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The unveiling of the Mall of the World by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, UAE Vice-President and Prime Minister and Ruler of Dubai, has been one of the biggest real estate news to come out this year. The project is located along Shaikh Zayed Road and will include 100 hotels and serviced apartments, wellness resorts, cultural theatres and an indoor park.
With an estimated price tag of $6.8 billion (Dh25 billion), the project injected a euphoric sensation in the financial markets, reinforcing the ongoing construction boom in the emirate.
In April, consultancy firm Ventures Middle East released its Exploring UAE's Strong Investment Environment report, which bolstered an already positive market sentiment by stating that new projects, combined with many previously stalled projects now forging ahead, will continue to strengthen last year's upswing well into the foreseeable future.
The report states that construction projects awarded in the UAE this year has reached a grand total of $46 billion, a significant rise from $38 billion last year. It also set the value of the UAE's building construction sector at almost 60 per cent of the total projects in the construction industry, followed by infrastructure, oil and gas and power and water.
''The construction sector is picking up in the UAE as a range of new major projects are being awarded,'' says Craig Plumb, Head of Research - Middle East and North Africa at JLL. ''According to MEED Projects, more than $15 billion of contract awards were made in the first six months of the year, with more than 30 per cent of this spending on residential projects.
''This represents a significant shift from previous years when most of the construction activity in the UAE had been on infrastructure projects [road, rail, airports, power plants, etc.] rather than commercial or residential developments.''
According to the International Monetary Fund, the GOP of the UAE was around $390 billion last year and it is anticipated to grow 4 per cent to reach $404 billion this year. Furthermore, the UAE population was around 8.7 million in 2012 and is expected to reach 9.3 million by the end of the year, according to a report from Ventures Onsite, the construction intelligence partner of The Big 5.
The figures indicate that the country's construction sector appears set to return to near optimum capacity, with the government announcing a number of major development projects and stepping up spending on social infrastructure.
While the revival was set in motion by the Abu Dhabi and Dubai governments in 2012, the following year saw infrastructure and tourism as the primary keys to speeding up the uptrend, especially with the upgrades on airports, ports and roadways. This was followed by the euphoria of Dubai's winning bid to host the World Expo 2020, with numerous delayed projects getting back on track on the back of the positive market sentiment.
With sizeable investments in the construction industry from both public and private enterprises, the UAE began to attract investments globally, cashing in on its position as a safe investment haven amid the turmoil in other countries in the Middle East.
Drivers for growth
According to the Ventures report, most of the investments are mainly focused on the development of infrastructure for hospitality, retail and the health care industry. Moreover, the government's efforts to diversify its economy away from oil and gas will boost infrastructure investment in the future.
The value of the building construction sector comprises around 59 per cent of the total value of projects in the construction industry. Infrastructure, oil and gas and power and water together accounted for around 34 per cent of the total value of construction projects last year, according to the report. No single factor can be credited as being decisive in driving the incredible growth. An amalgamation of several factors contributed to the growing optimism in the construction sector.
''There are numerous factors attributed to the current acceleration in the construction sector,'' points out John Mibu, Research Director at Ventures Onsite. ''These include the country's economic climate, a stable political environment, especially against the backdrop of the turbulent Arab Spring, investor friendliness, one of the fastest growing tourist sectors in the world, the World Expo 2020, population growth, a large affluent population and high government spending to build up infrastructure.''
Steve Morgan, Head of Cluttons Middle East, says the growing number of new jobs being created has also been a factor in driving the demand for real estate. ''The Department of Economic Development's [DED] Business Confidence Survey reported that 39 per cent of businesses in the city planned on recruiting new staff during the first quarter, up from 27 per cent in 2012,'' says Morgan. ''Furthermore, the DED also recorded a 12 per cent rise in the number of business licences issued during the fourth quarter.
''This inevitably has had consequences for office space demand, which continues to rise, with a focus on Dubai's mature and established free zones.''
While assessing the factors contributing to the market upswing, it would be a mistake not to take into account the Abu Dhabi Government's long-term investment programmes to upgrade its infrastructure, airports, seaports and public transport system under its Vision 2030 plan.
