Panel event at the Big 5 expect post-Expo projects to continue rolling out in Dubai and a slow improvement in prospects for Saudi Arabia.
New contract awards in the Gulf region may have been deflated over the past 18 months, but there is some confidence that workloads will pick up from next year, according to participants in a panel debate hosted by Thomson Reuters Projects at the Big 5 trade show in Dubai on Sunday.
Reports published earlier this month by Faithful + Gould on the region’s two biggest construction markets – the United Arab Emirates and Saudi Arabia – showed that contract awards in the UAE had reached just $26 billion so far this year, meaning that a busy final quarter is required if it’s full-year forecast of $45 billion of awards will be met. If not, awards for 2017 are likely to fall below last year’s total of $43 billion, which was itself a significant decline on 2015’s total.
In Saudi Arabia, just $18 billion of awards were made in the first three quarters of 2017, and $11 billion of these came in the first quarter.
Yet Gurminder Sagoo, business development director at WSP Middle East, said that in Dubai at least, the pipeline of new projects currently moving into the design phase suggests that building momentum will continue beyond Dubai’s Expo 2020 event, which is set to open its doors in October 2020 and run for six months.
“The opportunity for projects to be completed by 2020 to move beyond the design phase passed at least six months ago, and despite that, we see large real estate projects in the design stage, which indicates that there significant opportunities beyond 2020,” said Sagoo. “It makes us wonder if 2020 will be the start of a new growth phase for Dubai’s real estate sector,” he said.
He said that there is “a change in attitude about real estate investments and developments” in the city, with a greater focus on the different types of facilities required to sustain the housing market.
“Seven years ago, WSP was known mostly for its shopping centre projects. We’ve shifted our focus to hospitality and leisure industries and aligned them with the sustainability visions of the region’s governments,” he said.
Real estate intelligence platform Property Monitor indicates that as of November 22, 2017, 13,000 residential units had been delivered in Dubai this year, and a further 12,800 units from 37 projects, including 9,000 apartments, 2,400 villas, and 1,200 townhouses, are due to be completed by the end of the year.
Projections for 2018 indicate that 40,000 units will be delivered next year, with more than 10,600 units from 41 projects scheduled to be completed in the first quarter.
Lynnette Abad, director of Property Monitor, which is owned by real estate consultancy Cavendish Maxwell, pointed out that the increase in supply is largely at the affordable end of the market, and seems to be matched by investor demand.
So far this year, more than 68 percent of residential unit sales registered with the Dubai Land Department were off-plan transactions, and studios and 1-bedroom apartments comprised over 50 percent of these.
“By 2020, we expect to see 120,000 units delivered in Dubai. I don’t think there’ll be an oversupply, because people are spending a lot on rents and the projected supply will reduce prices significantly,” she said.
“As entry barriers are reduced and downpayments become more affordable, more people are likely to buy their first property in Dubai, whether it’s a studio or a bigger apartment,” Abad added.
This increased supply of cheaper homes is putting pressure on the rentals market. Average apartment rents have fallen by 2.8 percent and average villas/townhouses by 3.5 percent in the 12 months to September 30 this year, according to Property Monitor, and Abad said that rents are likely to continue falling next year.
“The positive impact of falling rents is that the average person who spends about 35 percent of his or her income on rent will see that share fall to around 10–12 percent,” she said. “This will increase disposable income and consumer spending.”
Kamal Farah, CEO of interior fit-out firm Abanos, which is part of Dubai-based Engineering Contracting Company, suggested that developers engage with contractors in the early stages of residential projects in order to increase their affordability.
“The Dubai market desperately needs affordable housing,” he said. “One of the biggest barriers is the high cost of land, and something has to be done about that. Developers who engage with specialist contractors early on will benefit from their cost reduction expertise and a better choice of alternative, cheaper materials,” he argued.
Steven Velegrinis, director of cities and sites at architecture firm Perkins + Will, indicated that there had been a significant increase in master planning projects in the region during the last year.
“The new master planning projects are not speculative and are based on need and economic analyses,” he said. “Saudi Arabia is a great example: it has a latent market for tourism, and there’s a reasonable level of optimism grounded in realistic projects focused on end users and not just grand ideas. Overall, we’re bullish about the next two years, and we expect to be very busy with single-site projects,” said Velegrinis.
According to Sagoo, Saudi Arabia needs time to align its policies to transition into a post-oil economy by 2030 and adjust to fundamental changes in its real estate market.
“We’ve seen opportunities in project management consultant (PMC) services slip away rapidly during the past 18 months in Saudi Arabia, which saw a significant decrease and delays in infrastructure projects as well as other projects beyond the tender stage,” said Sagoo.
“Nevertheless, we are optimistic about the Saudi Vision 2030, particularly the National Transformation Program 2020 and its objectives. We believe the investments are aligned with PMC opportunities that will emerge in the next few years.”
For more data, analytics, tools and news on projects in the Middle East visit the Thomson Reuters Projects portal.
(Reporting by Dennis Daniel; Editing by Michael Fahy and Anoop Menon.)
© ZAWYA 2017