Qatari capital Doha has been ranked as the most expensive city for construction in the Gulf Cooperation Council region.
Doha was also ranked as the 12th priciest city globally on the 2016 International Construction Costs Index compiled by Arcadis.
The annual ranking compares the relative cost of building in 44 of the world’s major cities.
Among the GCC cities, Jeddah in Saudi Arabia occupied the 16th position while Dubai was ranked as the 18th most expensive city for construction.
Local labour markets and resource availability have positively benefitted cities in the GCC, the report stated. However strong currency performance and the fall in oil prices have impacted construction costs, it added.
Buildings global business leader at Arcadis in the Middle East Ian Williamson said: “Throughout 2015, the global construction market saw the overall level of cost inflation restricted due to the drops in commodity prices. Particularly when it comes to oil, growing uncertainty over prices will inevitably have a short to medium term impact on the GCC construction industry.
“The region’s major commercial centers of Doha and Dubai remain – for the time being, at least – relatively stable locations for developers, benefitting from access to inexpensive labour and energy.”
In Qatar, construction was one of the largest contributors to non-hydrocarbon gross domestic product growth in 2014, increasing by 11.4 per cent.
The country is investing heavily in building infrastructure ahead of the 2022 FIFA World Cup in Doha.
Over the next 10 years, around $150bn is expected to be spent on roads, railways, stadiums and ports, as well as hospitality and social infrastructure.
“However, this growth is subject to supply and logistics and there is a danger of substantial building material inflation unless the supply chain is carefully managed,” the report stated.
“Pressure from other parts of the region is, nevertheless, reducing as spend is moderated as a result of falling energy prices. This means that further construction resources can be expected to meet local demand in Qatar.”
Meanwhile in Dubai, the real estate market has slowed significantly in the last year, which in turn has impacted the construction sector.
“While oil is not a major part of the economy – Dubai’s main revenue comes from tourism, aviation, real estate and financial services – uncertainty associated with low oil prices and falling commodity markets can still have a big impact on the construction market,” the report said.
“This, combined with falling real estate values, is leading to some uncertainty. With the value of project awards at half that of 2014, previous fears of substantial construction inflation have not materialised, which has led to a relatively stable position in our ranking.”
Looking ahead there is strong potential for growth in Dubai as the emirate develops several large-scale mega projects in preparation to host the World Expo 2020.
“As we enter 2016, it is fair to say that we have another challenging year in prospect for the construction industry,” opined Williamson.
“With the steep fall in the price of oil, the timing of investment programmes across the Middle East has become uncertain. Declining commodity prices, low labour rates and a highly competitive Middle East construction market have given rise to more potential opportunities across newly-affordable markets. It is a good time for government, funders and developers to capitalise on their investment ambitions.”
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By Aarti Nagraj