Rising Gulf construction costs are here to stay

25 April 2008

There is little that contractors can do, other than ensure escalation clauses are included in contracts.

It has been another busy month for the regionís construction industry. In Dubai alone, two major projects have been launched and three contracts worth nearly $2.7bn awarded for housing projects. At the same time, cement shortages have forced the government to lift import duties.

In other words, more projects are being launched, more contracts are being awarded, and the supply chain, not surprisingly, is struggling to cope. As in any overheating market, rising costs are the obvious result.

The situation is made worse by the fact that, unlike in previous years when other markets were relatively flat, Dubai now has to compete for resources with neighbouring Abu Dhabi, Qatar, Bahrain and, most importantly, Saudi Arabia.

Although the Saudi construction market has always been sizeable, it is now on the brink of a boom. As it begins to move forward with its six economic cities and vast housing schemes, the demands placed on suppliers, contractors and consultants across the Gulf will be immense.

Unless supplies across the region increase by similar proportions, the industry will have to learn to live with rising costs.

There is little that contractors can do, whether in Dubai or elsewhere, other than ensure escalation clauses are included in contracts and materials are purchased as soon after a contract is awarded as possible.

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