GCC construction in major growth phase
Rising tourism activities contribute to the construction industry's foreseen growth for the next three years. (AFP/File)
The GCC construction industry foresees growth for the next three years, encouraged by factors such as favourable macroeconomics, positive demographics, and rising tourism activities, said an industry expert.
“Higher budget allocation towards construction sector, as part of the strategic vision of the member nations, lends an added push to the industry,” added Sameena Ahmad, managing director, Alpen Capital (ME) Limited, a leading provider of investment banking advisory services, commenting on the new GCC Construction Industry report published by Alpen.
Sanjay Bhatia, managing director, Alpen Capital Investment Bank (Qatar), said: “The GCC governments challenge to diversify their economies from oil and gas and their consistent focus on infrastructure development across sectors has kept the construction industry in focus.
“Activity in sectors across infrastructure, residential, commercial, hospitality, retail, etc., have taken centre-stage in inviting global participation and attracting the attention of businesses and tourists alike.
“Although investments are directly dependent on the pace of each Government, we believe that the GCC region continues to be a desirable location with accelerating growth prospects for the near future,” he added.
• In Saudi Arabia, efforts to boost religious tourism have translated into higher budget allocations towards the hospitality, retail, and infrastructure sectors. The need to create affordable housing options and the recent law allowing for mortgages are expected to result in an increase in construction activities in the near future.
• Optimistic forecasts for the UAE's construction sector for the next few years is based on an economic recovery, safe-haven status, liberal investment climate, relatively advanced real estate regulatory framework, as well as a buoyant infrastructure project pipeline as part of the country’s strategic vision 2021.
• The outlook for Qatar’s residential, hospitality, and infrastructure construction markets appears optimistic due to healthy population growth, mega events, and the economy picking up pace.
• The construction industry in Oman is expected to remain robust driven by a significant increase in infrastructure projects planned by the government, tourism projects, an undersupplied residential market, as well as the construction of commercial space.
• In Kuwait, the construction industry is set to thrive driven by the infrastructure sector, new projects from the private sector to address the need of affordable housing, and an increase in demand for commercial space.
• Developing its infrastructure and reducing its affordable housing shortage remains the principal focus of the government of Bahrain in the coming years.
The ongoing efforts to reduce the dependency on the hydrocarbons sector across the GCC regions have resulted in an increase of capital investment (as a percentage of the GDP) in the construction industry. The increase is expected to be channelled towards meeting the high construction demand across the region.
The region’s population is expected to grow at a CAGR of 2.5 per cent from 2014 to 2018 to reach 56.9 million. An expanding population base is likely to translate into higher demand for residential, commercial, retail, hospitality, healthcare, leisure and infrastructure sectors across the GCC.
Over the years, the Gulf region has emerged as an international tourist hub for leisure travellers, international shoppers, and pilgrims. To accommodate the large number of tourists and further promote the tourism industry, the GCC countries are investing heavily in the development of airports, transportation systems (rail, road networks, etc.), hotels, retail, and leisure sectors.
With the run up to the mega-events being hosted by some countries, the region is slated to open up opportunities across the sectors of tourism, hospitality, and retail, translating into growth for construction activities.
Other factors driving the growth of the construction industry comprise - the recent unrest in the Middle East region, the new mortgage law in Saudi Arabia, and high bank liquidity.
Repositioning the GCC as a business and leisure tourist destination: The GCC region has been consolidating its presence in the international tourism industry. Its tourism sector is being promoted as a bustling center for sports, adventure, MICE, and leisure activities.
Affordable housing: In order to bridge the gap between high demand and low supply of housing units for the mid income groups, the GCC governments have initiated the implementation of an affordable housing programme.
Increased use of pre-cast housing systems: There is an increased preference for pre-cast concrete systems in housing projects (such as low-rise residential buildings) as they are high on durability, low on cost, and environment-friendly. Precast concrete is driving creativity in the real estate sector as architects now have greater leverage to develop intricate designs that can easily be produced off site.
Rising joint ventures with international companies: Looking at the growth opportunities offered in the GCC construction sector, international companies are entering the region using the partnership or joint venture route. The region presents international players the advantage of low-cost energy resources, economic relations that date back to decades, ease of doing business, and proximity to their home country that facilitates their operations in the GCC. This significant advances the region on the Global Competitiveness Index.
Return of the Greenfield IPOs: The GCC region is seeing the return of Greenfield IPOs after several years. In-line with the GCC governments plan to diversify their oil-dependent economies, recent Greenfield IPOs such as Marka and Dubai Parks, and Resorts in 2014 were heavily oversubscribed.
Though the GCC construction industry is growing, it is not devoid of challenges, the report said.
The dip in oil prices may push the GCC nations to restrict state spending, hampering the growth of the construction industry, which is materially dependent on government funding. The opportunities available in the construction industry could be affected due to lower investments from the private sector, and plunging disposable income levels. Further, lower tourist inflow from oil-dependent nations may hamper the growth of the construction industry.
Due to high dependency on expatriate staff, the operations of the construction companies may be affected by the challenge of hiring the right talent and retaining them. Increased construction activity requires additional work-force which is not easy to source. There is also the challenge of difficult existing living conditions for unskilled expatriates.
Simultaneous rapid expansion of the GCC construction markets could result in a shortage of raw materials used in the construction sector, particularly cement. In addition, tough regulations on imports coupled with logistical challenges have led to the increase of raw material prices in the GCC.
Competition is expected to intensify in the future due to increasing opportunities in the construction sector. Such a situation could continue to impact margins.
Despite various challenges and a change in trends, the momentum is strong for the GCC onstruction sector. A favourable macroeconomic environment, a growing tourism sector, and government support will ensure that the construction sector has and will continue to play a critical role in transforming the GCC region’s landscape.
- Al Tayer bucks the US department store trend with Bloomingdale's Kuwait opening
- Gulf Islamic banks set to outperform conventional banks for second year: Moody's
- Jordan secures EU finance for socioeconomic and environmental programs
- Same-day service deliveries in GCC an untapped market: Wing CEO
- Will terror attacks damper Arabs' appetite for European holidays?
- UAE: Push towards mid-market hotels driven by younger demographic
- A safehaven? Swiss private bank UBP to boost ME operations
- Strong economic fundamentals to drive the growth of the GCC construction sector, says Alpen Capital’s latest GCC Construction industry report
- UAE cement industry entering transitional phase
- Construction activity intensifies in Kuwait