormuz could pose further risks to construction material prices and potentially delay project developments, negatively impacting demand. The sector may also face project delays alongside rising costs, as uncertainty in both global and local economies prompts investors to postpone factory constructions.
Background & Context
Historically, the Middle East has experienced multiple conflicts that have affected the regional economy, leading to fluctuations in energy and material prices. These conflicts often result in economic instability, which reflects on all sectors, including construction and real estate.
In recent years, there have been attempts to enhance stability in these sectors through improved economic policies and increased investments. However, the new challenges arising from ongoing conflicts put these efforts to a real test.
Impact & Consequences
Analyses suggest that rising construction costs will lead to increased development expenses, while weak demand and intense competition limit developers' ability to raise prices. There is also a risk of further delays in launching new projects, as the Economic Information Center anticipates that the number of new residential units in the Greater Bangkok area will reach 39,000 units in 2026, a 5% decrease from the previous year, and this figure could drop by up to 10% if the conflict persists.
Industry players must adjust their strategies to address these challenges. The Economic Information Center advises construction material producers to focus on cost management and diversify suppliers to mitigate risks of raw material shortages.
Regional Significance
These challenges are particularly significant for Arab countries, as many of these nations rely on the construction sector as a key driver of economic growth. Rising material costs may impact infrastructure projects and urban development in the region, necessitating a swift response from governments.
In conclusion, the current situation in the construction and real estate sector in the Middle East requires a strategic response from all stakeholders, including the government and the private sector, to ensure sustainable growth amid changing conditions.