Gulf construction costs rise 50% in first half

Dubai: Construction costs in the Gulf increased by 50 per cent in the first half of 2008, in comparison to a 30 per cent increase recorded in 2007, according to Al Mazaya Holdings, a regional real estate developer.

Al Mazaya attributes the rise in costs to inflationary pressures, which were raising the cost of building materials and causing both skilled and unskilled workers to leave the country.

Executive vice-president at Al Mazaya Holding, Salwa Malhas, said the cost of materials had risen by 50 per cent on average and even more for some items.

Al Mazaya attributed the labour shortage to the deportation of thousands of illegal Asian workers "in a bid to solve the demographic imbalance and to put an end to continuous strikes by labourers who are unable to cope with the rising cost of living," a statement said.

Factors

Senior quantity surveyor at Buhaleeba Contracting, Cajetan Fernandes concurred, saying the cost of building materials such as cement, concrete and steel in the UAE had increased by more than 20 per cent in the first quarter of the year.

"The main reason for this, I think is demand, and also the oil price," he said. Labour costs in the UAE have also been bumped up and according to Fernandes, this was due to a hike in living costs.

He said it was difficult to keep prices down as demand continued to grow. Construction companies had no choice but to deliver, as a failure to do so would cause a further increase in demand, driving prices up even more.

Malhas said delays in project delivery were not due to a lack of reliability on the part of the contractors but to the challenges of labour and high costs.

"Delays in project delivery is not caused by a lack of reliable contractors, but by the inability of those contractors to find skilled labourers and by the rising cost of building materials. Changes in steel and cement prices mean that there delays in project delivery are inevitable," said Malhas.

"Several contractors are seeking alliances with real estate developers in an attempt to work together to control construction costs. These partnerships are becoming more commonplace year on year, in parallel with the growth of the industry. This method may alleviate the pressure placed on contractors somewhat, as they are apparently unable to bear the burden of rising costs alone," she added.

The problem, however, could not be solved by forging alliances between developers and contractors.

Support

Rather, support from the private and public sectors were necessary to create a balance between demand and supply in the long term, officials said.

Malhas said the decision by the UAE Federal Government to exempt cement and steel from customs duties across the emirates was praiseworthy and offered contractors, landlords and consumers some relief from escalating costs.