Dubai: For the UAE economy, it’s the best-case scenario.
As developers shift multiple gears to speed up on their offplan project launches, the UAE’s construction sector is gearing up to build all the new homes that will enter the property market in the next 3 to 5 years.
Not surprising then that of the Top 3 project awards in the first five months, two went to high-on-profile offplan projects – the Al Habtoor Tower on Sheikh Zayed Road valued at Dh1 billion and the ‘Serenia Living’ on Palm Jumeirah, with the contract going for Dh817 million.
At No. 1 was the Nouf Independent Water Plant, with the contract size estimated at Dh2 billion, according to data from BNC Network. (The rankings only cover project awards in the non-oil sector.)
Clearly, the offplan 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.”
This is where the property market and the flow of tenders and project awards are helping. The recent announcement of the revived Palm Jebel Ali – where the basic infrastructure already exists – is another that will translate into some eye-popping construction awards.
Also, watch out for more build action at Expo City – and on the Palm Jumeirah itself. (One of the most anticipated launches would be that of the Armani residential project on the island, where Arada will be the developer.)
“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."
Based on feedback from clients, the situation on payments (within the construction sector) in the UAE is at an acceptable level
“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
Add to that the current and upcoming projects related to infrastructure, investments in new hospitals and schools, all of which will extend the construction sector’s momentum. (On new office developments, more time may be needed as demand works its way through available stock.)
- Tizian Raab, Spokesperson at Azizi Developments
Prices stable – a big plus?
The construction sector has also got another favourable break – from material and shipping costs holding steady after all the increases they went through in 2021/early 2022. That in itself would count as a big win, industry sources say.
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.”
In Q4-2022, the total contract awards in the UAE totalled Dh26.37 billion ($7.18 billion), according to BNC Network. The trend continued into Q1-23, with contract awards reaching Dh30.08 billion ($8.19 billion). As of today, Q2-23 has already seen awards of Dh22.81 billion ($6.21 billion).
Smaller contractors change strategy
Yes, the big contracts are being handed out, like the Al Habtoor Tower contract going to China Railway 18th Bureau group and Serenia Living bagged by Khansaheb.
“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 UAE construction sector (based on industry sources):
- There have not been any major changes to the terms and conditions of construction contracts.
- On contractual failures, there have not been any add-ons related to the penalties. In cases of contractual failures by the contractor, it is common for cashflow to be held or performance bonds to be encashed as remedies.
- The situation on payments for contractors in the UAE is at an 'acceptable level at present'.