High costs hit contracting companies hard

The bottom lines of contracts have been hit hard by soaring prices of construction materials. (XAVIER WILSON)


Soaring construction costs due to an economic boom in the UAE have hit contracting companies hard and further increases could push them out of the country, an Abu Dhabi official has warned.

Khalfan Al Kaabi, head of the construction committee at the Abu Dhabi Chamber of Commerce and Industry, said the surge in prices of cement and other building materials had sharply increased construction expenses, with the cost of building one square metre of a villa rocketing by nearly 60 per cent in one month from Dh2,200-2,300 in December to Dh3,700-4,000 in January.

"This is a very large increase that affects the budgets of contracting companies and the contracts they signed before the increase," he said in an address at a seminar on high construction costs, sent to Emirates Business on Wednesday.

"The result is that some of those companies could fail to meet their financial obligations… all these developments could hit their business, and push them to find another investment environment outside the UAE," he told the seminar, organised by the chamber this week.

Kaabi, an Abu Dhabi Chamber board member, said the surge in construction costs had been caused by the economic boom in the UAE and other Gulf states as a result of strong oil prices.

He said a steady increase in such costs and other prices could negatively affect the investment climate and the competitiveness of the UAE.

His figures showed the total value of projects announced in Abu Dhabi, mainly in the construction and real estate sectors, stood at around Dh920 billion by the end of 2007 and it could exceed Dh1 trillion at the end of 2008. "This construction boom has had positive effects on many economic sectors in Abu Dhabi and the entire UAE," he said.

"But the surge in prices has hit the performance of contracting companies and hurt their profit margin as there was an increase in all construction-related materials, including steel, wood, cement and diesel… the wages of workers at those companies have also risen… the boom has also resulted in a sharp growth in the emirate's imports of building materials, which are expected to peak at more than Dh9bn in 2010."

Kaabi presented proposals to tackle the problem, according to the chamber's statement. They include devising a mechanism to control prices of building materials and construction costs, formation of committees in each emirate to monitor prices, and establishment of a company to provide building materials at reasonable prices to meet the demand.