Static costs calm before the storm

03 April 2014

The fact construction costs have not increased does not stop Dubai’s developers from being wary

Ever since Dubai secured the right to host the 2020 World Expo in November last year, there has been a fear that costs in Dubai would sharply rise.

While there have been complaints across the emirate about rising rents and school fees, construction costs have yet to start moving in an upward direction.

Developers say that although construction costs are expected to start creeping up, so far that has not been reflected in their tender submissions. Most tenders are still attracting eight to 10 bids, which is a healthy number for a developer looking for competitive prices.

The ever-moving supply and demand equilibrium will change, however. During the first quarter of this year, most large construction companies in Dubai have secured at least one major order, and in 2014 that is just about enough.

That is because the resources of construction companies in Dubai have been decimated since 2009. One contractor speaking to MEED says that in 2008 its workforce was more than 10,000, whereas today it is just 900. Others have scaled back in similar amounts.

This means that as 2014 rumbles on, prices will start creeping up as companies can afford not to win work. The concern for developers is that the pendulum will swing too far the other way and contractors and suppliers will start calling the shots just like they did in 2007 and 2008.

Construction companies may welcome higher prices at first, but that could quickly change. While that prospect appears unlikely now, costs have very quickly spiralled out of control in the past, adding uncertainty and risk to every project, and that is something neither developers or contractors want.

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