Reasons why Riyadh is the most expensive Middle East city for construction

The depreciation of the US dollar since April 2020 affected the positions of cities in countries with a dollar peg

  
Image used for illustrative purpose. Foreign workers work at a construction site, following the outbreak of the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia, May 7, 2020.

Image used for illustrative purpose. Foreign workers work at a construction site, following the outbreak of the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia, May 7, 2020.

REUTERS/Ahmed Yosri

Saudi Arabia’s capital Riyadh is the most expensive city in the Middle East for construction projects, Netherlands-headquartered global consultancy Arcadis said in a report.

Riyadh was ranked 40th among the 100 most expensive locations worldwide for construction projects in the 2021 Arcadis International Construction Costs Index (ICC), which covers 100 of the world’s large cities across six continents.

Abu Dhabi and Dubai were ranked 54 and 55, respectively.

The depreciation of the US dollar since April 2020 affected the positions of cities in countries with a dollar peg, which includes the Middle East with currency movements weighing in more on the rankings than construction price movements.

A weaker dollar means fewer opportunity locations for the dollar-denominated investors in 2021, the report said.

Video: Why is Riyadh the region’s most expensive city for construction?

A stronger Euro and other European currencies as well as a recovery in prices of commodities ensured that the top five spots went to Geneva, London, Copenhagen, Oslo and Zurich. A weak dollar contributed to the drop of US cities such as New York and San Francisco to sixth and seventh place, respectively, the report noted.

The five least expensive cities were found in Asia and India.

Middle East perspective

Construction industry in the UAE is expected to rebound in 2021, with an expected 2-3 percent growth, following a 6.6 percent GDP contraction in 2020.

“The UAE will continue to benefit from Government measures to strengthen the economy, with the construction sector receiving a boost due to the initiatives associated with Energy Strategy 2050, the Sheikh Zayed Housing Programme and the Emirates-wide Tourism Strategy,” the report noted.

In the case of Saudi Arabia, public sector programmes associated with Vision 2030 acted as a shock absorber even as GDP fell just over 4 percent in 2020.

“Looking forward, with the long-term development of new cities and resorts on the Red Sea coast, the mega project trend will be a significant influence on construction markets in the kingdom. Similarly, the drive to diversify the economy will see more private sector investment highlighted by the recent 27-trillion Saudi riyal Shareek Plan.”

“Housing Saudi Arabia’s rapidly growing population will also sustain steady demand for development in all parts of the country,” the report added.

However, it also recommended that 2021 is a good time to enter the market before public-sector infrastructure programmes soak up capacity and start to crowd-out other investments.

IMF’s Article IV Mission to Saudi Arabia had observed that in trying to grow and diversify the economy, the public sector will need to be careful not to crowd out the private sector.

(Reporting by Anoop Menon; editing by Seban Scaria)

(anoop.menon@refinitiv.com)

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