Despite the negative impact on the United Arab Emirates of the global economic crisis, work on civil construction projects worth $698 billion continues to move ahead.
But the downturn is taking an increasing toll with more than half of all civil construction projects across real estate, infrastructure, leisure and entertainment now on hold, according to a detailed report published today, (8th February 2009).
“The UAE may no longer be the land of milk and honey but it is still in a far better position than most," said Emil Rademeyer, director of Proleads Global, the Dubai-based publishers of the first in-depth investigation of its type. "To put it into perspective, the $698 billion of continuing work we are reporting is almost equivalent to the latest stimulus package proposed for the United States."
The report by the Proleads research house into the state of the industry is the most extensive and up-to-date yet carried out in the UAE and examines projects across real estate, infrastructure, leisure and entertainment, as well as projecting the state of the industry for 2009.
The Insights investigation concludes that 52.8% of the total current civil construction project portfolio of the UAE, worth a combined total of $582 billion, is now on hold while a further $698 billion remains in operation. It also finds that while numerous real estate projects are scheduled for completion in early 2009, the rate at which projects are being completed has slowed down.
Largely driven by a frenzied real estate sector in Dubai, the UAE construction industry has seen five years of unrelenting growth but the global financial crisis has cast its shadow. Property prices are falling and jobs are being cut.
The report recognises "potential trouble" if the rate projects go on hold increases further but nevertheless sees a "resilient industry" in terms of cash flow levels at a time of global recession.
“It is this resilience that will eventually see UAE construction through to better times," said Rademeyer. "The US economy took the world into recession and it will ultimately lead the global economy out of recession. I can see the UAE benefiting during the second quarter of 2010. We refer to this as a ‘dormant opportunity’ in the survey."
The Proleads report suggests, however, that the UAE has yet to feel the full effects of the global economic crisis. Since December 2008 Proleads has recorded a sharp increase in the rate at which projects have been placed on hold across all sectors of the industry. Real estate was the hardest hit with projects of all sizes being placed on hold.
"Within the real estate sector, it is likely that we will witness more deferred projects throughout 2009 as will be the case, but to a lesser degree, within the infrastructure sector," the Proleads report says.
Explaining the need for the investigation, Rademeyer said: "Until now, debate on the state of the UAE construction industry has been based mainly on anecdotal evidence. For example, it is vitally important to know how fast and by how much the industry is changing, not just for the industry and its suppliers but also for planners, governments and financial institutions.
"Projects have always been put on hold for whatever reason even during times of prosperity, but it is the rate at which they are placed on hold that enables us to predict when the upswing will start,” added Rademeyer.
The Proleads investigation encompasses 1,289 projects in real estate, including residential, commercial and retail buildings; infrastructure, including roads, railways, bridges, ports, educational and healthcare facilities; and leisure and entertainment which covered sports facilities, theme parks and hotels. Carried out on information correct as at mid-January 2009, Proleads Global claims its data analysis has 90% accuracy.
It found that at mid-January, real estate projects continue to account for a huge 84% total of the $1.28 trillion total budget; compared with only 8% each for both the infrastructure and leisure and entertainment sectors.
Commenting on the future for the UAE construction industry, Rademeyer said: "It is in times of economic turmoil that one finds industries in transition between prosperity and recession before returning again to prosperity and this is indeed the case in the UAE."