Construction costs continue to rise

12 May 2006

Gulf developers continue to face steep increases in the cost of construction and skilled labour.

Contractors and clients in the Gulf are continuing to struggle with the steep hikes in the cost of labour and materials as the oil-fuelled construction boom enters its fourth year. The latest survey of regional construction costs carried out for MEED in late April by UK cost consultant Davis Langdon shows that the UAE saw the sharpest increases in costs in the first quarter of the year as suppliers continued to struggle with soaring demand for materials. The price of steel reinforcement bar (rebar), aggregates, cement and diesel all rose sharply in the UAE in the first four months of 2006, with Dubai facing the biggest rises of all. The cost of rebar jumped more than 10 per cent in the emirate as its property sector continued to boom. However, unlike the global hike in rebar prices of 2004, local rather than global factors are the driver of the latest increases. 'The previous rises in rebar prices were due to rising demand in China, which had triggered a global shortage of raw materials,' says a Dubai-based consultant. 'These rises in Dubai are to do with local suppliers taking advantage of the continuing high demand.' Contractors are also concerned about a steep rise in fuel costs. 'Diesel is becoming a real headache,' says one. 'The price has been going up every month by 3-4 per cent.' Dubai's status as a regional and international hub for business and tourism is also playing a part in driving up construction costs in the emirate. 'The volume of work being completed by international design teams in Dubai exceeds other regional markets,' says Steve Coates, Gulf Director of Davis Langdon. 'This means that certain developments in the emirate are being built to internationally-recognised standards, using the best materials, which results in a higher average price for premium finishes, when compared to other markets.'

Doha demand

Qatar also saw a sharp increase in construction materials costs in the first quarter . At the root of the increases is the local lack of capacity to supply rebar, cement and, following the introduction of a quarrying ban in mid-2005, aggregate. Consequently, Qatar is dependent on imported material. However, a lack of capacity at Mesaieed port has led to extended waiting times for ships waiting to offload material, which has pushed up costs. Despite being a net exporter of cement, Egypt has seen a sharp rise in domestic cement prices. 'An increase in cement exports has reduced supply on the local market,' says Coates. 'As a result, the Government has announced that it will import cement, in support of the local industry.'

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