Construction inflation still a major worry for Qatar

by  — 10 June 2015

Although Qatar’s construction inflation has been flat so far for the building and real estate sector, industry players fear this will rise five to seven percent by the end of next year. by Syed Ameen Kader

The Qatari government is expected to scale up project launches, which will create extra pressure on raw materials and resources, and eventually lead to a rise in construction cost inflation.

The fear of impending construction inflation continues to be one of the major talking points in the industry. Although the news of inflation is not new, what the industry is eager to know is when is it going to happen and what the magnitude will be. Currently, the construction inflation rate of building and real estate sector is more or less stable at two to three percent, which is pretty much in alignment with the Consumer Price Index (CPI), but industry observers are worried this rate will double by next year as more projects are launched.

Steven Humphrey, director, AECOM, said, “This year, we are seeing construction inflation is relatively flat for building work. There hasn’t been huge volume of demand because government’s projects were slowed or put on hold. But, from the fourth quarter of next year and the first quarter of the following year, it will start increasing at an annual rate of around five to seven percent. Then, after that, we will start to see it going even higher as more and more construction projects get launched.”

As Qatar is expected to scale up its project launches in the coming months in order to meet the timeline for the 2022 World Cup and Qatar National Vision 2030, the construction sector is expected to see a sudden surge in demand for raw materials and resources. For instance, at the moment, the construction work of stadiums has just started, and in 12 months’ time, industry observers suggest, they are expected to be in full swing. Then the sector will start feeling more pressure as all other projects such as The Pearl-Qatar and Lusail will also start moving faster.

Humphrey said the government has taken steps by stockpiling some of the critical building materials to control inflation, but they have been largely helped by the slowdown in real estate construction, which is the biggest entity showing development. 

“If the private sector is moving at full speed and the government sector is also moving at full speed, inflation is inevitable. So the test will be of how the government controls the demand, and paces its project releases,” he told The Edge.

Martin Cooper, director, real estate services, Deloitte Middle East Region, furthered, “Given the scale of development happening in Qatar and the associated escalation in construction costs, residential affordability is increasingly an issue across most segments of the population.”

He added it is critical now to manage the ambitious growth Qatar has set for itself to ensure that it is executed in a way that is synchronised with demand. “We should make sure that we don’t get into a situation of oversupply in certain real estate market segments, by phasing development in a sustainable manner,” he said.  

Although the real estate sector has been slow so far, the government’s major infrastructure projects are already underway. For example, the tunnelling works for Doha metro was scheduled to have been executed up to 20 kilometres by May. Work at the new Hamad port is also underway alongside various road projects across the country. Growing construction activities are also creating inflation pressure for the infrastructure sector.

Peter Binneboessel, business development manager, Al Jazeera Consulting Engineering, told The Edge the fact that  major infrastructure projects have been started “means the market is now coming to the point where it starts boiling”. He added that it is becoming more difficult to get raw materials and primary materials into the country. “Qatar is working on it but it takes some time. In fact, we are noticing that prices of building material, for example ready-mix concrete, are increasing every three months,” said Binneboessel.

Most industry players suggested that it is going be very critical to focus on what needs to be delivered now to meet specific demands and timelines for the event and what could be delivered later on.

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