As part of significant investment in tourism and cultural development, Abu Dhabi is developing a number of islands such as Sadiyat, Al Reem and Yas. The related infrastructure in these islands, with respect to residential and commercial developments, is also driving the building construction sector in the emirate, according to the Ventures report.
What's in store
Three of the largest and costliest projects in Dubai were unveiled by the Roads and Transport Authority this year. The total cost of these projects exceed Dh6 billion, with the Dubai Canal, which will extend the Dubai Creek from Business Bay to the Arabian Sea, costing Dh2 billion.
The construction of Al Ittihad Bridge, comprising 12 lanes and a footpath in each direction, is estimated to cost Dhl billion and will replace the existing Floating Bridge. The mega Dubai Tram project, which will see close to 15km of rail lines rolled out along Sufouh Road, is projected to cost around Dh3 billion.
Other big-ticket projects under construction in the UAE include Etihad Rail ($11 billion), Akoya by Damac ($6 billion); Sobha Developers' project in Meydan City ($3 billion), Abu Dhabi's Midfield Terminal (Dh2.94 billion), Mafraq-Al Ghweifat International Highway (Dh2.7 billion) and Pearl Dubai (Dh2.01 billion).
Other noteworthy projects are Meraas Holdings' Jumeirah Gardens, Dubai Holding's Dubailand, the $16.7 billion Dubai World Central development, which is expected to be completed in 2030, and Limitless' Downtown Jebel Ali, which is set for completion in 2020 with an estimated cost of $14.6 billion.
Government-owned Nakheel will this year be completing the Dragon Mart extension, consisting of 177,000 sq m of new retail space, the Palma Residences on Palm Jumeirah and community centres at Jumeirah Park and Discovery Gardens. Other major projects by the developer include Deira Islands and new Palm Jumeirah developments such as Nakheel Mall, Palm Tower, The Pointe and The Boardwalk.
There is no denying the spillover effect of this growth will be felt across the board. For instance, organizers of The Big 5, a major building and construction exhibition, are anticipating a bumper edition when the show takes place in November.
''The market is changing, prompting a need to support the industry with more educational content at the show,'' says Andy White, Group Event Director of The Big 5. ''Particularly, we are bringing distinguished speakers to Share their perspective, address new technologies and discuss challenges in the upcoming GCC project pipeline.''
Last year's show saw a record attendance with more than 74,000 participants from more than 124 countries, including a host of new exhibitors from around the world. This year's edition is expected to be the exhibition's largest yet, driven by renewed confidence in the region's construction sector.
''The outlook for the real estate sector in the UAE and Dubai is positive, and this is mainly due to the strong economic growth experienced since 2012,'' says Ziad El Chaar, Managing Director of Damac Properties. ''Dubai in particular has continued to witness solid economic recovery and this is reflected in the real estate sector. Strong predicted growth of 4.5 per cent this year will sustain the demand for residential property.
''This explains the continuous solid level of demand in the market, which is reflected in the growth in rental levels and residential values in the short and medium term. As for the long-term prospects, we can't speculate on the growth rates.''
With regards to projects at the World Expo site in Jebel Ali, plans have been drafted with a target date for all major construction activities to be completed by October 2019, allowing for a full year of testing of the networks, systems and technologies in the development.
Beyond 2020, following the conclusion of the six-month global event, the 438-hectare facility will be further developed as a state of-the-art exhibition and convention centre, serving as a permanent attraction.
''The infrastructure buildup for Expo 2020, readiness to receive and accommodate a huge number of tourists, economic growth and latest architectural landmarks will all result in a stronger global reputation for Dubai as well as the UAE,'' says Mibu. ''It will further enhance the country's long-term appeal as a premier destination and in hosting high-profile global events, in addition to attracting more businesses and talents.''
However, in the midst of a real estate boom, Plumb says there is a caveat that must not be ignored.
''There is a potential danger that the return of confidence will result in a real estate oversupply in some sectors of the market, and that not all of the projects currently being announced will actually proceed,'' he says.
Source: Sanaya Pavri, Features Writer, Property Weekly