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Cost of construction

CW takes a look at the rising cost of construction projects in the GCC

The UAE rose one place to 17th overall from 18th in 2011 as the construction sector begins to improve.
The UAE rose one place to 17th overall from 18th in 2011 as the construction sector begins to improve.

Construction costs in Qatar and the UAE showed little movement over the past year. CW looks at the latest research from EC Harris

Qatar is the most expensive country in which to build in the Middle East, according to the 2012 International Construction Costs Report released by quantity surveyor EC Harris.

The annual study, which benchmarks building costs in 53 countries across the globe, found that the volume of construction activity taking place in Qatar to prepare for the 2022 FIFA World Cup and to deliver the country’s National Vision, had caused the country to jump three places in the overall rankings - from 16th in 2011 to the 13th.

This means building costs in Qatar are now more expensive than both the UK and US. According to the report, one of the primary reasons for this is the focus on large-scale infrastructure projects. The Qatari government is reported to have allocated 40% of its overall budget between now and 2016 towards building its transport networks and social infrastructure.

Nick Smith, Head of Cost & Commercial Management for EC Harris in Qatar, said: “Whilst this is undoubtedly an exciting time to work in Qatar’s construction industry, the sheer volume of work planned over the next 20 years will create fresh challenges around successful project delivery.

“Careful planning and a more strategic approach to supply chain management will be key to ensure companies do not become overstretched and are able to plan ahead so they can source additional labour, plant and materials before construction demand begins to peak.”

The UAE rose one place to 17th overall from 18th in 2011 as the construction sector begins to improve following a string of government announcements around major infrastructure programmes.

Commercial projects in Dubai are also beginning to show signs of recovery with developments placed on hold during 2009 currently being reviewed, while in Abu Dhabi firms are also looking to fill the currently under-supplied retail market.

This year’s report also showed that whilst construction costs in Saudi Arabia were markedly cheaper than in UAE or Qatar, The Kingdom rose eleven places in the league table moving from 36th place in 2011 to 25th. This jump has been attributed to investment in new airport and highways and a strong future pipeline of activity.

Smith added: “Saudi Arabia’s construction industry is entering a potentially vibrant period as an expanding young population is creating increased demand for housing whilst a developing tourism and leisure industry will see new hotels built in under-supplied Jeddah and Riyadh.

“Furthermore, construction of the Kingdom Tower super-tall project in Jeddah by King Holdings will help to sustain the pipeline of work on both a short and mid-term basis,” commented Smith.

UAE
The UAE government continues to drive the economy forward through a strategy of diversification and investment. The emirates of Abu Dhabi and Dubai continue to see expansion in urbanisation through a relatively young and growing population which, in turn, fuels demand in real estate and infrastructure.

As the hub of regional tourism, the UAE generates significant revenue from the sector, and the instability in the wider region has highlighted the UAE as a safe haven. This has had a positive impact upon the local market, although the Euro debt crisis is having the effect of restricting the ability to raise funding to fuel real-estate development schemes.

Having ‘right-sized’ over the past two years, the UAE’s construction sector appears set to return to near full capacity following government announcements linked to a number of major projects, with a particular focus on social infrastructure.

High construction demand from neighbouring countries in the region, such as the Kingdom of Saudi Arabia and Qatar, will place further pressure on capacity, which may result in unbalanced price escalation for the UAE.

Qatar
In order to deliver both the World Cup and its National Vision, Qatar is expected to invest heavily in both capital projects and infrastructure over the next decade. Estimates of the level of this investment vary in the press from $60bn up to $220bn (although the reality is probably somewhere in the middle).

The Qatari government has reportedly allocated 40% of its budget between now and 2016 to infrastructure projects alone, and many significant programmes of work are already in the planning or construction stages.

Despite a policy focused on developing non-associated natural gas reserves and increasing private and foreign investment in non-energy sectors, oil and gas still account for more than 50% of GDP, roughly 85% of export earnings, and 70% of government revenues.

Kingdom of Saudi Arabia
Sustained growth continues in the largest economy in the GCC, stimulated by high oil prices and continued investment in infrastructure. The construction industry is estimated to grow from the $80.2bn of contract awards in 2011 to $86.1bn by 2013, with the majority of the investment expected to come from the government.

Other sectors seeing continued growth are housing, fuelled by the increase in demand from the expanding young population, and tourism/leisure.

Facts:
10% Increase in construction costs in Saudi over the last year
40% Of Qatar’s budget allocated for infrastructure
$86.1bn Value of construction industry in Saudi by 2013

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