Rising operating costs to impact building boom

Inflation and soaring operating costs within the UAE construction industry are affecting contract bids and could lead to a slowdown in the ongoing construction boom, according to some industry players.

Camp: The cost of labour accommodation is a big factor in inflated operational costs.
Camp: The cost of labour accommodation is a big factor in inflated operational costs.

Inflation and soaring operating costs within the UAE construction industry are affecting contract bids and could lead to a slowdown in the ongoing construction boom, according to some industry players.

Last week, Construction Week reported on rising material costs, including that of cement and steel, which make up 30% of construction costs.

But according to Freddy Lama, managing director and owner of Nova Electromechanical Contracting Company in Abu Dhabi, further costs are compounding the situation.

"Costs have risen due to high rents and inflated costs of operation as well," said Lama. "Due to the unavailability of office or adequate residential space, rents have shot up and this has added to our day-to-day operation costs. Abu Dhabi in particular is facing a pressing shortage of office and residential space. At least in Dubai, if you're willing to pay the price, you can find a functional place. But both situations are driving costs up.

Apart from the escalating cost of raw materials, operational costs that are causing the inflation include a lack of labour accommodation and rent increases, the new mandatory insurance policy costs and higher visa costs.

A rise in cost for hiring equipment and additional bank charges due to a new labour policy that stipulates all employees, including construction labourers, must be paid through bank transfers are also having an impact.

Lama added that the cost of housing workers has more than doubled in the past year.

"Insurance costs have dented our wallets too - and that's a direct added cost to us, as it didn't exist before," he said.

The additional cost burden is hampering the firm's expansion plans, said Lama. "Even if we want to expand and employ more workers to be able to cope with the demand in this country we can't, because we can't afford to hire more workers or pay their rents or pay the costs that come with hiring them. There is going to be a massive shortage. There are not enough MEP contractors to handle the demand at the moment.

Ani Ray, country director for Simplex Infrastructure agrees that the rise in the cost of labour accommodation is one of the biggest contributors to inflated operational costs.

"Previously, construction companies were given land free of charge or at a very nominal price to build labour camps to accommodate their workers, but now even building labour camps has become a commercial interest. Now construction companies are forced to go to middlemen to hire out camps and, because of the shortage, they raise their prices.

Ray added that over the past year, labour camp costs have been going up by US $55 (AED 200) a month.

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