Rising commodity prices, higher logistics costs and material supply shortages have all attributed to an increase in construction costs within Kuwait, states a report issued by Kuwait Financial Centre “Markaz” titled “Cost of Construction in Kuwait and its Components”. The report acutely analyses the varied causes of rising construction costs in Kuwait and the greater GCC region, citing spikes in commodity prices and higher inflation across global economies as two of the shift’s primary factors.
According to Markaz’s report, significant price increases in primary raw materials such as structural steel beams, reinforcing steel, softwood timber for framing, copper pipe and copper cable, in addition to labour shortages within the GCC’s construction sector, were identified as causes for the steep rise in construction costs in recent years.
Examining the effects of higher inflation across economies worldwide, Markaz’s recent report dives into the rising prices of imported goods and their effect on development costs in the Gulf region. Geopolitical conflicts and disruptions in the global supply chain have resulted in increase in cost of construction in GCC.
40% of respondents to a construction survey by Turner & Townsend in 2022 highlighting that rises in construction costs are significantly impacting delivery of completed development projects, with 60% stating that skilled labour shortage is having a direct impact on construction project delivery.
In line with global shifts, Kuwait’s construction industry is currently witnessing an increase in the cost of construction on the back of rise in labour costs, higher prices of materials and transportation prices, states the report. As of February 2022, the cost of building one square meter for medium-end private housing was estimated at KD 230, in comparison to pre-pandemic rates of KD 170 per square meter, marking an increase of approximately 35% factoring in both material and labour costs.
Aligned to these figures, the cost of building a private housing unit with built up area of 1,240 sq.m has increased from KD 210,000 (KD 170/sq.m.) pre-pandemic to KD 285,200 (KD 230/ sq.m.). This renders out to USD 741 per square meter which, despite inflated costs, remains lower than cost of construction of villas and high rise in Saudi Arabia, and UAE which averages at USD 1,396/sq.m and USD 1,835/sq.m. respectively.
Kuwait’s relatively lower construction costs, compared to high market conditions, could be attributed to the government’s willingness to offer subsided prices on construction materials, in addition to implementing price monitoring policies and banning the import and re-export of key building materials such as lumber and iron.
Further observing shifts within Kuwait’s construction sector, the report details how wider initiatives to employ Kuwaitis and higher repatriation rates following COVID-19 and more rigid resident policies have shifted construction costs within the country. Kuwait’s expatriate population was reported at 3.34 million residents in 2019, a figure that has since decreased to 3.15 million measured in H1 2021. With the decline in labor availability, labour costs have concurrently increased across Kuwait. The average monthly wages for expatriates in the private sector have risen by nearly six percent year-to-year as of March 2022.
With Kuwait reliant on the import of materials, such as iron, steel and copper wires, global price increases have affected construction costs, states Markaz’s recent report. Rising commodity prices globally have come as a result of supply chain issues due to COVID-19 lockdowns in countries like China and geopolitical issues in Russia and Ukraine.
In Kuwait, the series of price hikes in construction goods have ranged from 8.7% to upwards of 100% from January to early June 2022. As of May 2022, the cost of iron was reported at KD 280 per ton, in comparison to KD 248 per ton in June 2021, while it went down again to 195 KD/ton in Sep. 2022. The price of cement increased moderately from KD 1.1 prior to the pandemic to KD 1.25 per bag as of February 2022, aided by price subsidies issued by Kuwait’s government. From early 2020 until May 2021, steel prices increased by nearly 50% to reach KD 254 per tonne. Markaz’s recent report also detail the price of domestically manufactured steel bars, which increased by 37.2% in a year-by-year comparison measured in March 2022. While global oil prices have spiked, gasoline prices within Kuwait have remained relatively unchanged since the start of the pandemic, apart from Gas Oil and Gasoline 98 (Ultra).
Rising construction costs in Kuwait and the GCC are indicative of changes in the global supply chain, source material costs and global socioeconomic policies. While commodity prices are estimated to remain higher than their five-year averages, metal prices are projected to remain at historically elevated levels. According to World Bank estimates cited within Markaz’s report, the price of commodities, metals and energy are expected to ease in 2023 but is expected to continue to remain elevated.
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