Developers fear price jump will impact all sectors

Their fears were increased as there were strong indications of a further rise in the coming months.

Some developers said that this spiral has caused a severe crunch on the construction industry, and will add to inflationary pressures, create an economic slowdown and a subsequent investment collapse, while others believe that these sudden dramatic increases are triggered by the ongoing growth in the country.

The Gross Domestic Product (GDP) of Abu Dhabi is Dhs455bn, as the non-oil sectors have surged significantly by 21%, according to recent reports. According to local statistics the total value of land transactions in Dubai rose by 70% in 2006-2007, at 142%, with a 40% increase in sales and mortgages respectively.

Dr. Abdulrahman Al Tassan, CEO of Rakaa Property, said that we can not call this ongoing price hike a trend. "This can be attributed to market forces such as demand and supply following the flurry of new multi-billion mega projects which fuel the demand for construction materials to cover the projects from local suppliers. Sometimes the developer has to book the materials several months before delivery. The property boom in the UAE has resulted in an acute shortage of both building materials and manpower, leading to a big spurt in prices both in the UAE and across the Middle East.

The skyrocketing oil prices and the investing of a significant proportion of capital back into the region following the risks abroad, have both added more momentum to the already surplus levels of liquidity. Most of this capital has been targeted towards investment in the property market".

Several reports have indicated that rapid population growth is driving expansion of GCC real estate market in terms of property and infrastructure projects. The mega development projects aim to gap the bridge between huge demand and short supply. This demand accompanied by some kind of monopoly in the supply of core construction materials, such as steel and cement, have generated the current soar in prices of building materials. Other factors include the tendency by developers to buy quantities that exceed what is actually needed, the higher freight charges and extra marine insurance fees triggered by increased fuel prices.

Several reports have indicated that the rapid population growth is driving the expansion of the GCC real estate market in terms of property and infrastructure projects. The aim of the mega development projects' is to bridge the gap between the huge demand and short supply.

This demand accompanied by the monopoly in the supply of core construction materials, such as steel and cement, has generated the current soar in the prices of building materials. Other factors include the tendency of developers to buy quantities that exceed what is actually needed, in anticipation of adverse developments, and higher freight charges and extra marine insurance fees that have been triggered by increased fuel prices

Current cement prices in the UAE ranged from Dhs 290 to 300 per ton, up from 260 and then 275 several months ago. The price per ton climbed to Dhs290 on the black market.

Other studies show that the hike in prices include foodstuff. Bread and rice surged by 20%, dairy products by 10%, juices 17%, fuel 42%, in less than a year. Power, which is related to cement factories, has increased by 30%, resulting in a manifold increase of 200% in cement. Cement suppliers are posed with difficulties in maintaining their current prices following the increasing cost of manpower, operation and production.

Steel has climbed by 27%, from Dhs2400 per ton to 3050 within two months, including all types of steel (16.12.10.8. 32 mm). This hike created a default in real estate projects. Contractors are bearing the brunt of the sudden dramatic increases that are affecting their operations and delivery schedules. The result is more than 40% of the current $400bn worth of projects being under development in Dubai that have been temporarily suspended.