Don't blame the builders
Construction’s recent slump was a symptom of market decline
In Snapshot of Construction Week magazine (p10) this week, we mention a new research note by banking giant Citi into Dubai, and in particular its recent economic rebound, with GDP reportedly rising by 4.7% and growth expected to continue.
This is partly due to the fact that that the real estate market rally has been far stronger than expected, while the subsequent award of Expo 2020 could lead to what Citi described as a “construction-led stimulus to the economy”.
However, in the same analysis it argued that the sector grew to be too big during the last boom. The ensuing bust led to a major contraction between 2009-12, and despite many mega-project announcements, construction activity remains ‘subdued’.
As a result, the industry’s share of GDP in Dubai has shrunk from 14% to 8%.
This seems like an odd juxtaposition – if construction had become too big, why is it now expected to lead the Emirate’s recovery?
Because the problem really isn’t building per se, but what is being built.
At the height of the boom, contractors were overwhelmingly working on residential real estate projects financed by investors enticed by seemingly-fantastic returns and easy credit. The fact that there weren’t enough people to live in these huge developments didn’t seem to trouble them greatly.
In a city where property almost seems like an obsession – chatter about rising or falling prices and rents is never too far away – this isn’t something that is likely to change too quickly or easily.
This isn’t due to any intransigence on the part of contractors, who are an adaptable bunch that will build whatever the market requires. Already, the signs are that the recovery in construction should have a much broader base.
Construction Week hosted its UAE Infrastructure Conference last week, and in the run-up I took a look at some of the announcements that had been made since the same event in 2013. In Dubai alone, we’ve already had contracts awarded for the Dubai Canal and the Jumeirah Corniche Extension projects, as well as the Roads and Transport Authority stating that tenders for the extension of Dubai Metro’s Red Line to the Expo 2020 site at Jebel Ali are likely to be issued soon.
This will be the first of a series of infrastructure projects for 2020, alongside further Metro upgrades and development at the Dubai World Central site that should ensure infrastructure plays its part in economic growth, alongside an anticipated boom in hotel investment. Moreover, government plans to make Dubai a centre for Islamic finance should support growth plans at Dubai International Financial Centre’s proposed expansion, and a range of new industrial projects are likely to contribute to a greater diversity in Dubai’s built environment in the coming years.
These trends should also lead to more jobs being created, meaning that recent population growth of around 7% a year will continue.
As a result, those developers who want to continue their love affair with residential property should still have some willing buyers.