Government props up Abu Dhabi construction market

13 July 2010

Private sector awards have fallen by 88 per cent over 2009

Abu Dhabi government clients awarded 90 per cent of the $5.9bn of construction and infrastructure awards in the emirate during the first half of this year.

The government is propping up the emirate’s construction sector as the real estate market stagnates and projects planned by private sector developers stall.

A government-dominated construction sector is not a new phenomenon for Abu Dhabi. “With the exception of the short-lived real estate boom Abu Dhabi has always been a government market.” says an Abu Dhabi-based contractor. “Private clients have accounted for very little of the work that has been done in the past.”

During the first six months of this year, the government awarded $5.15bn of contracts in the emirate and the private sector awarded $759m. The split between the public and private sector is a marked change from the first half of 2009 when private sector developers awarded $5.1bn of deals, which accounted for 61 per cent of the total value of contracts awarded in Abu Dhabi.

The emirate’s stagnating real estate market has caused the value of private sector contract awards to fall by 88 per cent over 2009. According to UK-based property consultant Cluttons’ July 2010 Abu Dhabi property market update: “There is little market evidence of transactions of units in developments, which are 12 or more months from completion.”

The two largest contracts awarded in Abu Dhabi this year are backed by government-owned Mubadala Development Company.

In March, Mubadala awarded the joint venture of the local/Belgian Six Construct Abu Dhabi and South Korea’s Samsung Corporation the estimated AED4.7bn ($1.3bn) contract to build Cleveland Clinic Abu Dhabi on Sowwah Island. In April, it awarded the local/UK Al-Futtaim Carillion the estimated $1.5bn contract to design and build the New York University Abu Dhabi’s main campus on Saadiyat Island.

For private sector clients, the largest contract award during the first six months of 2010 was the $163m deal secured by the local Alec from the Al-Jaber Group for the Shangri-la hotel on Saadiyat island. During the first half of 2009, the private sector awarded nine contracts worth more than $200m each with local developer Tameer Holding awarding the largest contract at $1.9bn.

Most developers in Abu Dhabi can no longer afford to move ahead with projects without investors that are prepared to buy off-plan properties. Faced with stalling projects that are declining in value, developers have been forced to look for new revenues streams. “Developers have resorted to selling plots from their land-banks and undertaking public housing projects for the government to improve cash flow,” says Cluttons.

Abu Dhabi’s two largest developers, Sorouh Real Estate and Aldar Properties, are now undertaking residential projects on behalf of the government.

Sorouh has signed an agreement with Abu Dhabi’s Urban Planning Council (UPC) to develop two large-scale residential developments for nationals in the emirate. The first project is the AED15bn Shamkha development on the UAE mainland, close to the city on Abu Dhabi island. It involves building 6,453 properties that will house 60,000 people when it is completed in 2014 (MEED 17:4:10).

The second scheme is the AED5.4bn Watani development, located next to Abu Dhabi Golf Club, which will involve the construction of residences to house 17,000 people when it is completed in 2012.

The local Aldar is developing its Al-Falah residential project near the Abu Dhabi International airport. In 2009, Aldar awarded three contracts, which are worth up to AED2.6bn each, to build 5,000 villas by 2012. In April, it won a contract to develop the infrastructure for the Shiebat al-Watah residential project in Al-Ain.

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