Qatar Construction Costs Highest in Middle East

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Qatar was ranked the most expensive country in which to build in the Middle East, according the 2013 International Construction Costs Report released today by global built asset consultancy EC Harris.

Qatar Construction Costs
Qatar Construction Costs Highest in the Middle East

The annual study, which benchmarks building costs in 47 countries, found that relative construction costs across the globe have been affected by substantial fluctuations in currency throughout the year. With Gulf currencies closely tracking the U.S. dollar, the impact of these fluctuations on Gulf countries has been limited. Qatar and the UAE remain in the top 20 most expensive locations to build, and with inflation running at around 5 percent per annum, the Kingdom of Saudi Arabia has continued to move up the cost curve.

According to the report, Saudi Arabia, UAE and Qatar are showing signs of recovery and construction activities are more active in KSA, the UAE and Qatar.

Amidst a general shift to spending on social infrastructure in the wake of the Arab Spring, there are increasing signs of a more general recovery of construction markets in the GCC region, particularly in Saudi Arabia, UAE and Qatar.

Preparations for the World Cup in Qatar in 2022 are the most obvious manifestation of accelerated growth, but there are positive signs emerging from Saudi Arabia which is in the process of building six new economic cities, and in the UAE which has a much larger construction market and a promising pipeline of projects. However, if the UAE does stage a recovery, it will be competing with both Saudi Arabia and Qatar.

Globally, construction costs in Hong Kong are the most expensive in the world while Australia and Japan have seen significant relative cost reductions, according to the report.

The most expensive countries to build in, are:

1. Hong Kong
2. Switzerland
3. Denmark
4. Sweden
5. Macau
6. Australia
7. Japan
8. France
9. Singapore
10. Belgium
15. Qatar
20. UAE
21. Saudi Arabia

Nick Smith, Head of Cost and Commercial, Middle East at EC Harris, said:

“Qatar’s construction market is relatively small and historically has been associated with a steady rate of development, but all of this is about to change with a set of major programmes linked to the 2030 National Plan and the 2022 Qatar World Cup. This investment programme includes major elements of social infrastructure, transport and energy infrastructure to support population growth and economic diversification.”

“In previous reports, we have warned of the risk of high rates of inflation resulting from a peak of workload in Qatar from 2016 onwards. These programmes have got off to a slow start, so as yet there is little price escalation in the system. This could change as programme procurement accelerates unless steps are taken to further build industry capacity in local and regional markets.”

Saudi Arabia is currently in the midst of the delivery of large social infrastructure and economic diversification programmes, including the construction of six new economic cities. The youthful demographic, the size of the country and the prospect of continuing population growth means transport, housing, education and health are a priority, which will drive continuing growth in construction markets.

The UAE has been under a cloud since the crash in 2008, but with GDP growth of over 4 percent recorded in 2012, the corner may have been turned. Highlights in the current construction market include major transport infrastructure schemes including the Abu Dhabi light rail, the recommencement of a number of stalled residential schemes and the commencement of work on major cultural projects previously cancelled in 2008.

Nick Smith continues:

“In 2013 we are seeing a more broadly based recovery in the Gulf markets, with a general shift to increased spending on social infrastructure in the wake of the Arab Spring and positive signs emerging that the construction markets in the UAE are set for recovery. Preparations for the World Cup in Qatar in 2022 are the most obvious manifestation of accelerated growth, but sustained growth is also expected in Saudi Arabia, which is in the midst of a large social investment programme including the building of six new economic cities. The emerging recovery in the UAE is particularly significant. The UAE is one of the Gulf’s larger construction markets and the pipeline of projects is increasingly strong. However if the UAE does stage a recovery, it will be competing with both Saudi Arabia and Qatar for resources.”

Hong Kong the most expensive construction market in the world

Inflation has been a significant issue in Hong Kong during 2012 and 2013 which according to the study is now the most expensive construction market in the world. Hong Kong recovered quickly from the 2008 downturn, bolstered by high levels of tourism, consumer spend from the Chinese mainland and a booming residential market. The Hong Kong construction market has remained buoyant through the delivery of infrastructure and new commercial and residential space in previously industrial areas. Output grew by 15 percent in real terms in 2012, triggering construction inflation of between 7 and 9 percent, meaning that average construction costs now exceed the traditional high cost locations of Switzerland and Scandinavia.

Japan and Australia building costs during the year dropped significantly due to currency fluctuations, whilst continuing high costs in mainland Europe represent a threat to competitiveness.

Currency fluctuations substantial in 2012 – 2013

The fall of the Yen against world currencies and the weakening of the Australian Dollar have caused substantial fluctuations in cost rankings this year.

Looking forward, the most significant movement has been the 5 percent appreciation of the Chinese Yuan against the Euro and Dollar. Not only has this contributed to China moving up the construction costs rankings, but it will also make Chinese imported materials to other countries more expensive. In the medium term, this could have an impact on construction costs in GCC markets.

Photo: Gerard McGovern/Flickr

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