Realty & Construction Sectors in Gcc, Badly Hit Due to Inflation

The inflationary pressures that the GCC nations have been subjected to, has left an impact on the realty sector too, which is reflecting itself by way of mounting construction costs, surging by 50 percent during the first half of the year.  During the year 2007 costs went up by 30 percent.

Increasing costs of construction materials, massive shortage of skilled and unskilled labour, lack of availability of contractors to deliver projects on time, have all contributed to this increase in overall costs and endless delays.

Contractors have been trying hard to make up for the increasing prices of building materials, triggered by local and global forces and record oil prices.

The labour shortage, particularly in the UAE, is due to the deportation of several thousands of illegal Asian workers, in a bid to resolve the issue of demographic imbalance and to curb the endless strikes by labourers who held stikes, unable to bear the high cost of living. During 2007 the UAE alone, expelled about 300,000 illegal workers, while in Bahrain, Indian workers were not allowed to enter their borders.

Apart from increase in prices of building materials by 50 percent on an average, and more in the case of certain materials, even delay in project deliveries are on the rise. But this is not due to shortage of reliable contractors, as is often believed, but, because these contractors are unable to find skilled labourers, and also due to mounting cost of building materials.

Contractors are now entering into partnership with property developers in an attempt to work together in regulating the cost of construction. These partnerships are getting more common year after year.  This method alleviates pressure on contractors to a certain extent, as they are unable to bear the burden of rising costs all by themselves.

According to estatesdubai.com, the prices of Dubai properties have increased by 78 percent last year. During the first quarter of 2008, the prices went further up by 42 percent. Even the villas which were reported to have been selling for Dh.3.65mn six years ago are now being sold at a price that is ten times higher.

Although supply may catch up with demand by beginning of 2009, vast project delay completions could lead to a crash or a mere moderation in rents and property prices. More supplies are also likely to hit the market during 2009-10.

Local banks are largely insulated from the subprime markets, and hence are not experiencing the impact of the global credit crunch. In Dubai, an estimated 50 percent of upcoming property stock is under the control of the government, and this can drip-feed the market to prevent a crash.

Analysts, however, predict that after the predicted peak in construction sector in 2009, the property prices are likely to drop sharply. Factors such as deep global recession, inflation and tensions between the West and Iran, may also play a major role in influencing property prices.