Why construction industry is booming in Dubai?
The cost of construction in the UAE is lower than most – if not all – developed cities mainly due to intense competition and low wages in the construction industry, a new report reveals.
According to a report by the UK-based construction services firm Turner & Townsend, Dubai has been ranked the 28th expensive place for construction and rated “lukewarm” for tendering conditions, characterised by rising prices and growing competition for projects.
The other two regional markets Muscat and Doha have been rated “cold” due to intense competition among contractors for very little work and reducing cost pressures. The report revealed that the construction costs in the UAE is $1,455 per square metre as compared to $1,337 in Muscat, $2,416 in Doha, $3,900 in New York, $3,736 in San Francisco, $3,652 in Zurich, $3,617 in London and $2,629 in Paris.
The research noted that construction spending in the UAE has been held up by government investment in infrastructure ahead of major global events in the coming years such as Expo 2020 Dubai. This upfront investment by the state is expected to drive private sector development in hotels and leisure facilities ahead of the event.
“Governments across the Middle East are taking active steps to diversify their economies and move away from their reliance on oil. This is a long-term challenge and, for the moment, oil prices remain the most important factor influencing capital investment decisions in the region. As prices return to stable levels and the region prepares for major events such as the Expo 2020 Dubai, both governments and private investors should focus on the opportunity to drive better outcomes from their investment plans,” said Alan Talabani, managing director for Middle East at Turner & Townsend.
Atif Rahman, partner and director of Danube Properties, said in 2018, construction costs have gone up slightly and will continue to do so.
“However, compared to other countries, price fluctuation is less in the UAE and that makes our industry more stable. According to the Statistics Centre of Abu Dhabi (SCAD) during March 2018, the average prices of ‘Roofing Materials’ increased by 9.9 per cent, ‘(PVC) pipes’ by 4.4 per cent and the ‘steel’ group increased by 0.6 per cent, compared with February 2018. During March 2018 the average price of diesel decreased by 2.4 per cent, and concrete decreased by 1.8 per cent compared with February 2018. During March 2018 the average price of the ‘wires for apartments’ increased by 27 per cent, wires for small building by 16.9 per cent compared with March 2017. During March 2018, the average prices of paints decreased by 1 per cent and concrete decreased by 0.7 per cent compared with March 2017.”
Going forward, Rahman sees that by and large the construction market will remain stable with 2-3 per cent fluctuation.
Kalpesh Kinariwala, founder and group CEO, Pantheon Group, said the construction cost has increased by 2 to 3 per cent this year compared to last year due to the increase in steel prices and due to impact of higher oil prices on real estate investments in this region. “Although construction cost is increasing, it has an insignificant correlation on our projects as all our construction projects are pre-contracted,” said Kinariwala.
The report’s data showed that the construction costs in almost all the European countries, North American, Australasia, and a few major Southeast Asian cities.
New York has retained its position as the most expensive place in the world to build, followed by San Francisco and Hong Kong ($3,704).
In the Middle East, the Turner & Townsend International Construction Market Survey 2018 predicts flattest increase in the cost of construction.
Against average construction cost inflation worldwide of 4.3 percent, Muscat will see just a one percent rise in the price of construction this year, while the UAE will see two percent. However, these figures are marginally higher than 2017, when Muscat was one of only two markets surveyed to experience a fall in construction costs, at -1 percent.
Wages in Middle East
The report revealed that the average hourly wage in the UAE is among the lowest in the world, averaging around $7.4 an hour (Dh27) as compared to $104.1 in Zurich, $98.3 in New York, $84.2 in San Francisco, $54.1 in Tokyo, $45.9 in London, $18.2 in Singapore, $20.7 in Hong Kong, and $4.5 in Muscat.
In terms of availability of labour, the Middle East region is defying a global shortage of construction skills and labour. Almost 60 per cent of markets surveyed reported a skills shortage, while the UAE was in balance and Muscat is one of only three markets to show a skills surplus.
The survey revealed that most of the major European, Asian, and North American cities face skills shortage.
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