Construction industry still attractive to self-financiers

Despite the recession in the construction industry, local investors with self-financing have a real opportunity to tap into the benefits afforded by cost-competitive market conditions, according to Abdullah Mohammed Sharif Zaman, who is engaged in the realty and building materials business.

"Building materials imported from the Far East cost 40 per cent less, while contracting companies are also offering services at wafer-thin margins in a bid to ride out the current tough conditions in anticipation of a recovery," he was quoted as saying by the Sharjah chamber publication "Al Tijarah".

Among building material imports that are proving particularly cheap are timber imports from Indonesia and steel products from Turkey. The lower prices have also touched off tough competition among local importers.
Contractors are also offering their services at competitive rates — sometimes even on a zero-profit basis — in an effort to hang on and remain in business as they try to ride out the lean times.

"These conditions are proving particularly advantageous to investors and property developers who are seeking to build quality properties at a decided cost advantage," said Zaman, who is also a chamber board member.

But he added that only those with the ability to self-finance their development projects could take advantage of the benefits afforded by current market conditions, since those who needed bank financing ran the risks of cost overruns or excessive debt servicing burden, as supply at present surpasses demand.

"Since the emergence of the local manufacturing sector in the early 1970s, several industries have been established here, particularly cement plants, which were followed by ceramic, aluminium and paint production units," he observed.

But the low price of imports is directly impacting on local manufacturers, especially cement producers. He added that cement imports from Iran are already hurting UAE producers, and warned of considerable damage if this continues. "The absence of protection for local manufacturers has also prevented the establishment of plants in related fields such as steel," he said.

Meanwhile, driven by new businesses in Abu Dhabi, demand for quality property, both commercial and residential, is pushing rents higher. Property managers are unanimous that the stagnant Abu Dhabi market has begun to polarise with good quality accommodation still retaining high occupation levels, and dropping sharply for low quality buildings.

"The polarisation between the different types of accommodation is more evident in Abu Dhabi than in the other emirates," said Martin Saxon, associate director of property consultants Colliers International. Many companies setting up shop are looking for new buildings with good facilities and services, he said, thus the short-term outlook for commercial and residential accommodation is good.

Ron Hinchey, resident partner of Cluttons, agrees there is an oversupply of low quality property. But corporate requirement is driving the quality up. According to Linda Loughnane, manager of Asteco, there seems to be an oversupply, but demand is strong enough, particularly far quality property. Two noticeable trends are a definite growth in private property management and owners undertaking feasibility studies to determine market needs.

"Owners find it affordable to hand over management and front-end leasing of space to private property management companies," Loughnane said. "Owners are checking out to see what exactly the market needs and this has led to some very good commercial and residential projects in the capital." A case in point is the Al Ghaith Tower, a new office tower where nearly half of the 50,000 square metre of space has already been booked.