UAE’s north awaits real estate boost

18 April 2013

As Dubai’s property market improves, developers are starting to revisit plans for projects in the northern emirates. In the short term, infrastructure schemes will continue to create opportunities

Between 2003 and 2008, the UAE’s northern emirates were direct beneficiaries of the real estate and construction boom in Dubai. Developers planned ambitious schemes such as Salam City in Umm al-Quwain, which would have been large enough to house more than 1 million people, just a 45-minute drive away from Dubai.

Unfortunately for the northern emirates, they were hit hard when property prices across the UAE collapsed in late 2008. Today, there are nearly $63bn of projects, mostly real estate schemes, that are still on hold, and another $97bn of schemes that are cancelled.

While the legacy of the past is still a burden, the outlook is improving as Dubai’s property market recovers and developers start to revisit plans for projects in the northern emirates, and infrastructure development, supported by federal and Abu Dhabi funding, continues.

Ajman award

Perhaps the most significant move for the tourism and real estate sectors is the decision by the Ajman government and Lebanon-based Solidere International to tender a five-star hotel on its Al-Zorah development in Ajman. The project delivery vehicle, Al-Zorah Development Company received bids from contractors for the deal earlier this year and an award is expected during the second quarter.

The award will accelerate work on one of the northern emirates’ largest and most ambitious projects. The masterplan covers an area of 5.4 million square metres and has 12 kilometres of waterfront.

Building work on the project slowed in 2009, but the developer says the contract for the infrastructure works has been awarded. The work on the road linking the project with Mohammed bin Zayed Road has also been completed.

Ras al-Khaimah’s Rak Properties is also looking to start work on hotel projects this year and the developer says occupancy rates are high and the emirate needs more than 3,000 new rooms. The developer had previously planned to build an Intercontinental hotel and Rotana properties at its Mina al-Arrab development. The Hilton Worldwide group has also signed an agreement with the local Mohamed Ruqait Real Estate Company to build a DoubleTree Resort on the Marjan islands development, located off the Al-Hamra area of Ras al-Khaimah.

We have been involved in a wide range of projects in the northern emirates, notably roads

UK-based consultant

Hotels are also being built in other emirates. The local Al-Hamad Contracting Company started work on a new Ramada hotel in Sharjah last year for a Kuwaiti investor. Located on the Buhaira corniche, the project involves building a hotel tower with two basement levels, a mezzanine level, three parking levels and 34 storeys of hotel rooms.

Although hotel projects are starting move forwards again, residential schemes have yet to regain the momentum they enjoyed before 2008. One residential project that did move ahead in 2012 was Sharjah’s Nujoom Islands project, which is being developed by the local Al-Hanoo Holdings.

In June last year, the local Darwish Engineering was awarded a contract to build 60 villas on the development. Later phases that are planned for the $5bn project include 1,200 villas, 350 townhouses and 70 residential and commercial towers.

While Nujoom Islands was an exception in 2012, this is expected to change. During 2012, prices for good quality units in well established locations in Dubai began to rise again. By early 2013, prices for units in other more peripheral developments on the outskirts of Dubai also began to climb.

If this trend continues, prices in the northern emirates should also start to creep up. This will give developers the confidence to start new projects funded by off-plan sales, just like developers in Dubai have started doing again.

The project pipeline has some large schemes in the planning stages, including the AED3.67bn ($999m) sports scheme on Ras al-Khaimah’s Marjan Island, which is backed by Spanish football club Real Madrid. The 430,000-sq m development includes a 10,000-seat stadium, associated sports facilities, club museum, shopping mall, five-star hotel, villas and private beaches.

Infrastructure overhaul

An overhaul of the northern emirates infrastructure is needed if these real estate projects are to be a success. Residents at completed projects still complain of infrastructure failings such as power cuts – something that also affects local communities.

To address these problems, UAE President Sheikh Khalifa bin Zayed al-Nahyan said in 2008 that AED16bn would be spent on infrastructure projects in the northern emirates. The funds are being spent on improving roads, sewage and drainage systems, and building schools and hospitals. While deficiencies still exist, the quality of public amenities is slowly improving.

“We have been involved in a wide range of projects in the northern emirates, notably roads,” says a UK-based consultant. “The rest are improving the social infrastructure, and that is what I think Sheikh Khalifa’s spending plans are really aimed at.”

The largest single award was the AED800m contract secured in 2009 by Abu Dhabi-based MCM Group from the federal Public Works Ministry to build the Sheikh Khalifa specialist hospital in Ras al-Khaimah.

The project which is nearly completed, involves the construction of a 248-bed six-floor hospital with a trauma centre, as well as general wards and departments for oncology and cardiology.

Coal power

For power, Ras al-Khaimah plans to build the GCC’s first clean coal power plant. Last year, the local Utico Middle East and China’s Shanghai Electric agreed to build a AED1.5bn clean coal-fired power plant, which will generate 270MW of power. The project is expected to be operational in 2015.

Lacking hydrocarbon resources, the northern emirates have considered coal for power generation before. In 2008, the Ajman government signed an agreement with Malaysia’s MMC Utilities to develop a coal-fired plant with a capacity of up to 1,000MW, but those plans were later shelved. Another sector that will generate opportunities for construction companies in the northern emirates is oil and gas.

Fujairah, on the east coast of the UAE, has been identified as a strategic hub for Abu Dhabi’s oil and gas sector bypassing the Strait of Hormuz and a number of key projects have moved forwards in the past few years, and more are expected.

Fujairah refinery

The largest upcoming project is the $3bn refinery being developed by Abu Dhabi’s International Petroleum Investment Corporation (Ipic). The project, which Ipic wants to be completed by 2017, will be built near the end of a 1.5-million barrel-a-day pipeline that takes oil from the Habshan oil field for export from Fujairah out through the Gulf of Oman.

Ipic is also working in a joint venture with Abu Dhabi’s Mubadala Development Company to build a terminal for importing gas at a nearby site in Fujairah.

These investments from Abu Dhabi together with federal upgrades to the northern emirates’ infrastructure should provide contractors with significant opportunities in the coming two years. But for the market to go from a steady one to a good one, then real estate projects need to start moving ahead again. The omens are good, but there is still some way to go before the recovery is in full swing. 

Key fact

Nearly $63bn of projects, mostly real estate, are still on hold in the northern emirates

Source: MEED Projects

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