Construction costs in GCC up by 50% in first half of 2008

Inflationary pressures in the GCC have increased the cost of building materials price, leading skilled and unskilled labourers to leave the country and resulting in a labour shortage that has fuelled soaring building costs in the region.

The costs of building in the Gulf region increased at an estimated rate of at 30% in 2007 alone, and a further 50% in the first half of 2008.

Al Mazaya Holding, the region's leading real estate developer, said that contractors are trying hard to offset rising building material prices fuelled by local and global forces and record oil prices.

The labour shortage, according to Al Mazaya, is caused by the deportation of hundreds of thousands of illegal Asian workers in a bid to solve the demographic imbalance and to put an end to continuous strikes by labourers who are unable to cope with the rising cost of living.

Eng. Salwa Malhas, Vice executive president for Al Mazaya Holding operations, said:

"Building material prices have increased by 50% on average, and even more in the case of certain materials. We are working out timetables to avoid delays in the delivery of our projects, including Q-Point project, on which construction commenced last month, despite the fact the Al Mazaya has already sold out over 80 percent of the project. We are also examining plans to offset the effects of rising building material prices and the labour shortage, adopting such approaches as the launch of projects for middle income groups in certain regions. We are also implementing strategies for horizontal expansion, such as the establishment of Mazaya Qatar and Mazaya KSA, as well as investing heavily in Oman, Bahrain and other countries."

"Delays in project delivery is not caused by a lack of reliable contractors, but by the inability of those contractors to find skilled labourers and by the rising cost of building materials. Changes in steel and cement prices mean that there delays in project delivery are inevitable", she clarified.

"Several contractors are seeking alliances with real estate developers in an attempt to work together to control construction costs. These partnerships are becoming more commonplace year on year, in parallel with the growth of the industry. This method may alleviate the pressure placed on contractors somewhat, as they are apparently unable to bear the burden of rising costs alone," she said.

Malhas added, however, that the problem could not be solved solely by the forging of alliances between developers and contractors, but that support is needed from both the private and public sectors in order to create a balance between supply and demand in the long term.

Malhas praised the decision made by the UAE federal government to exempt cement and steel from customs duties across the UAE in a bid to maintain the stability of the real estate market and the construction boom, offering contractors, landlords and consumers some respite from the burden of rising costs.

The UAE expelled over 300.000 illegal workers last year, while Bahrain began barring Indian workers from entering its borders.

The situation will deteriorate even further when the cap on residence periods for millions of workers in the region is brought into effect, according to economic experts.

There are currently approximately 13 million expatriates in the GCC, accounting for 37 percent of the total population, which is estimated at 35 million.

The demographic imbalance is apparent in the UAE, where some 60% of the population are of Asian origin.