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UAE’s construction activity rises despite cost hikes

High demand for residential units is pushing up building costs in the UAE Unsplash/ Josue Isai Ramos Figueroa
High demand for residential units is pushing up building costs in the UAE
  • Construction up almost 50% in second quarter of 2023
  • Residential sector records strongest growth
  • 68% of builders say costs are rising

Construction activity in the UAE rose by almost 50 percent in the second quarter of 2023, despite higher raw material costs. 

The increase in workload was driven by the country’s residential sector (up 55 percent). Commercial and infrastructure were also buoyant, with activity up 35 percent and 44 percent respectively, according to the Royal Institution of Chartered Surveyors’ Global Construction Monitor Q2 2023.

The RICS report said the UAE’s construction sector was “running hot” compared with “modest expansion” globally.

Real estate adviser JLL’s Q2 Market Overview report revealed that 7,300 units were delivered in Dubai during the second quarter of this year, bringing the total number of residential units on the market to 700,000. Another 21,000 units are expected to be delivered in the second half of 2023. 

Residential stock in Abu Dhabi reached 283,000 units after the addition of 1,000 apartments. JLL estimates there will be close to 3,000 units available by 2023, mostly in communities such as Raha Beach, Al Maryah Island and Al Reem Island.

High-profile projects

Dubai developer Danube this week launched a twin-tower project in the emirate’s Jumeirah Village Circle.

Damac, also based in Dubai, reported that it had awarded AED2.4 billion ($653.4 million) worth of contracts for its Damac Lagoons development in the first half of the year.

The high-profile construction projects announced across the UAE this year include the 18-storey, AED1.5 billion ($408 million) waterfront residential development in Ras Al Khaimah by Luxe Developers, as well as plans by Aldar Properties to start construction on the second building at The Source, in the Cultural District on Abu Dhabi’s Saadiyat Island.

Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum unveiled the masterplan of the 13.4 square kilometre Palm Jebel Ali mega-project by Nakheel in May.

Hassam Chaudhry, associate professor in the School of Energy, Geoscience, Infrastructure and Society at Heriot-Watt University Dubai, said: “The UAE’s status as a global business and tourism hub, hosting global events, its rapidly growing population and urbanisation trends have also fuelled the demand for residential, commercial and industrial properties, leading to further and continuous growth.”

However, high demand is pushing up the cost of building materials, with 59 percent of respondents to the RICS report saying it was holding back activity. Some 68 percent said costs were continuing to go up.

Rizwan Sajan, founder and chairman of Danube Group, said the rising costs were a result of higher interest rates and inflation, while supply chain disruption was also contributing to the price surge.

Sajan did not believe the extra costs would be passed on to end users.

“Due to the current buoyant market condition in real estate, I believe the developers will be able to absorb the pressure of the construction materials price fluctuation so that the property buyers could be protected from the price fluctuation,” he told AGBI.

The RICS report revealed that 53 percent of respondents expected 12-month profit margins in the UAE to remain in positive territory.