UAE contract awards dropped to $35.9 billion last year, Saudi slumped to $22 billion.
Labourers work on a construction site in Dubai. Image for illustrative purposes.
The United Arab Emirates witnessed its worst year for construction contract awards for five years in 2017, but a recovery is predicted for 2018 as both public and private sector clients are expected to commission more work, according to a report by consultancy firm Faithful + Gould.
The firm’s Construction Market Intelligence report for the fourth quarter of 2017 shows that $35.9 billion of contracts were awarded in the UAE last year, which is the lowest level since 2012, when $35.1 billion of awards were made.
The UAE federal government, the Dubai government and Sharjah's government all recently reported increased capital expenditure allocations in their 2018 budgets. Between them, they have pledged a combined $6.9 billion to project funding, Faithful + Gould said, with the Dubai government increasing its infrastructure investment by 46.5 percent as it prepares for Expo 2020. Infrastructure spending comprises 21 percent of Dubai's overall 2018 budget.
"All round, I think we've hit the bottom of the cycle and I sincerely hope that is actually the case," said David Clifton, regional development director for Faithful & Gould.
In a telephone interview with Zawya on Monday, Clifton said that the planned expenditure by governments will also encourage private sector developers to bring forward their own projects.
"Government building primary infrastructure obviously incentivises people,” Clifton said. “The land near the metro extension has just started to take an increase in value and (this) gets people interested in building."
A report published last month by BMI Research, a Fitch Group company, stated that growth in the UAE's construction industry is likely to be driven by commercial projects over the next five years.
In the short-term, it said the development of the 438 hectare World Expo site in Dubai will be the focus, but once much of this work is delivered by the end of next year, projects in Abu Dhabi will take up much of the anticipated slack.
The report pointed to the Abu Dhabi 2030 plan, which stated that the amount of retail and office space in the emirate is forecasted to grow to 4 million and 7.5 million square metres respectively - up from 2.5 million and 1.5 million square metres in 2013. It also pointed to the long-term goal of attracting 7.9 million tourists by 2030, an 80 percent increase from the 4.4 million visitors who arrived in 2016.
Clifton said that although the UAE has witnessed a declining real estate market for several years, the growing focus on more affordable schemes has at least made projects "more bankable" in terms of project funding. Developers have also focussed on "plot filling", he said, utilising land parcels that already have an infrastructure in place as opposed to launching major new schemes.
Kingdom set to improve in 2018
In Saudi Arabia, contract awards in 2017 remained flat at $22 billion last year, according to Faithful + Gould's new KSA Construction Intelligence report. Again, Clifton said he was confident that the Saudi construction market should improve this year as a result of increased government spending.
The report said that about 205 billion Saudi riyals ($54.67 billion) have been allocated to capital spending in the 2018 budget, which is a 13.6 percent year-on-year increase. About 150 billion ($40 billion) of this relates to infrastructure.
"That, if it goes through, is bigger than all of the awards for last year," Clifton said, stating that the increased spend signified a government commitment towards the delivery of aspects of Vision 2030 and the soon-to-be-updated National Transformation Plan.
Moreover, after the Saudi government trimmed its overall project pipeline by more than $200 million to $800 million in early 2017 through a reprioritisation programme, a series of subsequent announcements of projects to be funded by the kingdom's Public Investment Fund, including the $500 billion NEOM scheme unveiled in October, has lifted the potential size of the Saudi market to $1.75 trillion, according to Faithful + Gould.
The earliest opportunities for construction firms are expected to be in areas such as power and water and oil and gas because capacity will need to be boosted before new cities are built, and because the "funding models for these type of developments are well understood regionally", the report said.
Clifton also argued that some of the larger, private sector developers in the kingdom are also currently keen to commission projects.
"They see it quite opportunistically because we're at the bottom of the market and they can guarantee pricing," he argued.
https://www.zawya.com/ | Published - January 9th, 2018