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Damac wants Dubai to curb building costs
Privately held Dubai developer Damac Properties called on Monday for the Dubai government to help curb soaring construction costs by easing restrictions on foreign contractors and encourage more competition.
Construction costs in Dubai, the Gulf's international commercial hub, have doubled in the last four years as demand for building materials has outpaced supply and contracting costs have risen, Damac Chairman Hussain Sajwani said.
"There is a lot the government can do about this," Sajwani told the Reuters Middle East Investment Summit on Monday.
It could cut the time it takes contractors to get a licence, which runs as much as a year, and encourage more foreign contractors to work in the emirate, he added.
Dubai kicked off growth in real estate prices in 2002 by allowing foreigners from outside the Gulf to invest in property.
Gulf Arab governments have been investing windfall oil revenues in developing tourism and infrastructure projects across the Gulf, driving demand for everything from cranes to cement.
"The number of contractors has not increased drastically while the demand remains unlimited," Sajwani said, adding that contractors have been taking advantage of the lack of supply to increase margins.
Sajwani said the government must ease restrictions on foreign contractors, or construction costs would continue to rise 15%-25% annually during the next several years.
The government should also market Dubai as a construction opportunity to the contracting industry through roadshows and presentations, he said.
"Instead of a 25 per cent margin, contractors' margins could go back to 10 per cent if this happens," Sajwani said. "The government should encourage the world's contractors to come to Dubai."
Rising construction costs have squeezed margins, developers, including Abu Dhabi-controlled Aldar Properties Chief Executive Ronald Barrott, have said.
But private developers are finding it more difficult to cope because they must pay the market price for land in the UAE, Sajwani said.
Aldar and Dubai's Emaar Properties, the largest Arab property developer by market value, have received free land from their respective governments.
"If you don't take those rising costs into consideration, you could be bleeding," said Sajwani, who said many private developers in Dubai have been forced to shut down since 2003.
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