Colliers: There is a ‘notable’ increase in construction costs in UAE

Rises in materials tempered by competitive market pressures in Dubai and Abu Dhabi

According to Colliers International, the construction industry in the Dubai and Abu Dhabi has witnessed a notable upward movement in construction materials over the past year as costs in materials such as timber, electrical cabling, glass and fuel all rising. Rebar alone has seen a 30% increase in price from Q1 2017 to Q1 2018. Despite the pressure on margins, a competitive market will keep cost inflation below 2% for the year ahead, said the real estate analyst and services company.

In its Abu Dhabi and Dubai Construction Costs Benchmarking report, Colliers notes that compared to Q1 2017, timber is between 6-12% more expensive; electrical cables 13-16%; glass is up 4%;PVC/UPVC piping 4-6%, sanitary ware 3-5%; transportation 9% and diesel 22%.

“There are many factors for ascending trend, which include increased cost of production for locally manufactured materials, a recent drive by Chinese authorities to close down factories that do not conform pollution control regulations, increased cost of materials imported from regions experiencing a growth in construction such as Europe, and world pricing for the likes of for the likes of steel,” said Colliers International.

“For the average building, this material cost increase when when comparing Q1 2017 to 2018, is an add-on of 3.1%. However, when one takes into account all average costs between the period, and a continuous competitive market putting pressure on contractor margins, the actual overall increase to cost of construction between Q1 2017 and 2018 ranges from 1.8 to 2.3%, depending on building type, design and specification.

“In April of this year the World Bank has predicted that copper and crude oil pricing will remain relatively flat for period between 2018 & 2019, with iron ore and aluminum prices decreasing by 6.3% 3.4%, respectively. With no major material inflation predicted, combined with another period of expected strong competition between contractors, it is forecasted that construction cost inflation will not exceed 1.8% for the next twelve months.”

Construction costs, referenced in the report all exclude the recently introduced VAT in the UAE, Colliers explained to “As VAT is passed from suppliers and subcontractors onto the contractor whom ultimately passes the VAT onto the Developer, VAT does not directly affect the cost of construction. Indirectly contractors have experienced higher administrative costs within their accounts departments in dealing with the complexities of VAT, but this is a minimal add on to the cost of construction. Going forward we may see a cashflow issue where VAT returns have to be made prior to receipt of cash due to late payment cycles from developers.”

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