Dollar drop fuels construction inflation

Dollar weakness "continues to have a major impact on the commercial success of construction projects in the UAE," said the report.

With the exception of Kuwait, which dropped its dollar peg in May and replaced it with a basket of currencies, the other five members of the Gulf Cooperation Council have kept their currencies linked to the US currency, which has declined about 6.2 per cent against the euro since the start of the year.

As the dollar weakens, imports cost more. The UAE has tried to lower inflation, which reached a record 9.3 per cent last year, by imposing price controls on goods and services. Construction-material prices are about 19 per cent higher than a year ago in the UAE, the report said. Steel beams increased by 45 per cent and the cost of cement rose about 33 per cent.

"The reliance of the UAE construction market on imported supplies from non-dollar-pegged currencies has resulted in an average currency uplift of approximately five per cent for the year to date," the report said.

The cost of delivering electricity sub-stations may have risen by about 25 per cent during 2007 as local power utilities passed responsibility for delivering new stations to real estate developers.