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UAE, Dubai 2014 | REAL ESTATE & CONSTRUCTION | REVIEW: CONSTRUCTION

The Dubai construction market is back on track. Spurred by economic growth in 2013, megaprojects have been (re-)launched.

Following several years of minimal growth, mainly due to the 2009 property market crash, the Emirati and Dubai construction sectors are rapidly gathering steam. Megaprojects set the pace. While in 2008 alone some $34 billion worth of construction projects were awarded in the UAE, only $45 billion worth was signed between 2010 and 2012, according to the MEED Insight Dubai Expo 2020 Projects Report. In Dubai projects worth some $5 billion to $11 billion were awarded over the past five years.

However, MEED expects the Emirate to sign projects worth over $27 billion in 2014 alone, some $9.5 billion of which were under bidding at the start of the year. This represents over half the value of all major projects expected to be awarded in the UAE in 2014.

To explain the turn for the better, most experts point at Dubai's healthy economic growth of 4.9% in 2013 and the steep rise in property prices. According to property advisers Jones Lang LaSalle (JLL), the average sales price for villas and apartments in 2013 rose by 24% and 38%, respectively, while rents increased by up to 20%.

Experts agree that World Expo 2020 only added to the mood of general optimism, and will likely accelerate the completion of certain projects. According to MEED, the Dubai construction market is dominated by 10 megaprojects worth up to $240 billion that are set to be completed over the next six to 16 years.

MEGAPROJECTS

With an estimated value of some $95 billion, Jumeirah Gardens is by far the biggest project in Dubai. It foresees, among other things, the construction of five skyscrapers, of which three are over 600 meters tall, a string of manmade islands, and the world's tallest Ferris wheel.

An initiative of Meraas Development, the project was first announced in October 2008. It was stalled following the global financial meltdown. Currently owned by the Dubai government, the company in August 2014 announced that it is in talks with a number of banks to sell its shares to the public and re-launch the project.

Dubai's second most valuable project is Dubailand—a leading leisure, retail and residential hub. First launched in 2003, part of the project is already operational. Some 13 million people annually flock to Dubailand's Motor City, Sports City, and Outlet Mall.

Future additions include the City of Arabia, which boasts a huge mall and entertainment park. The real estate firm Pacific Ventures Limited in October 2013 announced the construction of the Pacific Village, which consists of 65 residential villas, 102 townhouses, and hundreds of apartments. The village will be completed by 2019.

Third ranks Dubai World Central (DWC) better known as Aviation City. Centered around the Al Maktoum International Airport, the $16.7 billion development consists of eight themed districts varying from logistics and retail to humanitarian and aviation. In 2014, one of the five planned runways was operational. The project is set to be completed by 2030.

Other major projects include Limitless' $14.6 billion Downtown Jebel Ali, another residential project that was shelved in 2010, Dubai Holding's $11.6 billion Al Jadaf Area Development Culture Village, and the Mohammed Bin Rashid City, which, at a cost of $11 billion, is set to be completed by 2023.

INFRASTRUCTURE

In February 2014, the Dubai Road and Transport Authority (RTA) approved a $1.9 billion budget for the construction and maintenance of roads. “The RTA will complete the construction of internal road projects at residential areas in accordance with the Five-Year Plan (2012–2016)," RTA chairman Matar Al Tayyar announced. “The approved projects budget is estimated at $1 billion, which will be allocated for constructing around 99 projects, which comprises 50 new projects to be undertaken in roads, marine transport and public transport, and 49 projects currently underway," he said.

Some 36% of the budget is allocated to the RTA and 33% to RTA Rail. Two lines of the Dubai Metro are operational, while three more lines will be constructed by 2020, 2025, and 2030. The $1 billion Dubai Tram is expected to be inaugurated by the end of 2014. Finally, the 1,200-kilometer-long Etihad Railway is being built in three stages to connect all main Emirati cities, including Dubai. In the future, it will be a part of the Gulf Railway network.

CONSTRUCTION COSTS

One major challenge related to the surge in construction in the medium and long term is to avoid a major hike in the price of construction materials and labor. Dubai is competing with several regional power centers for resources, particularly the Qatari capital of Doha and Saudi cities such as Riyadh, Mecca, and Jeddah, which have announced major housing and infrastructure schemes.

According to a recent report by consultancy firm EC Harris, megaprojects will have to compete for available resources with major infrastructure projects, which could result in delays and price inflation. However, most construction prices by mid-2014 had remained stable, or even decreased.

The 2Q2014 Construction Material Price Index (CMPI), a quarterly publication of the Dubai Chamber monitoring the price movements of 251 construction materials, shows that the price of steel and cement, for example, had decreased YoY by 5% and 6.3%, respectively. The prices of tiles, pipes, fittings, and sanitary products recorded a minor price decrease, while the price of marble and natural stone, bricks and glass increased by 17.6%, 5.6% and 4.3%, respectively.

While the UAE is a major cement producer, and exporter, most labor needs to be imported. Partly due to the increase in demand elsewhere in the region, this is no longer the straightforward affair it once was.

“The market conditions in Dubai are at times a problem," said Vidhyadharan Sivaprasad, Chairman & CEO of the Condor Group. “Things have become so competitive that you have to keep permanent resources, such as labor. You can get people from Bangladesh, but the traditional markets of India and Nepal are very difficult now. The workers are not willing to come, which is one of the main challenges we are facing. We now recruit from other countries."

WORLD EXPO 2020

On November 27, 2013, the Bureau International des Expositions (BIE) in Paris voted for Dubai as host of the World Expo 2020. The main sectors to benefit from the event are the construction, hospitality, retail and, to a lesser extent, real estate sectors.

First of all, the Expo 2020 site needs to be constructed close to the DWC and Al Maktoum International Airport. The site will consist of some 700,000 sqm of pavilions and some 500,000 sqm of permanent structures. According to the Government of Dubai Media Office, the cost of constructing the site will cost some $6.9 billion.

The event's revenues are estimated at $38 billion. The event is likely to attract some 25 million visitors over a period of 6 months, some 70% of whom will come from outside the UAE.

Major retail developments, such as the Mall of the World, will be keen to open their doors before the Expo 2020, while property developers hope that some visitors may be tempted to buy a home. “There's a great deal of real estate development already planned, but what we expect to see in the short term is some prioritization of these projects, taking into account those which will add the most value to Dubai's delivery of the Expo," said Matthew Tribe, Atkins' Director for Master Planning and Design at the Destination Dubai 2020 conference.

“All the investments in tourism and leisure, as well as enabling transportation and infrastructure, will support Dubai's long-term economic sustainability," he said. “It's important to bear in mind that the Expo is part of the journey that Dubai is on, rather than the destination itself."