UAE construction costs driven upwards by major increase in material prices (UAE)

Construction costs in Dubai rose by more than 28% in the first eight months of the year due to a 32% increase in material prices, according to the new 'UAE Construction Cost Bulletin', published by international property consultancy EC Harris.

The cost bulletin is the first of a quarterly publication which focuses on the construction market in the UAE. The inflation figures come from a study compiled by EC Harris, which pulls together price data for key building materials and labour trades in Dubai. The figures were applied to a cost model that reflects their relative importance within the building process.

Despite the surge in costs, material prices are starting to flatten, and even fall, in the region, and an overall increase of 20% in prices is expected for the year as a whole. Looking further ahead, prices are forecast to rise by 1–1.5% per month over the next 18 months, as the high level of demand continues to keep margins high.

Commenting on the figures, Mark Prior, Regional Managing Director for EC Harris in the UAE, said: "The Dubai construction market has continued to record an unprecedented rate of growth in 2006, and the UAE is contributing a large portion of the US$ 1 trillion Middle Eastern construction market.

"Foreign investment and record oil prices are continuing to underpin the booming real estate sector, and significant investment is also proposed for the next three to four years in oil and gas. Longer term the intention is to develop Dubai as a financial and transport center in preparation for the day when the oil supplies start to run out. Meanwhile Abu Dhabi is rapidly expanding with huge tourism, property, industrial, and oil and gas projects planned, which will increase the pressures on the UAE and Gulf Cooperation Council markets. The current level of activity should ensure that the Middle Eastern region continues to outpace global growth."

He added, "The strong increase in demand for construction related resources in Abu Dhabi and Qatar is adding further pressure on an already overstretched construction supply chain in Dubai. Current opinion is that demand is unlikely to fall when current and projected schemes are built out. Although increased activity in other global construction markets and spiralling living and operating costs will provide a financial hurdle to attracting world class resources to UAE."

The bulletin goes on to flag up a number of tools that can be employed by developers, investors, designers and contractors to mitigate the effects of rising prices in UAE and states that by adopting a 'solutions based' approach, value can be enhanced, costs reduced and escalation managed.

Source: EC Harris

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