Soaring prices to hurt Dubai real estate, construction industry

Dubai: The UAE's construction sector will continue to feel the pinch of the rising cost of building materials, as prices are expected to rise another five per cent in the third quarter this year, industry officials said.

According to Danube Building Materials, prices have already escalated over the past months owing to record oil prices, rising freight overheads, falling dollar, restrictions on log cutting by countries such as Malaysia, Indonesia and Burma, and the strong demand in the GCC - which is currently undergoing a massive building and infrastructure development.

The company predicts prices to continue rising until oil prices drop or freight shipments go up.

Rizwan Sajan, Danube chairman, said in a statement that the incessant growth in prices of core building materials will have huge implications for the local construction industry.

"We anticipate that the real estate and construction industry will feel the impact of oil prices and the rising freight costs in the coming months, considering the massive projects that are being launched," he said.

Ebrahim Yousuf Al Rahmani, chairman of Al Rahmani General Trading, said the prices of building materials from China - from where the UAE gets some steel, GI sheets and plywood supplies - are likely to increase by five per cent. But he doesn't foresee an increase in prices of materials supplied by other countries.

"Contractors will definitely suffer. They're already having a tough time," Al Rahmani told Gulf News in a telephone interview.

Yousuf Fakhruddin, chief executive officer of Fakhruddin Properties, said increased prices of construction materials could result in delays in project delivery, as developers have to work outside their originally estimated budget to incorporate the increased costs passed on to them by construction companies.

"Steep increases over a short period mean that some of these developers will have to abandon their projects as they won't be able to cover the costs of what was originally an affordable project, and the construction companies contracted to work on those projects will thus lose out on the business," Fakhruddin said.

He noted that the cost of building materials has already soared over the past 18 months, rising by 30 per cent in 2007 and by over 50 per cent for cement and 70 per cent for steel in the first half of 2008 alone.

"So, while this [projected] increase of five per cent may appear to be small, it has to be considered in the context of these previous price rises. The fluctuating cement and steel prices have a significant impact on the construction and property sector," Fakhruddin said.

A report by Danube noted that steel prices have doubled from $700 per tonne in January to $1,500 per tonne in July.

Costs of wood products, such as timber and film-faced plywood, have likewise gone up by at least 25 per cent during the past three months, with the latter costing around Dh130 per piece now, up from Dh105 a few months ago.

Whitewood prices have also jumped by 20 per cent, reaching Dh1,100 per cubic metre; aluminium prices by almost 23 per cent and red meranti by 28 per cent.