The rush to build new roads, railways, homes, schools and stadiums ahead of the 2022 World Cup has kept construction costs in Qatar at the highest levels in the Gulf, a new report has found.
While construction expenses have been a concern in Qatar for several years, the country has largely been able to absorb the rising costs as high oil prices boosted government revenues.
However, rising costs have reportedly prompted the government to postpone several development projects although many key infrastructure and showcase real estate projects connected to the World Cup – including the Doha Metro, Msheireb redevelopment and football stadiums – are not believed to be affected.
Still, the recent collapse of crude prices will likely put even more pressure on the country to rein in costs and possibly re-evaluate some projects as income from Qatar’s natural resources shrinks.
“Qatar is best placed to be able to continue to fund budget commitments, but with oil trading dropping below $50/barrel this month, it is possible that current and capital spending priorities may come under review,” said Terry Tommason, partner and head of property at EC Harris, in a statement.
His UK-based firm compiles an annual index of construction costs around the world, comparing the relative prices of labor and materials required for various building types.
Overall, costs in the region remain “modest” compared to the rest of the world, EC Harris said. Construction expenses in Qatar are lower than in 16 other locations, including Switzerland, Denmark and Hong Kong.
But the Gulf country is still a more expensive place for the industry than neighboring Saudi Arabia and the UAE.
“Qatar is less impacted by fluctuations in global currencies as market constraints are driving inflation and price movements,” Tommason said. “Investment on social infrastructure, economic diversification investment and event-driven construction are three key trends positively influencing construction spend in the region.”
While the report doesn’t explicitly mention the factors driving costs in Qatar, other analysts have previously pointed to competition for materials and skilled workers both within the country and other locations such as Dubai, which is ramping up for the 2020 World Expo.
EC Harris has also named Qatar as the most expensive construction market in previous years. But the latest report will likely especially be unwelcome news for the government, which has recently made heading off construction inflation a priority.
In 2013, during his first publicized speech after becoming Emir, Sheikh Tamim bin Hamad Al Thani said that the government would try to contain inflation “by all available means and tools,” such as improved scheduling of major projects.
That’s also been the message coming from the International Monetary Fund, which last year urged Qatar to set up an integrated public investment management process to coordinate the planned infrastructure and development projects underway ahead of the 2022 World Cup.
This would prevent construction bottlenecks and rising costs, and ensure that projects are delivered on time, the IMF said.
Earlier this month, the government appeared to take a step in this direction by establishing a ministerial committee overseeing projects of “strategic importance,” according to Qatar’s state news agency.
Its tasks include prioritizing major projects, reviewing costs as well as proposing alternative contracting and financing methods.