Dubai: Active projects in the UAE are getting rise as the prices of bringing the steel and other important building materials see a further big rise. If this hike continues, it could result to project delays as developers wait for material costs to normal prices.
Or on the other hand, they may very well need to pass it down, which will add to the expense of purchasing a property.
“In the last two weeks or so, I have seen developers hold off projects,” said Anis Sajan, Managing Director at Danube Group, which is into property development as well as building material supplies. “They are not buying materials because they cannot absorb a further cost hit.
“Steel sales are just not happening – contractors are not willing to pay more than Dh2,500-Dh2,600 a tonne. Delays will be the natural outcome.”
Squeeze on new homes?
If pending increases to two or three months, it could heavily bring down the number of new properties being handover. At the initiative of the year, predictions were providing around 40,000 new homes will be handover in Dubai the same year, over 30,000 plus units in 2020.
“If a project costs Dh200 million and steel prices are going up by 30 percent, it affects developer costs by 2 percent,” said Sajan. “That’s already quite high for any developer. Anything above this, developers won’t be able to take the hit any further – they will pass it down.”
Supply issues
While increasing import costs have been a reality since November last, the steep turn since the starting of this year get developers and the trade quite by surprise. And at present, it’s not only due to the delays happening at ports in China.
Container prices from China are now getting a $4,000 per TEU and even shot up to $5,000 at one port. That’s over $1,2000-$2,000 per TEU range in the previous year. The first shipments of building supplies have already reached UAE ports at these prices.
The same is going with container prices on routes from India – a 40-foot container that costs $300-$350 is now solidly roosted at $1,600. Adding, even at these costs, there aren’t enough containers available. at $1,600. Plus, even at these rates, there aren’t enough containers available. “Often, as the importer, we had to arrange for the container rather than have the supplier do it,” said Sajan. “India is worst affected as far as container availability is concerned.
“The way China and India container rates have shot up in such a short span is unprecedented. To my knowledge, it’s the first time container rates have reached these levels. They have just gone berserk.”
Happening all over
When it is about the container shipments from Europe, prices are now at $1,500-$2,000 over $1,000 a TEU the previous year. And there is another trouble also-suppliers are rerouting shipments to the US as they are getting market costs there. As per Sajan, the most affected commodity because of this section is white wood, which has encountered costs head up to $260 per cubic meter from $190.
“Until December, importers could sustain some loss from higher freight charges rather than pass it on to the buyer,” the Danube official added. “But it has reached a stage where they have no choice but to hike their end-user prices, either to the developer or to the trader.
“Container charges have gone up by about 20 percent and import charges by 15 percent.”
Feeling the squeeze
For developers who aim on saving each dirham if they can, the rise in building material costs is proving a burden. Industry sources say it’s only a fact of time before off-plan property costs show this. This comes with inbuild risks.
“It will be difficult to convince property buyers that an increase is justified because of higher project costs,” said one developer source.
“They will just seek out already built homes, which obviously aren’t affected by building material price rise.”
As such, the trend in the Dubai real estate market is in support of ready homes.