Building materials cost to stay high
Construction costs have increased by more than 100 per cent during the last 12 months with higher prices for cement, steel and diesel the major contributors.
The Government has been asked to consider bringing in new measures to ease the skyrocketing costs and contractors are urging developers to share the risk and develop more cost-effective construction methods.
Imad Al Jamal, Vice-Chairman of the Higher Technical Consultative Committee of the UAE Contractors' Association, told Emirates Business that the problem was here to stay – and warned that the worst was yet to come.
"Even as we speak the cost of steel is going up and with the latest hike in diesel prices construction costs are expected to rise further.
Developers have to understand that no contractor will take money from his pocket to build a structure for them. We have to move away from fixed-price contracts, keeping in mind the constantly changing price structure of construction materials."
Procurement managers said costs would continue to rise as long as the current strong demand continued.
"There is not much a contractor can do in a supply-driven market," said Tim Bailey of CSHK Dubai Contracting. "What we need is effective government intervention, especially with regard to cement."
Most on-site machinery runs on diesel, which today costs Dh18.5 per gallon compared with Dh8.25 a year ago. "Diesel continues to be the prime mover in most aspects of civil construction," said Bailey. "Diesel's impact on transportation and production starts from the crusher itself. It accounts for almost 10 per cent of the overall cost of a project."
Contractors have urged the government to look at ways of bringing some stability to the cost of construction materials. Several GCC countries are unveiling measures aimed at bringing the spiralling cost of reinforcing steel under control. Qatar has frozen steel prices while the Saudi Ministry of Trade took measures to restrict steel exports. The UAE has exempted cement and rebars from import duty.
"There is nothing much the government can do about rebar prices," said Bailey. "Steel prices continue to fluctuate worldwide. However, governments can decide to invest in starting steel production facilities within the region."
Bishoy Azmy, CEO of Al Shafar Contracting, said that escalation clauses were being introduced in the UAE's construction industry.
"Some developers, however, say we will pay you a few extra million and you take the risk. The options for contractors are to either continue the work and lose money or talk to the developer and ask for additional money. A few of them even opt for stopping work midway."
Mohammed Dulaimi, Director of Project Management at the British University in Dubai, said the use of innovate methods and the reduction of waste could go a long way towards cutting costs and minimising the use of materials.
"There is a need for everybody in the supply chain to effectively use materials. A recent study revealed construction waste in Dubai has increased by 150 per cent. By bringing on board the supply chain right from the designing stages of the project construction waste can be reduced significantly," said Dulaimi.