Oil price uncertainty takes heat out of UAE construction market

Construction of a building near the Al Mamoura area of Abu Dhabi. Pawan Singh / The National

Construction costs across the UAE, which have remained stable over the past 12 months, are unlikely to experience any major increase in the near future under the current low oil price environment.

Although the cost of steel bar, used in reinforced concrete, has dropped by 14 per cent over the year as a result of weakening demand in China, this was offset by a steady growth in prices for locally-sourced materials.

Aggregate and sand prices increased by 3.5 per cent, for instance, glass by 2.5 per cent, concrete blocks by 1.5 per cent and tiles and cement prices were 1 per cent higher.

Moreover, despite recent government statistics in Abu Dhabi reporting a 16.5 per cent year-on-year spike in labour costs, Terry Bain, a director of Colliers’ cost and project management division, said that wage inflation had made “no great significance in the overall value” of construction costs.

Colliers said that so far this year, the local construction market has “not yet reached a level of activity to put an upwards pressure on construction companies to increase margins”.

“The market in the UAE is maturing quite well,” said Mr Bain. “We’ve got a lot of residential, schools, health facilities all coming through. You still have destination projects like Bluewaters island and the theme parks coming online. This has given a lot of comfort [to contractors]. We’re still seeing overseas investment coming in and it’s generating a very stable effect.

Donal O’Leary, director of commercial services at the project management consultancy Faithful + Gould, said that wages have risen, particularly for certain skilled trades such as blocklayers thanks to the volume of new projects in Dubai requiring their skills.

However, he argued that the UAE was a tale of two markets.

“If you look at Abu Dhabi, it hasn’t had any major contract awards in the past year, so it’s competitive in terms of tender prices. With the infrastructure that is still needed, the market in Abu Dhabi will increase, it’s just a case of releasing some of the funding streams.”

The stability of both materials and labour costs is in stark contrast to industry forecasts made two years ago, when an inflation spike was expected as a result of intra-regional competition for resources from Qatar and Saudi Arabia.

In 2013, EC Harris predicted that Qatar faced construction cost inflation of 18 per cent a year from 2016-19 as its Fifa World Cup-related construction programme peaked.

But the lower oil price has led to delays and some project cancellations, taking some of the heat out of the market.

“The oil price is starting to bite now, and there’s things that aren’t happening,” said Mr O’Leary.

Mr Bain said that he did not believe the oil price has affected the UAE market yet, but could do so if it continues to remain low for the next 12 months. He said construction labour migrates quite freely between GCC countries, and if Saudi Arabia’s government slows its proposed investment programme “you could end up with an oversupply of talent”.

Mr O’Leary said there are “a couple of large schemes in the pipeline that may come to the market in Abu Dhabi over the next quarter, which will help the market”, with one of these likely to be a major retail project. He expects retail projects to remain buoyant, and for Dubai’s construction sector to continue to be driven by Expo-related work.

“The redevelopment of Al Maktoum International Airport will gather pace and there’s a large amount of projects in the hospitality sector.”

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