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Sat 4 Jun 2016 02:27 AM

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Doha likely to see project delays, Dubai to defy slowdown

New report says Gulf construction markets to remain 'lukewarm' with zero cost inflation expected over next 12 months

Doha likely to see project delays, Dubai to defy slowdown
GCC construction, Middle East construction

Construction markets in Dubai, Doha and Muscat have been classified as "lukewarm", with average building costs much lower than in Zurich, the world's most expensive market, according to a new report.

At nearly $3,700 per sq m, average construction costs in Zurich were more expensive than New York ($3,650) and London ($3,550), the International Construction Market Survey 2016 by Turner & Townsend said.

By comparison, costs in Doha were calculated at $2,400 per sq m, while Dubai's cost was $1,700 and Muscat $1,450.

In a reflection of the weakness of demand in oil-reliant economies, the research forecast zero cost inflation over the next 12 months for the UAE and Muscat.

The report also said project delays were likely in Doha until oil prices recover but Dubai was defying the trend with construction projects progressing as planned.

The survey analysed input costs – such as labour and materials – and charted the average construction cost per sq m for both commercial and residential projects in 38 markets around the world.

It said the global construction industry is diverging as markets are buffeted by opposing forces – overstretch in booming economies and downturn in markets that rely on commodity exports or trade with China.

The report said that while the natural resources sector has been weakened and real estate markets expected to tighten, Oman’s programme for diversification away from hydrocarbons such as oil and coal and ongoing investment in transport infrastructure projects are supporting construction activity.

It said the expectation is that 2016 will be a year of austerity, with the next two years being challenging given the forecasts of low cash fluidity.

The report said Qatar is still investing significantly in infrastructure construction, but with authorities squeezing budgets there has been a reduction in tenders from the government infrastructure sector. It said private sector developers are still issuing tenders, although this trend is dependent on interest rates remaining low and developer confidence stabilising.

"The construction market is expected to remain volatile and is subject to the pressures of meeting the 2022 World Cup deadlines, as well as the external pressure of oil prices. For 2016, construction escalation is expected to be between one and two percent," the report said.

It added: "In the short term, many projects may be delayed until oil prices have increased, but looking further ahead construction activity will regain momentum to meet the demands of the 2022 World Cup and Qatar’s Vision 2030 development plan."

The report said Dubai is defying the projects downturn occurring across the rest of the country as several major projects press ahead. Construction costs have remained stable in the past 12 months and this is expected to continue, it added.

"Expected low cash availability is driving concerns that the coming two years will be challenging for the UAE economy. Despite this, plans remain in place for a number of ambitious construction projects, including the world’s tallest twin towers, an underwater hotel and a rainforest in the desert," it said.

Steve McGuckin, global managing director – Real Estate, Turner & Townsend, said: “Two macro-economic factors – the sharp fall in oil prices and China’s slowdown – have rippled across the global construction industry over the past year and triggered a rapid polarisation of the market.

“Some regions are now facing acute overstretch, with construction demand outstripping what the industry is able to supply. 

“In overstretched markets both contractors and their clients must take urgent action to improve efficiency and keep cost inflation in check, while those operating in subdued markets should seize the opportunity to strip out waste and get the skills mix right for when demand returns.”

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