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As cement supplies slow to a trickle on building sites across the UAE and the cost of construction materials continues to soar, work has ground to a halt on some projects while others face delays of up to five months.
Minoo Jamaji has been working in UAE construction for 20 years and even he can't remember a bigger crisis facing the building industry.
A cement shortage is holding many major projects to ransom while the cost of key building materials including readymix concrete, structural steel and rebar is escalating - forcing many developers to either halt their projects or source materials from the black market.
"This is a very big problem. Some jobs have stopped. Other projects are delayed by as much as five months. Government projects are being given priority," says Jamaji, the managing director of UAE civil engineering contractor Roshan Construction.
The crisis threatens to delay US$1 trillion worth of projects in the Gulf state, as it seeks to build a global financial and tourism hub.
Record oil revenues have helped the UAE develop lavish real estate projects such as the Burj Dubai, the world's tallest tower and the ‘Palm' islands, built from sand reclaimed from the sea.
But the real estate boom has also driven inflation, which advanced more than 9% last year.
Construction costs rose at about twice the rate of inflation in 2007, rising by about 20% according to research from international cost consultant EC Harris. The price of steel reinforcement rose by 46%, and structural steel gained 38% while cement prices ended the year 30% higher.
Those gains could be exceeded in 2008 as the industry is hit by fresh price hikes across steel, cement and readymix concrete.
The cost of steel rebar, which is used to strengthen concrete in buildings across the region, gained around 7% between January and March 2008. Steel that would have cost US$750 per tonne in January, cost more than US$800 per tonne last week, according to industry trading platform MESteel.
Real estate developers are starting to feel the pressure as projects are delayed, costs rise and contractors invoke contractual claims or threaten legal action to recoup losses on contracts.
"It's a very crucial time for us," says Mohammed Ali Al Hashimi, CEO of Zabeel Investments, which has more than US$4bn invested in the UAE real estate market.
"At the end of 2008 we have our first real development being handed over - Tiara Hotel & Residences - and we've had to endure a substantial increase in construction costs.
Cement producers have been unable to raise their prices because of a government-imposed cap aimed at curbing record inflation in the UAE. At the same time, cement production costs have soared because the gas needed to operate production facilities is becoming more expensive.
The government removed custom tariffs on cement and reinforced steel last month in an attempt to ease cost pressures in the industry, but the US$80 per tonne price cement cap remains in place.
The lifting of import duties has not elicited much cheer from construction companies which say that the material is difficult to import and store, particularly as humidity increases as the industry enters the difficult summer months.
Middlemen have been profiting from the government-imposed price caps by buying cement from the manufacturers and selling it on to increasingly desperate contractors.
Real estate analysts are warning that the rising cost of materials may wipe out property developers' profit margins if selling prices fail to keep pace with, or exceed, the cost of building. "Up until now property price increases have served as a cushion against the rising construction material prices.
If property prices slow, then this will have a negative impact on developer margins," says Roy Cherry, an analyst at Shuaa Capital, the UAE's largest investment bank.
