Dubai: The extended period of stability in local construction-related costs could soon be coming to an end.
“Construction inflation — of which materials comprise one key component — has been relatively stable in the first-half of the year,” said Chris Seymour, partner and UAE head of property and social infrastructure at the specialist consultancy EC Harris. “However, we expect this to change in the second-half with single-digit increases continuing through 2015.
“The market is changing from a period of negative to low inflation over the last few years to a period of moderate increase — hence concerns around the transition are inevitable.”
Estimates suggest that the volume of announced and planned projects in the UAE this year would have a value tag of $315 billion. As of May, some $212 billion worth of projects were making headway.
According to Seymour, the UAE construction sector “appears to be returning to near full-capacity, with a number of major mega-projects in the pipeline and the ramping up of social infrastructure spend”. “We have witnessed an increased number of projects being re-energised due to funding being re-evaluated, and there are a number of large developments both within the property and infrastructure sectors, which are due to be awarded this year,” said Seymour.
Abu Dhabi’s construction sector has been “stable” through the first two quarters, but a “growing pipeline of projects may increase spend in the latter half of 2014 and early 2015”.
How the construction industry manages to juggle the new projects available with the expected higher costs will be key. They could also face stiff opposition from project promoters if they were to pass on the costs.
“With the construction industry still in corrective mode, it is too early to move on to a premium pricing,” said Tariq Chauhan, Group CEO at EFS Facilities Services. “Developers/clients have not absorbed any significant cost spikes in construction.
“Globally, commodity prices such as cement and aluminium are buoyant and bound to cloud the real construction horizon in Dubai/UAE. The significant impact will be from wages and related support costs. The introduction of minimum wages in context to blue-collar workers is fuelling the wage bill. There is a steep increase in labour accommodation and logistics costs as well - in the first quarter we have seen an over 30 per cent increase in labour camp rentals and that impacts directly all other costs.
“Other than labour, there are other factors - Dubai Municipality’s building department has introduced measures to ensure quality and safe buildings. These are aimed at initial design reviews to meet international safety and better living conditions. To following these regulations, developers have to put more monies to boost quality while ensuring compliance.”
