Dubai: Building beyond borders

A number of leading local firms are vying for lucrative construction contracts in neighbouring Gulf states and beyond, creating new opportunities for the sector.

Activity in Dubai’s domestic construction trade is also continuing apace, with signs the industry is recovering from the effects of the global financial crisis that so challenged the local property market.

In early December, real estate giant Nakheel announced it had made a first-half 2011 net profit of Dh526m ($143.2m) and had reactivated a number of its construction sites where work had previously been put on hold. The firm also said it had repaid some $2bn to its creditors, was moving ahead with its recapitalisation and was stepping up project work.

Though there were just over 1600 property transactions carried out in the first 10 months of last year, according to data issued by the Dubai Land Department, a considerable decline from the more than 5300 posted for the same period in 2008, the January to October total for 2011 does represent a 37% increase over the 2010 figure for the same period.

While local trade is starting to pick up, many firms have excess capacity to utilise and empty pages on their order books to fill, prompting some to look further afield for projects.

In particular, those fields are increasingly to be found in Qatar and Saudi Arabia, though Dubai firms will face stiff competition from foreign companies, especially those from Europe where the local construction industry has been hard hit by three years of weak economic growth and now the threat of a return to recession.

While there is a scramble by big European firms to carve out a slice of the market in the Middle East, Dubai-based firms have a number of advantages to offer, among them the fact that they are established regionally, a definite leg up over foreign contractors who would have to set up shop in the Gulf ahead of commencing project work.

Among the Dubai-based firms to push into the regional market is Drake and Scull International (DSI), which won a series of major contracts in Saudi Arabia late last year. On December 11, the company announced it had been commissioned to carry out mechanical, electrical and plumbing work for a hospital in Damman, a contract worth $35m. Only days before, DSI said it had been awarded a $94m commercial development project in Riyadh, with work scheduled to be completed in 2013.

Dubai-based Arabtec Holding is another builder increasingly focusing on Saudi Arabia to bolster the black ink needed to fill its accounts books. In early December, the company said it had been given approval to undertake work worth $178m on a project in Jeddah, a figure the firm said could increase to $400m.

Arabtec already has two large Saudi projects in the pipeline, one being the construction of 46 buildings associated with the Princess Noura University in Riyadh and the other the delivery of 5000 villas in the Eastern Province. The company has also said it will be looking to break into the Qatari market, where more than $250bn worth of building and infrastructure projects will be coming up for grabs in the coming decade, international media has reported.

It is not just in fellow GCC states where Dubai builders are laying foundations, with the Giga Group announcing on December 8 that it had landed a $1bn contract to construct 12,000 houses in the Iraqi city of Basra for the provincial administration. Following years of underinvestment and war damage, the need for infrastructure, housing, retail and commercial developments in Iraq is significant, and with increased revenues from the oil industry beginning to flow, there will be opportunities for Dubai builders to tap into a growing market.

While opportunities are expanding in regional markets for Dubai-based builders, pitfalls remain, one of which is the effect of political instability on economic growth. Dubai firms involved in large-scale projects in Syria, for example, have seen them temporarily put on the backburner due to unrest and economic sanctions.

According to David Macadam, the head of retail for the Middle East at property consultancy Jones Lang LaSalle, developers will likely maintain a low profile, continuing with planning and design aspects of their projects but not the actual on-the-ground construction work until the situation is resolved. However, any halting of work does not mean that the investments are a lost cause, he stressed.

“The projects will happen,” Macadam told UAE daily The National on November 28. “They will still be built and will still be successful.”

Though Dubai builders may have to fight hard to win contracts against rivals from Europe and elsewhere, the recent flow of successful tender bids has shown that the emirate’s construction firms are able to compete with the best international developers have to offer. While Dubai’s own building activity may be muted for the time being, the lessons learned from it are continuing to serve the construction trade well.

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