UAE's contractors concentrating on the essentials

01 February 2009

Developers in the northern emirates are delaying their ambitious real estate projects, but much-needed infrastructure work will keep contractors busy during the downturn.

The northern emirates were slow to catch on to the construction boom that has been sweeping the federation since 2004, but over the past three years, they have launched a series of ambitious real estate projects.

The most active market, according to Gulf project tracker MEED Projects, is Ajman, the smallest of the UAE’s seven emirates by area, at just 260 square kilometres, where more than $18bn worth of projects are planned or under way.

However, the global financial meltdown that has caused a slowdown in the construction sector in Dubai since the fourth quarter of 2008 is now spreading to the rest of the UAE, causing developers to reassess their project schedules.

Major real estate projects in the northern emirates

ProjectEmirateValue ($m)ClientDescription
Ajman MarinaAjman2,500Ajman Marina
Construction of a mixed-use, 260,000-square metre marina project for business and tourism
Ajman UptownAjman685Sweet HomesResidential township with 1,547 villas and townhouses
Creative CityFujairah500Fujairah MediaMedia cluster with seven zones
Eye of AjmanAjman953Bonyan International Investment GroupDevelopment in the shape of a human eye. Residential, office, hospitality and retail plots
Green CityAjman5,000Eslam Group11 three-storey buildings and 590 villas
New City DistrictSharjah170Government of
Expansion of the city of Sharjah
Marmooka CityAjman4,000Real Estate Investment/DEC InternationalDevelopment with more than 200 towers
MarinaUmm al-Quwain3,300Emaar PropertiesMarina development spread over 4.8 square kilometres
Saraya IslandsRas al-Khaimah500Saraya Islands Real Estate CompanyIsland development with six five-star hotels, residential and retail space
Sharjah Sports CitySharjah250Government of SharjahSports complex and sports education college built on 4-square kilometre plot
Sources: MEED Projects; MEED

Project delays

“The northern emirates have always tended to lag behind Dubai, and it is the same with the cancellation of projects,” says one Dubai-based construction consultant. “But we are seeing more projects being curtailed, cancelled or put on hold as time goes on. Some projects that were announced have never even made it to the tender stage.”

The $250m Sports City development in Sharjah is one scheme that has been halted. The project includes the construction of an Olympic-sized swimming pool, cricket and football stadiums, and tennis courts, over a 4 sq km area. The three-phase construction had been due for completion in 2010, but has been put on hold without explanation.

In Umm al-Quwain emirate, Dubai-based developer Emaar Properties is slowing down work on its Umm al-Quwain Marina project. Work is still progressing on phase one, but subsequent phases are not moving ahead in line with the original timeframe, one source close to the development tells MEED. The AED12bn ($3.2bn) project includes the construction of 6,000 villas and 2,000 townhouses, as well as 1,200 resort and hotel rooms.

Ras al-Khaimah-based RAK Properties is also holding back on the development of elements of its flagship project for the emirate, Mina al-Arab, a AED10bn beach resort covering 2.8 sq km. The scheme includes a harbour, two eco-hotels, residential units, water parks and a heritage village.

“It is a matter of reprioritisation,” says Yasser Mohamed al-Dabach, manager of the shares department at RAK Properties. “RAK Properties always places importance on timing the release of its projects to the market.”

The construction industry has not totally downed tools, with tenders for some new schemes still being issued. In January, selected contractors were invited to express interest in building a 291-room, five-star hotel beach resort in Fujairah emirate. The project is a joint development between Abu Dhabi-based Seba Properties and UK-headquartered InterContinental Hotels Group (IHG). The resort, spread over 69,500 square metres, will comprise a series of Arabian-style low-rise buildings.

Also in January, Sharjah-based Master Civil Construction Company was awarded a AED450m contract for the construction of three towers at the Rainbow Towers project in Ajman, being developed by Dubai-based developer Sweet Homes. When completed, the Rainbow Towers project will accommodate nine residential towers with 31 floors.

Infrastructure investment as a whole is expected to be the most active area in the northern emirates in 2009, in line with the federal government’s commitment to infrastructure spending this year. Such works are set to progress despite the downturn in the world economy because essential infrastructure is insufficiently developed in these regions.

“Infrastructure projects for government clients will continue at the current pace and, to be honest, they were playing catch-up anyway,” says the consultant. “There is a drastic need for these infrastructure projects to be developed, and then possibly the other projects can move ahead afterwards.”

Power and water shortages in particular have frustrated developers in the northern emirates in recent years, leaving some finished real estate projects without supplies. The Al-Ameera Village development in Ajman and Al-Salam City project in Umm al-Quwain, both developed by Dubai-based Tameer, were halted because of a lack of power and water.

The slowdown in the real estate sector will also bring benefits for municipalities that are seeking to put this vital infrastructure in place.

“This is a golden opportunity to play catch-up and, at the same time, to get some more competitive prices from contractors, which, for the past few years, have been overloaded and hence able to name their price,” says the source, adding that investing in the infrastructure of the northern emirates will pay dividends when the real estate sector picks up.

“Inadequate infrastructure has had a big impact in the northern emirates,” says the source. “One project in Ras al-Khaimah did not get off the ground after developers realised they could spend a fortune on building it and then it would be unusable. For their long-term benefit, the right direction for the northern emirates is to get their infrastructure in place first, then follow on with these grandiose schemes, albeit at a slower pace.”

Many developers will now be assessing whether their schemes should go ahead at all. There has always been a question mark over where the demand for property in the northern emirates will come from, given the region’s smaller populations.

Sharjah, and to a lesser extent Ajman, have always benefited from spill-over demand from Dubai because of the lower cost of housing in these emirates. Many expatriate workers live in the north and commute to Dubai.

Projects in Ras al-Khaimah, meanwhile, are intertwined with the emirate’s ambitious plans for its tourism sector. Capitalising on its position as the main access route to Oman’s Musandam Peninsula, Ras al-Khaimah has set itself a target of attracting 2 million tourists a year by 2012.

However, the downturn in the world economy is putting these plans in doubt as expenditure on travel - particularly among European visitors, who comprise a large proportion of tourists to the UAE - is set to decline considerably over the coming year.

Al-Dabach is nevertheless confident that the emirate’s real estate sector still has room for growth in the years ahead. “Ras al-Khaimah is an emerging emirate,” he says. “Demand for residential and commercial properties is still high and supply remains low. A real indication of this has been the increase in rentals.”

Given these challenges, developers will have to change tack if they are to continue to launch projects in the northern emirates. Until now, many of the UAE’s ambitious megaprojects have been financed using the design-sell-build model, but since the desire and ability to purchase property has eroded, such schemes are no longer viable. With customers becoming more discerning, developers will have to appeal to their needs, rather than lifestyle aspirations, and for the northern emirates, that means high-quality, affordable housing.

“Those who start on the right foot and put greediness aside will be able to weather this storm and still make a strong comeback,” says Rami Dabbas, chief executive officer of Ajman-based Aqaar, the developer behind the Ajman One project, comprising 12 residential towers.

Construction of the first phase of Aqaar’s project is well under way. The foundation work for the phase-two office towers has begun, but the firm has yet to start selling the units.

“From day one, we have moved carefully with our business plans and tried to be realistic,” says Dabbas. “We will be able to weather this storm without any headaches, but we have to revisit our future plans and look in depth at the projects we were planning to start in 2009.”

The financial downturn will bring a much-needed dose of reality to developers. For the time being at least, the days of the billion-dollar-landmark construction project are over.

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