Dubai: The UAE’s construction sector can expect to be in far better shape in 2023 as project costs finally start to take a dip after a long spell of high shipping and building material prices. Leading the way in the new year will be new property developments, with major project awards expected in first-half 2023.
The government, too, will be active in the space, with post-Expo 2020 work starting to flow in Dubai, at least on the tendering side. “First, there will be the Expo City expansion, and then serious planning will commence on the Urban Master Plan 2040,” said a contractor.
Nakheel should be ready to launch its first major waterfront project - Dubai Islands (formerly Deira Islands) - after a complete revamp of its build priorities there. The design of the revised masterplan is reportedly still in the works.
Nakheel is not the only developer with island plans - Majid Al Futtaim Communities recently lifted the lid on two of these for its in-land super-luxury Tilal Al Ghaf residential project in Dubai.
In 2023, we will easily be spending Dh5 billion to Dh7 billion in contract awards. This could, however, be significantly more depending on sales and demand.
The other much anticipated one for the near future will be for the Binghatti ‘tallest residential tower’ project in Business Bay. But these won’t be the only ones, with massive industrial, (renewable) energy and commercial projects underway. (Watch out for more solar panels taking over rooftops, too, as is being done at Ibn Battuta Mall and elsewhere. Renewable energy projects and value-added contracts should continue to score big wins in 2023.)
This is the backdrop for the latest in the Big 5 series opening in Dubai, as construction industry sentiments remain distinctively bullish, boosted by more project announcements in recent weeks.
Moving on from Arabtec
By every indication, the construction sector has absorbed the loss of Arabtec – at one time the biggest name in the industry – to bankruptcy. The liquidation process is going on with the company that built the Burj Khalifa and some of the country’s other iconic landmarks. Sources say there continues to be a smooth transfer of projects from Arabtec’s books to other major league contractors.
Based on industry feedback, as happens with each upturn in new projects, jobs too are being created. This has led to new hirings for senior and middle managers as well as the wider on-site labour workforce.
How will 2023 project costs shape up?
As this year closes, a decline has already set in into construction costs compared to levels in Q4-2021 and Q1-2022. This could accelerate in the first few months of 2023, and more so if demand for building materials remains muted in China.
“(Prices on) major materials - copper, aluminium, steel - range around 25, 30 and 20 per cent down (from Q4-21 levels), except there is an increase in cement prices by 5 per cent from the same period,” said Janakiram V.V.S., Managing Director at the project consultancy Hill International’s India operations.
For the past two quarters, there is generally a fall in key material costs except for those imported (region specific) due to fluctuating fuel prices and increased shipping costs. The fall in building material prices is minimised because of this increase.
Steel prices iron out volatility - for now
For now, steel prices are on the softer side, spurring the chances for higher offtake. “Demand has increased, definitely, and hope it will remain the same at least until Q2-2023,” said Bharat Bhatia, CEO at Conares, which has multiple steel mills in Dubai.
In US dollar terms, this year’s consumption of steel rebars is around $1.5 billion to $2 billion. Prices were higher by 20-30 per cent compared to 2020 during the early half of the year, but now, the market has softened by 10 per cent or so.
Property buyers, too, can benefit
At some point, whatever is happening on material and shipping costs will translate into some price benefits for property buyers in the UAE. Apart from values gaining from high demand - especially for ready properties - the other big influence on property pricing has to do with cost inflation. Through most of 2021, developers did their utmost not to pass on these costs onto buyers. But by early this year, they could not no longer afford to do so, having seen their own project costs swell by 15-30 per cent.
Dileep Kumar is Chairman-CEO at Heilbronn Contracting LLC, a contractor that recently ventured into offplan development with a project in JVC. He’s downright optimistic on what could be in store with pricing.
“The building material price hikes will definitely stabilise in 2023 for various reasons,” said Kumar. “There is reduced shipping costs and some slowing down on major projects, etc. Most materials are expected to be readily available.
We are not sure many major projects are going to be launched in 2023. However, many high-end private villas and affordable mid-size residential buildings are expected to start construction in 2023.
New luxury villas, most definitely, will be there. Whether on the Palm, Jumeira Bay or relatively untested locations by the Creek side, there are a lot of these homes coming through in the next two years. An upturn the industry believes should keep the drive going well through this period.
If building material prices do not give any price jolts and project contract sums get paid in ‘reasonable’ time, UAE construction can expect some smooth sailing.