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Thu 8 May 2008 11:40 AM

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Soaring costs risk contractors exiting UAE

Contractors severely hit by surge in price of building materials, says leading business figure.

Soaring construction costs could force contracting companies to abandon the UAE, a leading Abu Dhabi business figure warned on Wednesday.

Khalfan Al-Kaabi, construction committee head at Abu Dhabi Chamber of Commerce and Industry, said contractors had been severely hit by a surge in prices of cement and other building materials, UAE daily Emirates Business 24/7 reported on Thursday.

The UAE’s economic boom had sharply increased construction expenses, hitting contracting companies hard and further increases “could push them out of the country”, Al-Kaabi said.

The cost of building one square metre of a villa had rocketed by nearly 60% in one month from 2,200-2,300 dirhams in December to 3,700-4,000 dirhams in January, he said.

”This is a very large increase that affects the budgets of contracting companies and the contracts they signed before the increase," he said.

"The result is that some of those companies could fail to meet their financial obligations… all these developments could hit their business, and push them to find another investment environment outside the UAE."

Al-Kaabi said the steady increase in construction costs, due to record high oil prices and the falling value of the US dollar - to which the dirham is pegged, could negatively affect the investment climate and the competitiveness of the UAE.

He said the total value of projects announced in Abu Dhabi, mainly in the construction and real estate sectors, stood at around 920 billion dirhams at the end of 2007 and could exceed 1 trillion dirhams at the end of this year.

Al-Kaabi said the solutions to the problem would include devising a mechanism to control prices of building materials and construction costs, and the establishment of a company to provide building materials at reasonable prices to meet demand.

Many analysts are talking about a looming crisis in the construction industry as the cost of raw materials, particularly cement and steel, continues to climb.

Construction costs rose at about twice the rate of inflation in 2007, up around 20% according to research from international consultancy EC Harris. The price of steel reinforcement rose by 46% and structural steel gained 38%, while cement prices ended the year 30% higher.

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