Rents in Dubai will fall in five years time as completion of half of the construction projects under way brings stability to the property market, said an industry figure. Current high rents are the result of a number of international factors, including the high costs of building materials, oil, transport and insurance, said Ahmed Khalaf Al Mazroui, Deputy Chairman of the UAE Contractors Association.
The cost of bringing workers from overseas also contributed to the problem. « There are three reasons for the high costs of building materials in the UAE – the application of free market principles, high diesel prices and the absence of monitoring in the local market, » he told Emirates Business. « The number of government construction projects should be reduced as they put pressure on contracting companies. Contractors are suffering from the growing demand for building materials caused by the implementation of multi-billion-dirham development projects in a number of emirates. If the current situation continues without any co-ordination among the seven emirates the instability in the real estate market will continue, the prices of building materials will rise and the quality of completed developments will be affected.
« All this will lead to the failure of local contracting companies and the appearance of firms from outside the country. » Al Mazroui praised the decisions taken by the Saudi Arabian and Qatari governments to compensate contractors who were hit by price rises, fix cement prices for three years and subsidise diesel for another year to limit inflation.
Reasons behind the rise in construction costs
A study undertaken to find out the reasons for the increase in cost of steel, cement and aluminium by the Dubai Chamber of Commerce and Industry made the following points: Steel: Demand in the world market increased by 146 million tonnes and global prices rose by 23 per cent between the first quarter of 2007 and the same period this year. The Dubai and Middle East markets suffered shortages estimated at 23 million tonnes.
Cement: Demand in 2007 exceeded supply and the price of cement in the global market rose by eight per cent in the first quarter of 2008. Aluminum: The global market in 2007 saw a surplus of 3,000 metric tonnes. However, fears of a shortage due to high energy costs pushed up the price of aluminum on world markets.
Emirates Business July 3, 2008