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UAE construction costs to soar

Discussion in 'UAE Property' started by hiszein, Dec 10, 2007.

  1. hiszein

    hiszein New Member

    UAE construction costs to soar
    United Arab Emirates: Sunday, December 09 - 2007 at 15:35
    The cost of construction in the UAE could jump substantially next year according to the UK based consultancy EC Harris, reported Reuters citing Emirates Business 24/7. Key raw materials such as cement and steel could rise by up to 19%, while labour costs are also expected to rise significantly. Construction costs spiked by 25% in 2006, while the prices of materials have climbed by well over 15% this year
     
  2. Wannaberich

    Wannaberich New Member

    I assume if its going to cost more to build,this will push up the prices of new launches which would then make existing properties more expensive?
     
  3. hiszein

    hiszein New Member

    dubai

    I publised this news so any1 wants to buy a property in Dubai can make a fast movment as prices will be increasing

     
  4. DAYFox

    DAYFox New Member

    Ok, let me ask one thing:

    Construction cost will rise, thats for sure and therfore upcoming launches will be more expensive than today. In the same time existing properties will increase in value, BUT how do developers react on that dramtic increase in construction costs? For instance Developer X sold in Jan 2006 a Property in Business Bay for 1200AED per sqfeet and based his calculations on construction costs in 2006. How can these developers finish the tower???
     
  5. Wannaberich

    Wannaberich New Member

    I would think their original profit margins worked out were enough to absorb an increase
     
  6. mpat

    mpat New Member

    can not absorb that much rise,Their quality will deteriorate.Government and buyers should ensure that developers give a minimum acceptable international standards of quality.I have seen almost 10 new apartments ready to move in and the quality is very bad.Does anyone know of a law in this regards?
     
  7. centurygrove

    centurygrove New Member

    the actual cost of increase in construction has increased by 30% this year. about developers absorbing increasing costs you may find that these developers will probably hand back deposits to buyers which has happened many times in the past.
     
  8. Wannaberich

    Wannaberich New Member

    So if they hand back deposits will they not bother to build or just re-launch?Also,with labour costs no more then 250 dollars a month,if these guys are charging around 400.000 for a studio are u sure they cant absorb these increases?
     
  9. centurygrove

    centurygrove New Member

    it is happened several times that deposits are handed back and projects later relaunched at a higher price. Dubai Pearl is just an example of this, however with this project construction had started. Therefore some developers could use investors money interest free for a period and then return just the deposits. As an investor if you have paid £50000 and a year later the project is withdrawn, all you want is your money back. In some instances developers have offered only to pay a percentage back or have taken their time in paying back, however Escrow accounts should counter this problem. I am sure labour rates have increased vastly due to 400000 labourers being sent back to their countries in an amnesty period in August (those whose work visas had expired), these workers will come back under new visas but this will obviously take time.
     
  10. DAYFox

    DAYFox New Member

    What about projects where Groundwork is already completed, the actual Tower starts rising and more than 50% of the amount is already paid. Do you think a scenario like you explained is possible there as well?
     
  11. centurygrove

    centurygrove New Member

    we got our money back from gowealthy after threatening legal action but they did try to avoid paying. They wanted us to take our claim against the developer and not them as an agent. However they did pay, after my recent rip in october construction does not look much further on.
     
  12. DAYFox

    DAYFox New Member

    Which project you have invested in?
     
  13. centurygrove

    centurygrove New Member

    I have bought an apartment in the marina which i have just took possession and am about to buy office space in a commercial tower in the business bay. Office space in the business bay is the way forward with very high returns and i think personally there will be great capital appreciation as the Emaar have released 5 towers at 3600 aed per square foot. I am paying about 2000aed per square foot in the Canadian Business Centre which will be completed in late 2008 and it will be one of the first towers to be delivered. Construction has commenced, and the works are on target,.
     
  14. Wannaberich

    Wannaberich New Member

    Out of interest do u think with so many office towers going up in BB how easy will it be to rent?Especially with cheaper options such as silicon oasis where a number of office towers will be available within the next 18 months.
     
  15. DAYFox

    DAYFox New Member

    I bought in BusinessBay (OntarioTower) as well and YES I think this is the best option when you want to invest in realestate in Dubai.
    Which towers from Emaar are you talking about? 3600AED is a lot, too much for the circumstances now, maybe later when Phase I is completed these prices sound reasonable. I heard currently the sqfeet price in BB is 1500-2500AED.
    Anyways, BusinessBay will come up and definetly you will have great returns.
    But I bought for 1100AED in 2006 and now I am a little bit worried that the developer is not able to absorb the increase in construction cost.. But at least groundwork is done and tower is rising, so eveything seems great!! Additionally it will be one of the first towers which is ready, so outlook very good!
     
  16. mpat

    mpat New Member

    In short , no one would like to shrink his profit margin,even if they can absorb incresed cost,profit will be low and that is undesired.
     
  17. wesrae

    wesrae New Member

    Firstly the Developers in Dubai have been living on easy street for the last 4/5 years creaming on massive proffits. I work for a Project Management Company acting as Client Representative for the largest developer in Dubai, and have seen first hand the margins.

    It is correct to assume that developers will try to "Value Engineer" either to maintain margins or even to increase them. This will take place on every project at some stage regardless of the project profile.

    What we must understand is that once a developer has let the Main works packages to the Contractor he has offset the majority of the risk. Any price escallation will then be absorbed by the Contrator, who will have calculated any anticipated price increases. What has happened over the last 2 years is that Contractors working at rates agreed 3 years ago are realising that they seriously underestimated the escallation!

    Now this is where the Major developers have hired large, international, reputable Contractors who will absorb these costs. The problem comes where developers have tried to hire small Contractors and get their Projects built "on the cheap". These small Contractors simply cannot absorb the increases so end up cap in hand to the Developer. Dependent on the state of affairs and the generosity of the Developer he might be assisted or he might be removed from the Project and his Performance bond encahsed from the bank.

    Really the Developers are in very strong positions always maintaining positive cash flow, with large margins.

    Cases like Dubai Pearl are a bit different - the Developer was bought out. The new developer did now want to undertake this work and through some legal loophole sold on the already started development.
     
  18. Wannaberich

    Wannaberich New Member

    Wesrae does this eman if the contractor cannot absorb the increase and the developer will not help out then building stops and investors can potentially lose their money or go through costly and lenghty court proceedings?Also,when do you think the increased costs will reflect in new launch prices as there are still alot of launches going at 750aed per sq ft?Will increases in launch prices push up the value of completed units?
     
  19. DAYFox

    DAYFox New Member

    Of course there are still launches going for 750aed, it depends all on location, location, location! But in Business Bay there is nothing launched for 750AED...
     
  20. Wannaberich

    Wannaberich New Member

    I appreciate there are still launches going for 750 thats what I said earlier.What I was asking is when will increased construction charges start showing in launches and will this increase the value of completed properties?
     
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