Middle East boom sends construction costs soaring

The Middle East is facing a massive surge in construction costs owing to the ongoing boom in development in the region.

Increases in Dubai, where overall construction costs have jumped by about a half in the past two years, are now starting to feed through to other areas in the Middle East, such as Qatar, Abu Dhabi and Bahrain. Figures released by Davis Langdon show double-digit rises across the region, as well as significant increases in salaries for project managers (see grapg, left).

These hikes have led to a crisis among contractors in the Middle East, according to quantity surveyors and project managers working in the region. Firms are unable to find materials, or build to the prices they signed up to before the rises in material costs.

One QS firm working in the region told QS News that their firm had received no bids from contractors for several recent jobs as a result of their inability to commit to a price.

A leading developer also claimed contractors were losing money as a result of the rise in material and labour costs.

Peter Walichnowski, who was formerly at Middle Eastern developer Majid Al Futtaim Investments, which is developing a huge shopping centre in Dubai called the Mall of the Emirates, said costs in Dubai went up by up to 20% last year.

Speaking at last week’s Movers and Shakers Breakfast Club meeting, Walichnowski said: “The contractors are losing money. All the deals they signed up to were on lump sum prices and they got caught by material increases. It’s very difficult for them to get their prices right.”

Walichnowski, who has started his own firm called Skylan Properties, added that he thought contractors would add at least a third to their bids for the next round of construction schemes to make up for their losses in the last round.

He said: “A lot of the developers have had to go back to the drawing board because of the costs.”

Marcus Burley, who heads Mace’s operations in the region, put the crisis down to the continued growth in demand in the region, as well as rising material costs.

He said finding suitable contractors for projects was now proving very difficult: “The situation is acute. Unless a job is attractive to a contractor they are not bidding. That’s not restricted to Dubai, it’s pretty much across the Gulf.”

Burley said clients in the region were now starting to move away from fixed-price deals with contractors. He said:

“A few more clients are willing to consider negotiations with contractors now. There is more willingness to share risk. To get these jobs up and running as quickly as they want to out here means you have to build relationships and trust.”

Rauof Ghali, president of the project management group at construction consultant Hill International, said the price crisis had led to delays on schemes in areas such as Qatar.

It is understood that the high demand for materials led to Qatar running out of cement for 10 days in April.