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Inflation in construction galloping at 1.5% per month.

Dubai: The average inflation rate for construction in Dubai is increasing at a rapid speed of around one and a half per cent a month, according to Dr Andy Davids, technical director, Structures, Hyder Consulting Middle East.

Speaking on day one of the Council for Tall Buildings and Urban Habitats (CTBUH) eighth world congress, Dr Davids said: "If you look at the consumer price index (CPI), the rate of inflation in Dubai, five years ago it was bubbling along at one per cent or two per cent. Now, the average CPI just in Dubai, according to the UAE central bank for this year, is nine per cent.

"In the construction industry, labour in the last two years has gone up around 20 per cent. Construction materials have gone up at a staggering rate, probably around 20 per cent a year. And so the net outcome is that the average inflation rate for the cost of construction just in our industry is going up at around one and half per cent a month."

High demand

Rizwan Sajan, chairman of Danube Building Materials, said the high prices of materials are impacting hard on construction companies.

"Because there are so many ongoing projects in Dubai, if a contractor is losing on one project, he can just move to another. Today, it's very difficult to find a good contractor so everyone is suffering."

According to Sajan, China supplies nearly a third of the materials used in the construction industry in the UAE. He estimated that wood costs $200 to $5,000 a cubic metre, depending on the type. Steel now stands at around $800 a tonne and cement is approximately Dh18 to Dh20 per bag.

Mohammad Ali, general manager at ETA Star Properties, agreed that the price increase in basic metals such as iron, copper and aluminium has had a direct impact on the cost of construction materials which in turn has had an impact on the development cost. "Today new contracts are costlier by a minimum of 30 per cent from last year. This will surely increase the cost of a residential unit or office to the customer," he said.

However, Andy Davids, currently chief engineer responsible for structural design certification of Burj Dubai, said that the cost of construction in the Gulf is lower when compared to European, North American and some Asian markets partly because of the lower cost of importing building products and labour into the region.

He said: "As engineers we were all brought up thinking which is more expensive: steel or concrete? But the initial cost of concrete or steel or any other material is only part of the story. The bigger part is how fast you can build something; the speed of construction. Now, construction materials like steel beams are used where traditionally we wouldn't have used because the initial cost is more expensive but much faster to put up as it's less labour intensive."

"What our task is now, as structural engineers is to focus in on how fast we can build something. In a high inflation environment, initial cost isn't so much a concern, it's actually how fast you can build it. And that's the thing that's completely consuming us, we've got to finish things quickly because if we don't then it's going to cost a lot more to finish it," said Davids told Gulf News.

'Very positive'

Mehdi Amjad, president and CEO at Omniyat Properties, said: "From a customer point of view, the increasing price is very positive because construction costs are increasing so the price of property is increasing, so whoever invests has a better deal. But as developers, we get price escalation but that's just part of the package."

Amjad said he hoped the prices of construction materials would start to plateau. "But you can never predict with worldwide markets like China and India. Steel was a recent dilemma and there are no indications yet that it will stop," he said.

Davids said the overall standard of construction in Dubai is no different to the standard anywhere else in the world. "The government have been very, very clear and Dubai Municipality have been very clear about the standards they expect from designers, architects, engineers and contractors. And they're very strict on testing materials like concrete. So we've got a very good base to come from and we're well supervised. There are minimum government standards for construction and testing and these standards are enforced."

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Publication:Gulf News (United Arab Emirates)
Date:Mar 8, 2008
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