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. . . The politics of sand and land prices in the Gulf by Mark Wallace FT.com site, February 18, 2004 In many of the Arab Gulf nations there is a new rush to real estate with some house prices appreciating by 100 per cent over the last year. Part of the rise is because of the usual run of investors and speculators buying in a market that is seeing renewed demand. But part of the upward pressure is also caused by political relationships between Gulf states – and in some cases even by political situations that have little relation to the Gulf. News of a sand shortage in the desert island nation of Bahrain is only one example. Construction costs in Oman have also been rising and, even in Dubai, prices at luxury residences continue upward. In Bahrain, construction costs have been pushed up partly by the shortage of sand, a key ingredient in concrete. In a part of the world where there is little else in the natural landscape a shortage of sand may sound odd. But the sand in Bahrain is unsuitable for concrete production, so Bahrain's construction sand has come from Saudi Arabia for the last two decades. It had been receiving up to 8,000 tonnes a day, until recently, over the 25km King Fahd Causeway that links the island to the Saudi peninsula. Sand deliveries suddenly halted in the second half of last year and even Bahrain's officials have been unable to say why. But political pressures are no doubt at work. Saudi Arabia is working hard to join the World Trade Organisation and to that end has been pushing its industries into line with WTO standards. Sand export from the kingdom has never been regulated and works as an informal market, say Bahrainis familiar with the industry. Riyadh may be reforming its sand export industry but there is also speculation that Saudi Arabia may be hoarding sand in order to take advantage of Iraq reconstruction contracts. A shortage of steel, another factor driving up Gulf construction costs, is also the result of political machinations. In this case the reasons are clear, even if they are hardly related to political developments in the Gulf. When George W. Bush, the US president, levied import tariffs on steel in March 2002 European suppliers turned to other markets, notably the Gulf, to sell their goods. As a result Gulf contractors and developers have enjoyed relatively low prices for much of the last two years. But Mr Bush lifted the tariffs early in December last year and as European suppliers have turned back to more lucrative markets in America prices for steel in the Gulf have come under intense upward pressure. Since the tariffs were lifted, rebar prices in the Gulf have risen to almost $600 a ton, almost double last year's. In places such as Oman, where civil construction projects are driving the market, the price rise has hit government and contractors hard. All of these pressures have served to push up property prices steeply. Neil D'Silva, managing director of Norwich Property Consultants in Manama, where the property market rose about 30 per cent last year, puts current construction costs in Bahrain at $25 to $50 a square foot. Local house prices have doubled in some towns over the last year, he says, averaging about $40 a square foot but topping $100 in prime locations. Demand has been such that luxury developments in Bahrain have been able to take advantage of the rise. One-bedroom flats in the man-made Amwaj Islands, a new development, are selling for $70,000 and up, and the two-storey townhouses of the nearby Mirage Beachfront development have been going for $120,000 or more. Looser residency and ownership restrictions in Bahrain have also helped fuel demand. Bahrain's courtship of the region's expatriates has helped raise demand for property but it has also become a sore point with Riyadh. There has been speculation that the cut in sand supplies could have been related. In the neighbouring United Arab Emirates property prices are under similar upward pressure. In Dubai, which has been undergoing something of a property construction and sales boom for several years, prices of luxury apartments have risen 20 to 40 per cent in recent months. Places such as the Jumeirah Beach Residence, near the Emirates Gulf Club, and Dubai Internet and Media cities, have raised prices. Studio apartments there now start at about $86,000, and average prices range from $130,000 for a one-bedroom apartment on a low floor to $330,000 for a four-bedroom apartment on a high floor with sea views. Villas of 5,000 to 7,000 sq ft in the new Jumeirah Islands project – being developed by Al Nakheel, the company responsible for Dubai's ambitious Palm Island, where footballer David Beckham purchased – are now on offer starting at $500,000. Some luxury flats in prime locations near Jumeirah Beach go for $1m or more. -30- |
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