Construction prices in Dubai have risen 15.8% in nine months, thanks to soaring materials costs and competition for suppliers.

Research published today by Rider Levett Bucknall (RLB) reveals the scale of inflation of the price of building in Dubai between October 2007 and July 2008. The only country with greater inflation was Singapore, where costs rose 18.7%.

The consultant’s latest cost commentary warns that there are “serious capacity constraints” in Dubai, despite the flood of construction firms that are moving into the region. It says these will affect building costs and programmes.

The report adds that 300,000 workers have recently returned to India from the United Arab Emirates, owing to economic growth in the Subcontinent and the high cost of living in Dubai. This has led to a tightening of the labour market, exacerbated by intense local demand and global cost rises in items such as steel, aluminium, concrete and glass.

RLB warns that these forces will continue to fuel construction inflation in the region.

The report says that 300,000 workers have recently returned to India from the UAE

The inflation rate in Dubai was second only to tender price rises in Singapore, where the total demand for construction services was last year at an all-time high of S$24.5bn (£9.7bn). This rate has also been pushed up by volatile commodity prices, as well as a lack of capacity among contractors.

RLB’s tender price index for Singapore estimates that construction inflation in the first quarter of 2008 was running at 6.8% quarter on quarter and 26.4% year on year. This level of price rises is expected to continue throughout 2008 in the order of 15-20%, before moderating towards the end of next year.

Closer to home, the consultant predicts that, despite the effect of the credit crunch elsewhere in the UK, construction margins in London may not fall significantly until 2009, when reductions in workload are expected to have worked through.

The consultant forecasts tender price rises of 4.5-5.5% in the capital this year.