The year that was

Mark Fraser

Although the real estate and construction sectors saw minimal improvement during 2011, certain factors in Dubai and the broader GCC region give guarded cause for optimism in 2012.

Although the risks in Dubai are exacerbated by the liability imposed on designers and contractors by Article 880 of the Civil Code, it was encouraging to see a number of these incomplete structures being resuscitated in 2011.

Unlike the primary factor which kickstarted the property market in Bangkok in 2003 (the change in demand from commercial to residential development), in Dubai the resuscitation does not appear to be linked to any single factor but it is expected that more projects will resume in 2012. That said, market sentiment for new projects in Dubai remains weak.

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In an attempt to promote real estate development and ease lending in the property sector, Dubai Land Department (DLD) introduced the Tayseer programme in June 2010. The programme accredits only those projects that are registered with DLD, are less than 60% complete, hold an escrow account and are proceeding in accordance with the construction programme under a contractor capable of timely delivery of the project.

Funding for the first project in Dubai, Al Manal’s development in Jumeirah Lakes Towers, was approved in March 2011. Going forward, the existence of an authority such as Tayseer should ensure that well-assessed projects are completed, while also promoting transparency between funders and developers.

In a further attempt to facilitate investment in infrastructure development, the RTA has been seeking international investment, and is considering introducing a model for public private partnerships (PPPs).

Reflecting the international trend of getting the private sector more involved, the RTA is prompting the private sector to take the initiative in bearing the costs of constructing such projects against their revenues during the concession period.

It is anticipated that successful implementation of infrastructure projects, albeit on a hybrid PPP model supplemented with Islamic financing, will lead to increased use of the PPP model.

Further afield, while Europe and the US continue to be the harbingers of financial gloom, the Middle East can boast a vibrant infrastructure scene, with rail projects leading the way.

Nine of the top ten major infrastructure projects in the Middle East are rail projects, as individual countries develop internal rail infrastructure with a view to integrating with the GCC rail network.

A particularly vibrant market is Qatar, which not only reflects the regional appetite for rail, but also demand for 15 new stadia, 80 new hotels (looking forward to the World Cup in 2022), a new international airport and port.

Away from the non-contentious side of the real estate and construction sectors, no review of 2011 would be complete without mention of the expansion of the jurisdiction of the DIFC courts.

In terms of the new law amending the existing Dubai Law No. 12 of 2004, the DIFC Courts may now hear every civil or commercial suit of business from the GCC and wider Middle East region, provided that all parties to the dispute have opted clearly and concisely in writing to refer their disputes to the DIFC Courts.

Save for the DIFC courts, most courts in the region operate in the Arabic language, with the attendant cost and delay of the need for translation of documentation into Arabic. The familiarity of the DIFC procedure to international businesses will be a source of considerable comfort, as will the improved prospects of cost recovery under the DIFC process.

Although the pressures and constraints so marked since late 2008 have by no means been removed, 2011 saw some welcome developments. Successful implementation of major infrastructure by means of PPP or through the funding initiatives, coupled with improved market sentiment and a more transparent dispute resolution system, should bode well for an improved market in 2012.

Mark Fraser is a construction partner with Taylor Wessing (Middle East) LLP.