Soaring costs

06 January 2006
In 2005, construction prices across the GCC went up faster than in any other market in the world, with Qatar experiencing the greatest rises of all. Research carried out for MEED by international cost consultant Davis Langdon shows that, while building materials costs continue to present contractors with problems, rising labour costs are giving more cause for concern.

In Qatar, a shortage of local human resources combined with rapidly rising property prices led to a sharp increase in the cost of project management and engineering resources in 2005. Construction workers in Doha enjoyed the biggest wage rises in the region, with local project managers seeing a 44 per cent hike in salary to about $7,124 a month in November 2005, compared with about $4,932 a month in December 2004. Expatriate project manager salaries rose by about 30 per cent over the same period. Foreman salaries in Qatar rose about 40 per cent in 2005 to nearly $77 a day (table 3).

The UAE also saw significant increases in project management costs in 2005, with local project managers seeing a 38 per cent pay rise over the year to about $6,800 a month, up from $4,932. Engineers in the UAE saw their salaries rise by about 34 per cent in 2005.

Underpinning the cost hikes is the biggest construction boom ever seen in the Middle East. According to data gathered by MEED Projects, construction projects valued at an estimated $633,278 million were either planned or under way in the GCC by the end of 2005 (table 2). The huge figure is expected to rise further in 2006 as investors continue to pump large proportions of their oil windfalls into tourism, retail, office and residential projects. GCC governments are also driving construction activity, ploughing record budget surpluses into power, water, transport and housing schemes to meet the needs of their growing populations.

The MEED Projects data shows that, with about $240,000 million worth of projects either planned or under way in mid-December, the UAE continues to be the region's largest construction market, with Dubai representing by far the greatest proportion. It also shows that private real estate developers are the market's principal drivers.

The region's second largest construction market, Saudi Arabia, is also enjoying a boom in construction activity driven by the private sector. By the end of 2005, projects valued at about $157,000 million were under way in the kingdom. But it is Qatar, the GCC's third largest construction market, that is witnessing the fastest growth. The Qatari capital has been swamped by a wave of investments in residential and office block projects from investors who believe the country's vast gas reserves and relatively underdeveloped economy will provide spectacular economic growth for many years to come. Barely a week passes without a major tender being issued. Such is the surge in activity that many contractors are declining invitations to bid for work in order to concentrate on the jobs in hand. According to MEED Projects, schemes worth an estimated $111,159 million were under way in Qatar by the end of 2005.

As well as labour rates, the boom in activity in Qatar is also driving up materials costs - with steel reinforcing bar (rebar) rising by 16 per cent, despite a slowdown in global steel prices. The country also saw a 95 per cent rise in aggregate prices in 2005. But although Qatar is the worst affected, it is not the only economy feeling the pressure.

'Each country has its own particular challenges and suffers from different problems at different times,' says Wassim Merhebi, Gulf director of Lebanon's Arabian Construction Company (ACC). 'In Qatar today it is cement and rebar, similar to the situation in the UAE two years ago. In Saudi Arabia, it is finding local staff who have an interest in working in the private sector and in the construction industry. Procuring employment visas

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