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Construction to add 11.1% to UAE's GDP in 2015

by CW Staff on Jan 2, 2013


As a percentage of the UAE's GDP, the construction industry contributed 10.6% in 2008 and 10.3% in 2011.
As a percentage of the UAE's GDP, the construction industry contributed 10.6% in 2008 and 10.3% in 2011.

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The UAE's construction industry is expected to show sustainable growth in the next few years, according to a recent Dubai Chamber of Commerce and Industry study.

This follows the slowdown during the global financial crisis in 2008 and the current recovery in GCC economies. In its analysis of recent trends, the study links the importance of the UAE construction industry to the domestic economy.

As one of the most rapidly-growing economies in the Middle East, the UAE has experienced enormous investment in the construction industry from public and private enterprises during the past few years.

As a percentage of the UAE's GDP, the construction industry contributed 10.6% in 2008 and 10.3% in 2011. For 2015 and 2021, it is expected to contribute 11.1% and 11.5% respectively.

According to the International Monetary Fund (IMF), the population of the UAE is expected to reach six million by 2015 from 5.4 million in 2010.

The increase in the expatriate population, which accounts for more than 80% of the total figure, constitutes the main growth driver for increasing demand for residential and commercial property.

In addition, the IMF predicts real GDP growth to reach 4.4% in 2015 from 3.3% in 2011, signifying a revival of the overall economy, which augurs well for the construction industry.

In 2011, the UAE recorded the region's highest construction-project value, amounting to $319.1bn, accounting for 51.1% of the total value of the top 100 projects in the GCC.

The UAE was followed by Saudi Arabia at $218.9bn (accounting 35% of the total construction project value). Additionally, Qatar accounted for 8.9% of the total construction project value, followed by Oman and Kuwait, accounting for 3.2% and 1.8% of the top 100 projects respectively.

In its quest to become an international investment hub, the UAE has pushed forward major construction projects in the infrastructure and residential/non-residential sectors.

These include tthe $7.8bn expansion of Dubai International Airpor, and the $6.8bn Abu Dhabi International Airport redevelopment project.

According to Business Monitor International (BMI), the UAE's construction industry comprised 38% of projects in energy and utilities, 31% in construction, 29% in transport and 2% in social infrastructure.

BMI added that favourable government policies, such as permitting non-UAE/GCC national freeholds and leaseholds in designated areas of the UAE, will attract increased Foreign Direct Investment (FDI) in construction.

Abu Dhabi's Urban Planning Council has also engaged multi-unit building developers to allocate 20% of residential gross floor area to middle income population groups. This is expected to increase housing supply for the middle- and low-income population groups.

The UAE federal government extended the visas of real-estate investors from six months to three years, offering a significant boost for new investment in the construction industry.

In 2011, the UAE residential construction industry showed limited signs of recovery, struggling to reach its pre-crisis levels, while putting on hold a number of significant big projects across the country.

However, from the beginning of 2012, the residential construction industry revealed some signs of stability, particularly in Dubai, driven mainly by the repercussions of the regional Arab Spring, reinforcing the UAE's reputation as a safe haven in the MENA region.

In the short term, the outlook for the UAE's construction residential industry may be affected due to the prevalent oversupply of residential units in the market.

However, in the long term, it will gain momentum based on the optimism of a rising population and a more stable economic growth path.

The UAE's commercial office construction sector has historically witnessed robust growth, leading to an oversupply of commercial office units.

In turn, this oversupply led to high vacancy rates, finally resulting in a moderate decline in UAE property prices.

The study indicated that rental yields in the short term will continue to be under pressure due to declining rentals and high vacancy rates.

However, the commercial construction industry will continue to benefit from the premium on rental yield as compared to US and EU markets attracting significant FDI in the long term.

In the near future, favourable government policies of the GCC countries, particularly that of the UAE, are projected to attract more overseas companies to the country's construction sector.

This trend is expected to continue over 2013 as a stream of new construction and infrastructure contracts and ongoing projects will further boost UAE's construction industry growth, concluded the study.

 



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