Dubai: Here’s the tip for property buyers – costs of even the more affordable homes in Dubai could witness a 10-12% high before year-end. Developers will have no other chance but to increase their asking prices on ongoing projects if the price of steel and other building materials continues to rise.
New luxury villa costs have already witnessed fairly sharp rises since the starting of this year, through a combination of higher demand and from the cost of construction. If more affordable homes also start turning costlier all of a sudden, it could dent demand at a time when the market is witnessing a bounce back.
“Prices of steel and cement have increased 35 percent and 20 percent, respectively, in the last eight or 10 months,” said Kalpesh Kinariwala, Chairman of Pantheon Development. “The rest of the building materials have more or less increased by the same levels. This resulted in a 6-8 percent construction cost escalation.”
Till now, off-plan property buyers have not felt the rise as developers refrained from passing on the costs. But if the recent rate of rising in building material costs continues, they may not have that change for long. So far, “we optimized our operations to negate the effect – hence our existing project costs have not seen a major impact,” Kinariwala added. “We managed to hedge at least 70 percent of the construction cost.”
Change in prices
Over the previous three years, property costs in Dubai fell by an average of 15-20%, set off by lower demand, persistent worries about oversupply in some categories, and a slowing economy. Developers had adjusted their costs in response – which is why when building material costs shot up all of a sudden from October end, they got hit with a double-whammy. “While we were in the midst of awarding a contract, the spike was noticed in prices of steel, copper, cement/concrete and even supplies like white goods, elevators, etc.,” said Vijay Doshi, Chairman of Vincitore Realty. “In fact, on all shipments coming into the UAE.”
“The pandemic situation also has contributed to the price increase as there have been lots of scarcity of resources. We are left with no choice but to factor the higher cost for project completion.”
Suppliers won’t budge
It doesn’t end there. “Fuel prices are increasing; all raw material prices, especially metal, are also higher, which creates a domino effect,” said Doshi. “There is an acute shortage of containers to get shipments from overseas. Add to that the increase in freight costs, which is directly impacting the cost of materials used in projects.”
Which is the reason Doshi says it’s unavoidable that the cost of the end product – the new homes being assembled or delivered – will definitely see some effect. “We have already seen a spike in Dubai’s residential project prices,” he added. “Customers do acknowledge and understand market conditions.
“The market has become so volatile that building material suppliers have become conservative. They will let the order go but they won’t reduce their prices.
“There is no room for compromise in quality. So, to counter the market-driven increase in costs, the change we are bringing in is cost optimization through alternative materials to keep costs down.”
Take on direct control
Indeed, developers are beginning to take direct responsibility for their projects. Before the end of last year, Azizi Developments created a stir by expressing that it will do all the ordering of supplies rather than allow the primary contractors to do it on their behalf. This was done to bring down project costs and time overruns. It helped Azizi accelerate decision-making, and in a bigger number of ways than one, helped stabilize their construction-related costs.
Impact on new launches
The higher cost of building materials will be another factor that developers have to factor in when they decide on new off-plan launches. While demand for premium homes can withstand sharp expansions in qualities, it will not be something very similar in the mid-and more affordable categories.