It’s the best-case scenario for the economy of the UAE.
The UAE’s construction industry is preparing to build all the new homes that will hit the real estate market in the next three to five years as developers shift multiple gears to speed up their off-plan project launches.
In light of this, it is not unexpected that two of the top three project awards in the first five months went to high-profile off-plan developments: the Al Habtoor Tower on Sheikh Zayed Road, valued at Dh1 billion, and the ‘Serenia Living’ on Palm Jumeirah, which received a contract for Dh817 million.
According to information from BNC Network, the Nouf Independent Water Plant came in first place with a contract worth an estimated Dh2 billion. Only project awards in the non-oil sector are included in the rankings.
Clearly, the off-plan boom in Dubai and Abu Dhabi is fitting right into the construction sector dynamic. “Despite completing some major projects, the UAE construction sector was passing through a difficult phase,” said the CEO at one of the bigger contracting firms.
“The UAE construction market took time to process the liquidation of Arabtec (the biggest name in the local industry until that mishap), there were other companies facing cashflow issues and then having to stop operations. And payment issues continued to be a problem.
“But now, there is a feeling within the construction sector that the worst of it is over.”
The real estate market, the flow of project awards, and the flow of bids are all beneficial in this regard. Another recent announcement that likely resulted in some eye-popping building awards is the refreshed Palm Jebel Ali, where the necessary infrastructure already exists.
Additionally, keep an eye out for additional construction activity at Expo City and on the Palm Jumeirah. (The Armani residential project on the island, whose launch is one of the most eagerly awaited projects, will be developed by Arada.)
“Recent property project launches have indeed translated into new construction contracts,” said Avin Gidwani, CEO of BNC Network, which consolidates project-related updates on its portal.
“In fact, we have witnessed a surge in contract awards in the UAE over the past two quarters.”
“These numbers clearly demonstrate that the property project launches have translated into tangible construction contracts. It indicates positive momentum and growing investment in the construction sector, highlighting the trust and confidence investors have in these projects.”
Not just residential
Investing in new hospitals and schools, as well as ongoing and planned infrastructure projects, will all help the construction industry maintain its pace. (On new office developments, additional time may be required when demand exhausts the supply.)
Prices stable – a big plus?
Another benefit for the building industry has been the stability of material and shipping costs following all the hikes they underwent in 2021 and early 2022. Industry sources claim that would be a significant victory all by itself.
But BNC Network’s Gidwani says some degree of caution on input prices is still warranted. “Although shipping prices have decreased and availability of materials is not a major concern for now, prices of essential raw materials like steel and cement have not significantly decreased,” he added. “In fact, they have either remained stable or experienced slight increases.”
Smaller contractors change strategy
Yes, large contracts are being awarded, such as the Serenia Living contract won by Khansaheb and the Al Habtoor Tower contract awarded to China Railway 18th Bureau company.
“It’s a two-track construction market, with the biggest contractors lining up new wins every other month,” said the owner of a mid-sized construction firm. “The mid to small contracting firms don’t have it so easy.”
In fact, some of the smaller contractors are changing tack, going for the many single/multiple villa projects currently available in the UAE. “Once it’s clear the project promoters has the funds, this is a relatively easier assignment for small contractors,” said an industry source. “They get their payments faster, and the nature of these villa projects tend to be quicker and relatively smooth.
“The Dubai and UAE property boom is fuelling major trends in the construction sector – with the demand for villas, smaller contractors too get their share of the rewards.”
Some of the other trends showing up in the UAE construction sector (based on industry sources):
The conditions of building contracts have not undergone any significant adjustments.
There haven’t been any additions to the penalties for contractual breaches. It is common practice for cashflow to be retained or performance bonds to be cashed as remedies in circumstances of contractual failures by the contractor.
In the UAE, the status regarding contractor payments is “acceptable at this time.”