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Sun 7 Jan 2007 12:00 AM

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Contractors face double price hike blow

The cost of building materials in Dubai increased by 32% during the first eight months of 2006, according to new figures from cost consultants EC Harris.

The cost of building materials in Dubai increased by 32% during the first eight months of 2006, according to new figures from cost consultants EC Harris.

The price hike was led by copper, which has risen by 66% since January 2005 and is currently pegged at US$6,430 per tonne, and hot rolled plate, which rose by a similar amount and now costs between US$565 and US$630 per tonne.

The price of cement went up by 10% and now stands at around US$80 per tonne, while aluminium prices increased by 9%.

Other steel products, such as rebar and stainless steel hot rolled coils, have also surged in cost, compounded mainly by soaring demand in global markets such as China.

Mark Prior, regional managing director, EC Harris, estimated that building material prices would continue to rise between 1% and 1.5% a month for the next 18 months. “High demands on the industry’s capacity will continue to keep margins up,” he said.

“The UAE is a country that is somewhat dependent upon concrete structures, as opposed to steel, and the construction market has felt the impact of the global increase in cement and steel prices.”

Contractors have also been hit by a rise in labour rates, which went up by almost 20%. This was mainly due to high demand and a shortage of unskilled labour.

Some companies say the struggle to find good quality accommodation for staff at reasonable rent is also forcing them to increase housing allowances.

“Labour is costing us much more,” said Freddy Lama, managing director of UAE mechanical engineering and plumbing contractor Nova Electromechanical. “We have to pay insurance costs, as well as deposits and travel costs — we’re now spending around 20% more for people to join us compared to the beginning of the year.

“We also have to move workers around from location to location because of the cost of rent. And this means shifting them further away from the city to industrial areas, which are also being hit by increasing costs, and this can be very dramatic for them.”

Dubai’s construction market continued to grow at an unprecedented rate in 2006, and it is estimated that 30% of the world’s tower cranes are at work on projects in the city, currently valued at US$100bn, according to EC Harris Consultants.

Rapid development in the UAE capital Abu Dhabi and Qatar is adding further pressure to an already overstretched construction supply chain in Dubai, added Prior.

“This is further compounded by increased construction activity in other global markets,” he said.

Prior confidently estimates that the Middle East construction market, which is currently worth around US$1 trillion, will still continue to outpace global growth over the coming year.

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