UAE developers and contractors have learnt their lessons well after the first supply chain crisis of 2020. While building material costs are again on the rise, developers hope they are much better prepared to handle the outcome. Image Credit: Shutterstock

Dubai: UAE’s developers and construction companies are working on one core principle these days – buy local where possible. Because if they have to rely on anything that needs to be shipped in, then be prepared to pay much more. Plus, there are the inevitable delays in goods reaching the ports here because of container scarcity.

“Anything shipped in from overseas is likely to have risen in price,” said Tizian Raab, spokesperson at Azizi Developments, which is busy with multi-billion dirham residential projects in Dubai. “This is purely due to the higher logistics costs. A noteworthy example of this would be steel rebars from Saudi Arabia, the cost of which increased roughly 18-20 per cent during the pandemic.

“Timber prices have affected joinery firms, with prices up by to 35 per cent in some cases. Locally manufactured materials such as concrete and aluminium have remained the same, or even decreased in price during this period.”

So, whether it is UAE-based steel or cement manufacturers or suppliers such as RAK Ceramics, they are finding that being the closest to their consumer here is quite the winning strategy.

Construction materials such as concrete and steel are generally sourced from within the GCC - from the UAE, Saudi Arabia and Oman - while products used for finishing – those that customers see and touch - are still mostly procured from well-known manufacturers overseas, especially those in Europe

- Tizian Raab of Azizi Developments

Steel is in a price grip

Bharat Bhatia, whose Conares owns three steel mills in Dubai, knows the feeling. He is reliant on iron ore to feed the mills and come out with the products that are sold locally as well as exported. Bhatia says UAE’s steel producers are feeling the full weight of iron ore prices hitting new highs as well as the cost of shipping them in. Prices of iron ore, which is the essential raw material for steel, are up by nearly 20 per cent since the final months of 2021.

“It’s not just one thing that is causing the iron ore price spike – there are the tight restrictions because of Omicron that is hurting shipments from major commodity sourcing markets such as Australia,” said Bhatia. “The global mining industry remains under pressure because some key mines remain shut, and this too is reflected in the iron prices.

“Until we find a balance between relevant source markets opening up after winter and some easing on the shipping side, iron ore and steel prices will remain on the higher side.”

Steel prices on their own are up 30-35 per cent since early 2020, which was when COVID-19 first started playing havoc with global supply chains.

It's not just the core iron ore prices that are on the rise - there is the additional higher premium and the shipping costs that are a burden. Shipping costs are not dropping.

- Bharat Bhatia of Conares

No passing on costs - so far

Multiple developers in the UAE have said they have not to date passed on any of the higher cost of building materials in the last 24 months onto their buyers. How long can they continue to do that? Offplan launches are back in favour with buyers, and developers will not be in the mood to delay new offerings just because their cost of building is going through the proverbial roof.

This is where it gets tricky – if they raise the value of their offplan property, demand could feel the squeeze, especially for mid-market homes. All the more reason why developers are thinking of buying local – or regional – to keep the building material costs under check.

Source from within

“Transportation issues globally are causing major inconsistencies in pricing and availability,” said Raab. “For example, a product made locally, such as in Ras Al Khaimah, is now priced the same or even lower and will come with more favourable payment plans, whereas a product ordered from Italy will result in shipping headaches that also increase costs.

“It is difficult to say when the logistics industry will adjust. Arguably, shipping companies and other logistics stakeholders are seeing higher pandemic-induced demand overwhelming them, and resulting in inflated prices. Evidently, shipping firms will eventually adjust and expand their operations to cover growing demand with an enlarged logistics supply. But for us, there is no telling how long this correction might take.”

The same holds true for other developers – and they too will be switching to buying local wherever they can.