Bahrain building costs spinning out of control

Double whammy of labour and land cost threatens the viability of projects

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By  Colin Foreman Published  May 14, 2005

Construction costs in Bahrain are set to soar as rising labour and land costs hit contractors and jeopardise projects. A chronic shortage of development land, coupled with the introduction of new labour laws, will see the sector hit by double digit cost inflation. And it could mean that developers are forced to shelve planned projects, which will no longer be financially viable. The government’s soon-to-be introduced McKinsey Report is likely to have the biggest single impact — increasing the cost of construction labour by as much as 30%. Steve Coates, partner at construction cost consultant Davis Langdon Seah, said: “If you are looking at a construction project where 60% of your cost is labour, then that is going to be affected to the tune of 15 to 30%.” Bahrain’s finance minister Sheikh Ahmed bin Mohammed Al Khalifa, confirmed that a BD600 entry and renewal fee will be introduced for each expatriate worker. There will also be a monthly tax of BD75 for each non-Bahraini employee. Coates warned: “There are a lot of construction projects in Bahrain at the moment that are being completed on the hope that there will be more Saudis coming over that causeway and spending their money here. “And the business cases for those projects are fairly tight, so the McKinsey report will have a significant impact on the construction work.” He added: “I see it affecting all sorts of projects. If the business case is strong enough to withstand a capital output that is significantly higher because of the labour increases, then the project will still go ahead. “But there is no doubt that there are some projects on the break-even point where the McKinsey report will push them over and they won’t go ahead.” However, the predicted rise in construction labour costs is just part of the problem facing the local construction industry. Contractors are also having to grapple with the double whammy of rising land values. Only 11% of Bahrain’s land mass is currently zoned, which has put pressure on some commercial and residential sites. One leading property consultant said: “Expat compound prices have been driven through the roof. Prices have increased by between 30 and 40% in the last two years on the western side of the island. “Some land is now uneconomic to build on, as the developers can no longer build houses that people can afford, and young married couples cannot get into the housing market.”

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