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UAE, Saudi Arabia accounts for more than 66% of GCC construction activity

Construction activity in the UAE and GCC is projected to remain strong, thanks to a heavy pipeline of 27,000 planned projects worth $2.38 trillion (Dh8.734 trillion) across the Gulf region, according to industry analysts and executives.

Data by the BNC Projects Journal disclosed that the UAE and Saudi Arabia accounted for more than two-thirds – at $1.61 trillion (Dh5.9 trillion) – of total planned projects by 2018-end. Last year, around $77.6 billion (Dh284.8 billion) worth of contracts were awarded as compared to $88.8 billion (Dh325.9 billion) in the previous year, a drop of 13 per cent, across the region. As per the BNC Projects Journal, the decline is due to an exceptionally large number of projects that were seen in prior years were driven by Expo 2020 Dubai. Avin Gidwani, CEO, BNC Network, said increased earnings from high oil prices during the early part of 2018 supported the commitment for economic stimuli during the year and 2019 bumper budgets released by the UAE and Saudi Arabia confirm the continued commitment towards revitalising the region’s economy.

As per the January edition of the BNC Projects Journal, contract awards in the GCC in 2019 are expected to increase for utility, industrial and oil and gas projects but may continue to decline for urban construction.

“The increased spending is driven by the UAE and KSA’s bumper budgets, Adnoc’s 2030 Integrated Strategy and KSA’s Vision 2030,” Gidwani added.

The top 3 sectors with the most value of contract awarded in 2018 were residential and commercial ($24.1 billion), transport ($13.1 billion) and oil and gas in region. With projects worth $43 billion currently in tender, the utility sector is expected to outperform the other sectors in terms of project awards in 2019 while residential and commercial sector will remain in the top 3 – even with the decline.

UAE projects

There are currently over 15,000 projects in the UAE estimated at $791 billion, including an estimated $202.8 billion of projects in concept, design and tender stages, positioning the UAE with the second largest project pipeline after Saudi Arabia’s $827.4 billion pipeline.

According to the BNC Projects Journal, $38.9 billion worth of contracts were awarded in the UAE last year, a drop of 9 per cent compared to 2017.

“The UAE enters 2019 determined to kick the economy back into gear, with the announcement of it $16.3 billion budget which is 17.3 per cent larger than last year and the largest budget in the country’s history,” Gidwani added.

It said there are around 18 pavilion projects for Expo 2020 Dubai currently in the concept (7) design (9) and tender (2) phases that are expected to be awarded. These include pavilion projects for Austria, Poland, France, South Africa, India, Thailand, Spain, China, USA, Japan, UK, Nigeria, Oman, Brazil, Bahamas, Sweden and one Opportunity pavilion.

Atif Rahman, director and partner of Danube Properties, said outlook for the construction – particularly for the short term – is good as most contractors are busy finishing the existing contracts and projects.

“The real estate sector worldwide might sometime come under slight pressure in the short term, however in the long term you also make handsome gains. We believe, the market has the ability to absorb the growing supplies and in the next one year or two these properties will be absorbed with growth in demand prior to the Expo 2020,” Rahman said.

But the long term outlook, according to Rahman, depends on the overall global economic growth, oil price and new investment in infrastructure and job creation.

Sudhakar Rao, chairman of Gemini Group, said public utility and infrastructure projects will continue beyond Expo 2020. “So we don’t see any immediate crisis in the construction sector, except payment delays in some areas, which can be resolved with bank’s support.”

“New demand in construction projects will help the sector. The large developers and the public sector spending on housing and infrastructure could help the construction sector and the construction materials sector’s growth. Precast demand is on rise due to its efficiency in achieving faster construction,” Rao said.

Danube’s Atif Rahman said infrastructure, industries, housing and logistics will continue to drive growth of the construction in the UAE. Citing an example, he said Al Maktoum Airport, Union Railway and Hyperloop are some of the major infrastructure – in addition to regular real estate and hospitality projects – will drive the growth.

The Journal data showed that urban construction contributes 45 percent of planned and ongoing work in the GCC and is valued at $1.08 trillion. While GCC hospitality projects market is estimated at $144.6 billion, 13 per cent of all urban construction projects in the region. The value of planned and ongoing oil and gas projects grew by 11 per cent over the course of the year to $373 billion at the end of 2018, up from $334 billion in 2017.

While transport projects, according to BNC Journal, worth $300 billion are either planned or ongoing in the GCC region registering a 10 per cent year-on-year growth.

“With a strong pipeline of projects worth $156.8 billion, the transport sector is expected to witness large contract awards in the year ahead,” it added.

A construction site in Abu Dhabi. The new regulation enables the Central Bank to allow more property financing as needed. Analysts say this is crucial for the completion of projects that had been hounded by funding challenges.

When the UAE Central Bank removed a key hurdle that had long limited the ability of banks to fund real estate projects, it also made sure to remain flexible to counter risks of an overheating market. Announced in November, the regulation abolished a ceiling on banks’ exposure to real estate loans, which had been previously set at 20 percent of the total deposits of banks. A new limit has not been announced, but the matter is under discussion with the UAE Banks Federation.

This effectively means that the Central Bank can adjust the ceiling higher or lower based on the performance of the market.

“The cap amendment would act as a ventilator to the current real estate sector wherein we were witnessing cash flow constraint in the market,” says Dhiren Gupta, managing director of 4C Mortgage Consultancy. “The banks could now allocate larger reserves to finance real estate development for both at retail and corporate lending.”

