Capital builders hit by soaring cement

Building material costs are soaring and putting new pressures on the property market.
The price of raw materials such as sand, cement and steel rose sharply last month. Paulo Vecina / The National
The price of raw materials such as sand, cement and steel rose sharply last month. Paulo Vecina / The National

The cost of some of the most important building materials is soaring in Abu Dhabi, putting increased pressure on the construction sector and in turn the property market.

A report released yesterday by the Statistics Centre Abu Dhabi (SCAD) found that the price of construction materials including cement, steel and wires for residential towers, increased steeply last month compared with June.

The price of sand-based products recorded the largest increase last month, rising 17.7 per cent. Costs for the material have grown more than 52 per cent since July last year, according to SCAD.

Compared with June, power cables now cost 3.3 per cent more, while the price of cement moved up 8.1 per cent.

"When it comes to the cost of construction, cement and sand play a significant portion of the total cost," says Praveen Bhatnagar, the chief executive of hotels and wellness at Landmark Hospitality.

He said steel was another crucial building material, which has risen 2.6 per cent from June and is now up nearly 25 per cent from July last year.

Landmark Hospitality falls under the Landmark Group, which holds more than 13.4 million square feet of retail and hotel space throughout the Middle East and North Africa region and India. While much of that space is leased, rather than built from scratch, Mr Bhatnagar warned that rising material costs could squeeze many companies like his in addition to construction firms.

"If the cost of construction continues to increase, this will have an effect in a year or two because the properties which are under construction will get more expensive," he said.

"Any agreement we enter from now on for new properties, definitely well see higher prices."

The price increases are hitting companies at every level in the construction sector.

"The price has increased," says Khalid Al Hammadi, who owns Aldana House, a small construction company that has completed seven villas in Abu Dhabi and is working on four more. "We have all the suppliers we can find. Maybe the price will increase more."

Not all building materials cost more in July. The price of natural stone, concrete and glass remained unchanged.

Other items actually fell in price, including wood, certain kinds of pipes and some decorative materials. Tiles and marble fell more than 4 per cent last month compared with June, while paint was down nearly 6 per cent.

But over the past year, certain key categories of products have increased significantly in cost and made it much more expensive for construction companies that are looking to erect new buildings.

Wires for residential towers and transport equipment now each cost at least 25 per cent more than they did in July last year.

Meanwhile, the price of power cables for carrying electricity through buildings has surged nearly 45 per cent higher.

Property developers have had to struggle with fluctuating costs of building materials in recent years. Prices for steel and other raw construction products were near record highs before the global downturn started in 2008, largely driven "because of massive demand in the Middle East and China", said William Dewsnap, the head of valuation for Abu Dhabi at Cluttons, a property consultancy.

"But then as developments were stopped, and the economy slowed down quite considerably, those raw material costs dropped quite sharply," he said. "What you're seeing is something of a correction."

Published: August 21, 2011 04:00 AM


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