Qatar construction costs now highest in the Middle East

JEDDAH – Construction costs in the Asia-Pacific region, North America and parts of the Middle East are on the rise and closing in on prices in Western and Northern Europe, according to the 2012 International Construction Costs Report released Wednesday by global built asset consultancy EC Harris.

Globally, Switzerland was the most expensive country in which to build, followed by Denmark, Australia, Japan and Sweden, the study revealed.

In the Middle East, however, Qatar turned out to be the most expensive country to build amid a huge volume of construction projects underway in the country in preparation for the 2022 FIFA World Cup and to deliver the country’s National Vision, the report noted.

As countries such as Greece and Portugal labor under stringent fiscal austerity programs, the threat of default has had an impact on the price of construction across the entire region with more stable markets including Germany and Sweden also posting lower costs than last year. Switzerland continues to top the list however even there costs have dropped 10 percent on the previous twelve months due to the declining value of the Swiss franc.

Conversely, construction costs in markets that have been less impacted by the global recession are continuing to increase with countries like Canada, Australia and Qatar all moving up the league table compared with their 2011 position. The Asia-Pacific region now has four of the top 10 most expensive markets with Australia Japan, Hong Kong and Singapore occupying third, fourth, sixth and seventh place respectively. Canada also figured in the top 10 list, jumping two places from last year with construction costs on average 14 percent higher than in 2011.

The annual study, which benchmarks building costs in 53 countries across the globe, found that construction costs were acting as a reliable bellwether for global economic trends, with Europe responsible for just five of the top ten most expensive markets in this year’s report, compared with eight entrants in 2011.

The report noted that one of the primary reasons for the surge is the focus on large scale infrastructure projects with the Qatari government reported to have allocated 40 percent of its overall budget between now and 2016 to improving both transportation networks and social infrastructure across the country.

Nick Smith, Head of Cost and Commercial Management for EC Harris in Qatar, said “while this is undoubtedly an exciting time to work in Qatar’s construction industry, the sheer volume of work planned over the next 20 years will create fresh challenges around successful project delivery.”

“Careful planning and a more strategic approach to supply chain management will be key to ensure companies do not become overstretched and are able to plan ahead so they can source additional labor, plant and materials before construction demand begins to peak,” he added.

The United Arab Emirates rose one place to 17th overall from 18th in 2011 as the construction sector begins to improve following a string of government announcements particularly around major social infrastructure programs.

Commercial projects in Dubai are also beginning to show signs of recovery with developments placed on hold during 2009 currently being reviewed, while in Abu Dhabi, firms are also looking to fill the currently under-supplied retail market.

Moreover, the report noted that Saudi Arabia rose 11 places in the league table moving from 36th place in 2011 to 25th amid continued investment in new airport and highways and other infrastructure projects.

“Saudi Arabia’s construction industry is entering a potentially vibrant period as an expanding young population is creating increased demand for housing whilst a developing tourism and leisure industry will see new hotels built in under-supplied Jeddah and Riyadh. Furthermore, construction of the Kingdom Tower in Jeddah will help to sustain the pipeline of work on both a short and mid-term basis,” Smith further said.

Mathew Riley, Group Head of Cost and Commercial at EC Harris, said: “Those countries that are least constrained by debt problems are continuing to invest in construction activities to help fuel their continued growth. In such a scenario the volume of work undertaken is creating an increased demand for both commodities and skills, which is inevitably driving costs upwards. In markets like Qatar and Canada where capital investment has been focused on long-term infrastructure projects, there will be a sustained pipeline of work which is likely to see construction costs rise even further on both a short and medium term basis.”

Above and beyond macro-economic factors, another issue that resulted in a significant rise in construction costs was the need to respond to natural disasters. The findings from this year’s report showed that the price of building in New Zealand, Japan and Australia had risen by 13 percent, 7 percent and 20 percent respectively as each market had to rebuild major parts of the country following the devastation created in 2011 by an earthquake, tsunami and major floods.

The Saudi Gazette 2012,Aug 30 2012