Enhanced liquidity

As more cash pours into the market, Gupta believes the move will ease the stress in the property sector. “It’s been predicted that the loans will grow up to 5 percent in 2019, but it is judgmentally important to maintain current loans to value levels for mortgages,” he adds.

The lifting of the limit also acts as a catalyst to support infrastructural development in the UAE. “Under this new regulation, project finance could see as a major beneficiary, as earlier banks would restrict their lending appetite to finance such development,” says Gupta. “Also, the banks would be flexible in keeping the funding restriction set by the Central Bank. However, so far, it is not sure which loans will fall under the real estate finance.”

The regulation is also expected to uplift the confidence of real estate investors and end users in the UAE market. “The amendment indicates that the UAE Government is striving to maintain strong economic growth for the people of this country,” adds Gupta. “With this new regulation bank appetite to finance real estate development would growth, hence, the market could witness added mortgage transactions in the coming months.”

More aggressive participation

Amer Khan, head of retail products and segments at Standard Chartered UAE, says the amendment will help banks participate more aggressively in the real estate sector, particularly in key growth markets such as Dubai and Abu Dhabi. “It allows banks to prioritise the use of its deposits to fund real estate loans both to the property developers and customer mortgages,” says Khan. “Increased access to bank funding will ensure property developers can complete existing projects and fund new projects as well. This will give ample options for homebuyers and investors. Also, like property developers, individual homebuyers and investors would have access to more funds, which would also encourage them to purchase the property.”

With the 20 percent cap, if a bank’s total deposit is Dh100 billion, the amount the bank is allowed to lend as real estate loans should not exceed Dh20 billion. “If banks already reach this limit, any loan request coming from property developers or mortgage will not be granted,” explains Khan. “If there will be no cap, then the bank may opt to lend more than Dh20 billion to fund real estate loans. This means the real estate sector will have wider access to funds. We can expect completion of projects faster or continuation of projects that were halted due to lack of funds. Also, we can expect more new projects due to access to more funds.”

Sunil Gomes, CEO of Gemini Property Developers, believes the removal of the cap will also give a push to the affordable market segment. “It will stimulate investors, especially the middle-income investors to buy property as the confidence increases due to this new regulation,” says Gomes.

Atif Rahman, director and partner of Danube Properties, says the Central Bank’s move is well timed for the property market. “That will help the banks to support the property and construction sectors, which will now have access to greater liquidity. It is a very timely and significant decision that will help stimulate the real estate market in the UAE.”

It is one thing to somehow manage to meet the basic requirements and an entirely different thing to deliver what is actually promised. The difference is the fulfilment of your customers’ aspirations, and hence, your own. Buildings aren’t just buildings, they are a lot more than that. Those in the industry who understand this are able to make good on their promises while the others fall behind. The smallest things add up to make the most significant impact when it comes to constructing buildings. Modern, ergonomic designs need to look at factoring in everything.

On the one hand, low floor area ratios, plot coverage and setback limits need to be focused on. On the other hand, reduced end-user costs, higher convenience, practicality, energy efficiency and added values need to be incorporated as well. All these things come together to catalyse excellent economies of scale and end-user satisfaction alike. To achieve both these primary objectives simultaneously is what enables entities to not just deliver on their promises, but even surpass them often at times.

Efficiency is key

It majorly comes down to efficiency, be it the efficiency of the utilisation of space, or the efficiency of building materials used. It is imperative to understand here that cost efficiency and cost reduction are not the same things. Those focusing on cost reductions often end up falling short on the expectations they set. However, those wasting precious resources on unplanned executions that they think might work out end up in the same boat as well.

Efficiency refers to quality design, low maintenance costs, maximum utilisation of building materials and minimum wastage in any shape way or form, from the construction stage to the point of resale even, when the property has been inhabited for a few years already.

Efficiency lies in the smallest of things, that are most likely to be neglected. When a building is being built, and houses are being designed, for example, there are a lot of things that can be done during the design stage itself that can contribute to reducing maintenance costs and enhancing the quality of housing. The construction of naturally lit corridors and the use of sensor-controlled lighting in common areas, for example, will continue to save costs and energy throughout the life of the building, while making for a beautiful and modern place for customers to want to have a house in. The use of epoxy paint in stairwells in another small way of reducing the overall maintenance cost to customers as the time needed between re-paintings will increase with reduced damage.

Similarly, a number of substantial things can be done inside the house as well. The use of granite flooring and quartz kitchen platforms, for example, goes a long way in contributing to the convenience of the inhabitants because they’re easy to maintain as these surfaces stain less and this also reduces the cleaning cost.

Moreover, their water absorption is minimal and their nature more durable. There are many such areas where attention to detail in terms of quality and costing can really do wonders for the whole architecture itself.

Apt pricing is crucial

Creating an exceptional product or service is essential for it to succeed, but that can only happen if it is priced aptly. Appropriate pricing is the key to driving profitability because your prices are not supposed to make your offering appear unaffordable to your buyers. It should be able to empower your customers to make a positive purchase decision.

For you to add value to your offering, it is not necessary for you to incur towering expenses and pass them on to your customers. A smart strategy and attention to detail can actually enhance the quality of your offering manifold without increasing its price because affordable housing doesn’t have to lack imagination, and quality inputs don’t always cost a bomb.

It is crucial to understand that delivering what you promise is not just about meeting the customers’ needs; it is also about fulfilling their dreams. An offering that delivers on its promises is an offering that creates its own market.

The writer is director and partner of Danube Properties. Views expressed are his own and do not reflect the newspaper’s policy.