Dubai building firms eye Gulf to offset downturn

[Naveed Yaseen]

ABU DHABI: Dubai construction firms are stepping up plans to expand into Gulf markets less badly hit by a property downturn than the former boom town, where prices have been hit and projects delayed.

Building companies in Dubai said on Monday they had their sights set on Saudi Arabia and Qatar, where expansionary government budgets and promises of sustained economic growth would help them ride out a downturn at home.

Dubai residential real estate prices have already lost at least a quarter of their value since peaking late last year. Hundreds of billions of dollars worth of property projects have been scrapped or postponed in the United Arab Emirates, the second-largest Arab economy, in recent months.

“Saudi Arabia is definitely the place where growth is going to be sustained for the next two to three years,” Saleh Muradwiej, an executive director at Dubai contractor Drake & Scull, said at a construction meeting in UAE capital Abu Dhabi.

Drake, which specialises in mechanical, engineering and plumbing businesses, was in talks to buy companies in Saudi Arabia and Qatar and would examine three to five opportunities in the next two to three months, he said.

The global financial crisis has taken its toll on Dubai’s building sector, which had been the main catalyst behind the seaside emirate’s global claim to fame. Lavish projects such as the world’s tallest tower and man-made islands in the shape of palms and the world map caught the attention of investors around the world who were allowed to own properties on a freehold basis for the first time in 2002.

Fortunes have shifted drastically since the financial crisis worsened in the second half of 2008. Companies have slashed thousands of jobs and $583 billion worth of building projects in the UAE federation, which includes Dubai and Abu Dhabi, have been put on hold, according to market research firm Proleads.

“It will be difficult to pick up additional work in 2010-11 so we are finding ways to find work outside of our immediate geographical area,” said Riad Kamal, chief executive of Arabtec Holding, the UAE’s biggest construction company. “We are looking at Saudi and Qatar. Negotiations are ongoing,” Kamal said at the conference, organised by London-based MEED.

Arabtec rode the Dubai property boom by taking part in such projects as the Burj Dubai, the world’s tallest tower. It posted a 4 per cent decline in fourth-quarter profit on Monday.

Top global oil exporter Saudi Arabia may not be hit as severely as Dubai because it dwarves its neighbours, boasting a 25 million-strong population to sustain demand, executives said.

Meanwhile the economy of Qatar, the world’s biggest exporter of liquefied natural gas, is set to expand 10 per cent in real terms this year as it continues to boost natural gas production, the minister of state for energy and industry said this month.

“There is a huge opportunity in Saudi Arabia for housing, areal demand for middle-class housing,” said Khalid al-Zamil, managing director of strategic planning at Saudi’s Zamil Group. Lower building costs could also spur developers and contractors who have cash in their pockets, added Ali Kolaghassi, vice-president of privately held Saudi Oger.

“Saudi Arabia, Abu Dhabi and Qatar are the best markets in the GCC,” Kolaghassi told Reuters. “Construction costs are down 40 per cent. It is time to take advantage. Yes, there is a major slowdown in sales but this enables opportunities for developers who are solid and not leveraged.”

Kolghassi said Abu Dhabi, home to more than 90 per cent of the UAE’s oil reserves, also held potential for building companies. The mismatch between demand and supply in the emirate would not be bridged for years, analysts have said. Even developers focused on the UAE are re-thinking their future strategies as they strive to cater to more discerning investors now the heady boom days are over.

“We see some change in supply and demand and we still see demand in Abu Dhabi for mid-class housing,” said Sami Asad, chief operating officer for Aldar Properties, Abu Dhabi’s biggest developer. Aldar, whose projects include a Ferrari theme park, posted an 85 per cent slump in fourth-quarter on lower sales.

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