Building costs in the Arabian Gulf are surging, with prices rising the most in Saudi Arabia.
A public sector-driven building boom in the kingdom and huge infrastructure spending in neighbouring Qatar is driving construction costs higher despite a subdued property market in much of the region.
According to a report from the consultant EC Harris, to be published this week, construction costs in the UAE rose 8 per cent over the past year and 13 per cent in Saudi Arabia. In Qatar, where preparations are under way to host the Fifa World Cup in 2022, costs rose 9 per cent.
The sharp increase in costs comes as a blow to developers seeking to restart mothballed projects in the wake of the 2008 property market downturn.
But it has helped to boost sales among builders' merchants, such as the UAE's Danube Group, where sales grew by about 20 per cent in the first half of the year compared with a year earlier.
"As demand starts to increase across the region, Gulf countries are seeing construction costs increase," said Nick Smith, a partner at EC Harris.
"Labour costs are increasing because regulations are coming into force ensuring better living standards for labourers.
"And, also, we are seeing that after the property crash many construction workers returned to their home countries so developers are finding it more difficult to bring them back again.
"Those remaining are seeing some wage inflation," he said.
Qatar recorded the biggest leap among Gulf states within the building-costs rankings, rising from the 16th most expensive last year to 13th this year, ahead of both Belgium and the United Kingdom.
The UAE also rose, one place up the rankings table to 17th, overtaking Italy.
Saudi Arabia, which last year stood at 36 in the EC Harris list of the 53 most expensive countries by construction costs, rose nine places.
The company found construction costs for the highest-grade offices in the UAE this year stood at between US$1,750 (Dh6,428) and $3,700 per square metre. For shopping malls they were between $1,250 and $2,000 per sq metre and for apartment buildings they were between $1,450 and $2,850.
Switzerland topped the EC Harris rankings with average building prices about two thirds more expensive than the UK, which came 15th.
India was the country with the lowest overall construction costs - at less than a third of those in the UK.
"The UAE construction sector appears set to return to near full capacity following government announcements linked to a number of major projects, with a particular focus on social infrastructure," said Mr Smith.
"High construction demand from neighbouring countries in the region, such as Saudi Arabia and Qatar, will place further pressure on capacity, which may result in unbalanced price escalation for the UAE."
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