The UAE’s real estate sector is booming, but a hidden threat looms and developers must brace themselves for a significant challenge: building material prices in the UAE are set to skyrocket, with concrete and other key materials becoming increasingly expensive.

Developers, driven by the urgency to complete projects on time, are left with no choice but to secure materials at higher costs, adding pressure to project budgets.

The strong demand for real estate and infrastructure development is reshaping the supply chain dynamics, with suppliers and contractors gaining the upper hand in negotiations.

Dubai’s real estate market continues to experience unprecedented growth, with off-plan transactions now accounting for 63 per cent of all property sales in 2024, up from 54 per cent in 2023, according to a recent report. The total residential sales surged by 40.3 per cent year-on-year to 170,992 units – more than five times the number of transactions recorded in 2020. This sharp increase highlights strong investor confidence and a rising demand for new developments.

Role of Concrete producers, contractors

As developers rush to complete projects on time, the demand for skilled and reliable contractors has skyrocketed. Contractors, in turn, depend heavily on building materials to deliver projects efficiently. Among these, concrete remains the most crucial component, and its supply dynamics have shifted dramatically.

Concrete manufacturers in the UAE now command a premium price for their products. Unlike in the past when developers could secure concrete on a credit period of 120-150 days, manufacturers today demand full payment up to three months in advance. This shift signifies a strong seller’s market, where suppliers dictate terms, leaving contractors and developers with little room for negotiation. The rising costs and cash flow constraints have further escalated construction expenses, ultimately impacting project budgets and property prices.

Cost of Skilled Labour

Another major challenge is the shortage of skilled labour. The construction boom has heightened competition for experienced workers, driving up wages and benefits. To attract and retain talent, contractors must offer competitive compensation packages, which ultimately contribute to rising costs. These increased expenses are then passed on to developers, further inflating project budgets. The labour shortage is a crucial factor in the supply chain, as workforce delays can severely impact project timelines.

Contractors who are awarded these large-scale projects are also capitalising on this trend. They are now in a position to command higher fees, knowing well that developers are racing against time to complete their projects.

Shortage of Supply; Rising Costs

As the demand for construction materials continues to surge across the UAE, developers will find themselves in a position where they must secure materials like concrete and other building essentials at a premium price to ensure projects are completed on schedule.

Additionally, Dubai’s commercial real estate market is witnessing rapid expansion, with over 24,000 new business registrations recorded in the first half of 2024. Occupancy rates in key business districts such as DIFC, Downtown Dubai, and Business Bay have reached 95 to 97 per cent, driving up demand for high-quality office spaces. Consequently, office rents have increased by 11 per cent year-on-year, retail rents by 9.7 per cent, and warehouse prices by 21.1 per cent. This trend further fuels the demand for construction materials, intensifying cost pressures across the industry.

A Recurring Trend

The current market scenario bears a striking resemblance to the early 2000s when Dubai last experienced a real estate boom. During that period, steel was in high demand, causing prices to soar. While steel availability is currently stable, the rapid growth in construction across the UAE suggests that its demand may soon escalate, leading to similar cost implications. If current trends persist, steel shortages could become the next major hurdle for developers.

Conclusion

The UAE’s real estate market remains robust, with developers pushing forward ambitious projects. However, the rising cost of essential materials like concrete, the increasing fees charged by contractors, and the labour shortages present significant challenges. The entire industry is now navigating a seller’s market, where suppliers, contractors and skilled workers hold the upper hand.

As history has shown, these trends are cyclical, and while demand continues to rise, it is essential for developers to plan strategically to mitigate cost escalations and ensure timely project completion.

The coming months will reveal how the industry adapts to these evolving dynamics, but one thing is certain that the building industry in the UAE has never been more competitive or costly.