Building Concerns

Indonesia

Economic News

22 Jul 2010
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While there has been no slowdown in the flow of new projects announced in the emirate, Dubai's construction sector, like those across the Gulf, is experiencing some difficulties as it struggles to cope with labour and materials shortages, in addition to steeply rising prices.



On March 17, Emaar Properties, the developer in charge of the Burj Dubai tower, announced that the project marketed as the world's tallest building would not be completed as scheduled by the end of the year. Local media reported the tower could be four months behind schedule, and may now be finished in spring of 2009. The company declined to give a reason for the delay.



Emaar's showcase development has become just the latest to run into problems. Local cement prices have risen by 25% in recent weeks, while reinforcing bar costs have risen from $830 a tonne to $860 since January, and by as much as 50% in the past year.



In a move to reduce the inflationary pressures caused by increasing materials costs, Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai, issued a decree on March 12 suspending all Customs duties on steel and cement until further notice.



Though the decision, which was extended to include all of the United Arab Emirates (UAE) four days later, will cut the cost of the two key materials by only 5%, it may ease some of the strain being felt by developers.



Ahmad Saif Belhasa, the chairman of the UAE Contractors' Association, said the decree was a step in the right direction.



"This will help Dubai's construction sector, especially in stabilising the price of building materials. This is a good move," he told local press on March 12.



However, some experts point to the fact that most of the cement used in the region is locally produced, limiting the cost-cutting impact of the move.



Apart from the materials shortage, one of the biggest problems facing the construction sector is the increasing cost of recruiting and retaining the vast workforce needed for the labour-intensive building process.



Traditionally, this workforce has come from Asia, and in particular the Indian subcontinent. However, a number of factors have conspired to weaken the backbone of the construction industry in Dubai.



One of these was last year's push for foreign workers to either obtain legal status in the emirate or leave following a three-month amnesty period. Many construction workers chose the latter option, returning home. New regulations have made it harder and more costly for companies to recruit replacements, as has Indian government pressure to raise minimum wages for expatriate workers.



Construction firms are finding their budgets pressured by the need to provide better accommodation for workers, as mandated by the government and now required by foreign staff themselves, who are in a better position to seek improved conditions due to the labour shortage.



To cap all these difficulties is the growing unwillingness of workers from the subcontinent, particularly India, to come to Dubai and other Gulf states. With the local currency pegged to the dollar, which is at near historic lows, both the buying power of workers' wages and the soaring inflation in the emirate are making Dubai a less attractive workplace than it once was.



In addition, the Indian economy is gaining strength as the country sees its own construction boom, bringing with it a demand for experienced labour and offering good wages and the advantage of staying close to home.



Staff shortages are extending beyond the need for construction workers. In mid-March, the Dubai Municipality announced it was urgently seeking to recruit more engineers, most of whom would serve as building inspectors to ensure standards were being met.



"At the moment, there is a limited number of engineers within the department," Hamad Saeed Almarri, the municipality's head of building services, said in an interview with local press on March 15. "But we will hire more than 150 this year, so I think the quality will be better."



Though the state has taken some steps to ease pressure on the construction industry, the industry may be facing something of a gridlock. As long as the gap between supply and demand for labour, materials and finished products is unbridged, the heat will remain on Dubai's building sector.

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