Building Inflation


Economic News

22 Jul 2010
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Runaway materials costs and shortages are putting pressure on Qatar's construction sector, threatening budget projections and raising the possibility of late delivery on some projects. Although there may be no quick fix solution to the challenges facing the industry, the government's efforts to intervene have sent a positive message to investors.

While Qatar's inflation rate is currently running at 13.7%, costs in the construction industry exceed this. Since the beginning of the year, there has been a 30% increase in the international costs of some steel products, with the price of rebar in the Gulf region shooting up around 35% since January.

One of the factors behind these rises is the falling strength of the US dollar against the euro. With the Qatari riyal pegged to the greenback, this has resulted in an increase in the price for imported building materials. Combined with a shortage of materials due to the region-wide construction boom, Qatar's building industry has been suffering.

Brian Meilleur, the chief operations officer for the $2.5bn Al Wa'ab City development, designed to house around 8000 people in nearly 2000 units, said inflation was the main challenge facing the project. Meilleur told the local press on April 10 that it would be unfair to discuss the final prices of residential units as it was difficult to estimate the cost of construction in advance.

In another example, local press reported in mid-April that the construction costs of the $3bn Al Mahaba Causeway connecting Qatar with Bahrain could blow out by as much as 40%, due to inflation and shortages of building materials.

In a move to keep the construction industry robust and working at full capacity, as well as reduce the inflationary impact of materials costs, the government is taking steps to support the sector.

On April 21, state-controlled Qatar Steel announced it would be capping its prices for the remainder of the second quarter. The cost of standard reinforcing bars will be set at between $893 and $907 per tonne, depending on gauge, around $270 per tonne lower than those in other countries in the Gulf Cooperation Council (GCC). Sheikh Nasser bin Hamad Al Thani, Qatar Steel's director and general manager, said the move was part of a strategy to sustain development and high growth in Qatar.

"Aligned with the government efforts to curb the current high inflation, Qatar Steel has decided to maintain the steel price in Qatar despite soaring raw materials and steel prices in the GCC countries as well as in the global markets," Sheikh Nasser said.

Though acknowledging that the price freeze would have a negative impact on the company's net revenues for the year, Sheikh Nasser said it would help curb inflation in Qatar.

Another agency working to rein in construction costs is the Public Works Authority (Ashghal). In early April it signed a series of agreements with leading suppliers, stipulating that prices for materials set at the time a contract comes into force would be adhered to throughout the term of the construction.

On April 15, Mohammed Saleh Al Sada, Qatar's minister of state for energy and industry, said no construction project would be delayed due to the rising costs of materials.

"Qatar has found enough ways to go ahead with ongoing and future works with available options, without compromising on quality of construction," he said.

However, with no suggestion that either the private sector or the state will scale back on their aggressive programme of developments, or that commodities prices are set to fall any time soon, measures taken so far to curb costs can only be stop gap at best.

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