FEWA Urges Real Estate Restraint

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The Northern Emirates' uncoordinated real estate boom threatens to leave new projects without access to vital utilities, according to a senior official from FEWA, the Federal Electricity and Water Authority.

Speaking to local press, Executive Director of Supply Hassan Abdullah Al Ghasyah said "unplanned" developments could cause a major shortfall in water, electricity and drainage, which could take years to remedy.

"The abrupt development in the construction field now seen in the Northern Emirates is unplanned," he said. "Local authorities have not coordinated on precise water and power requirements with FEWA."

According to Al Ghasyah, FEWA is committed to increasing power and water supply by a minimum of 8% annually. Private estimates of current growth in Ajman dwarf this figure though: Gross Domestic Product (GDP) is estimated to be growing at 27%, and population at 18%. Limited supplies of natural gas are already placing strain on generation capacity in certain Northern Emirates, with reports reaching OBG of delays in connecting new developments to utilities.

The issue of shortages is leading to tension between government and developers. Al Salam city, a Dh30bn ($8.16bn) project by Dubai-based developer Tameer, was placed on hold toward the end of May. The city, which was set to house up to half a million people, was due to built in Umm Al Quwain. Tameer claimed a shortage in water and electricity meant that, for the time being, they could no longer go forward with the project. Company sources laid the blame at the foot of the government - "the government is telling us they don't have enough resources to provide water and electricity for the city. We don't have any idea how long this period will go on for".

The local government responded furiously to Tameer's claims. In uncharacteristically blunt language, they accused Tameer of "mere lies that aim to impair the emirate's reputation", and took the unusual step of publishing a clause from Tameer's contract, proving that the developer was attempting to "evade [its] contractual commitments". Article 117, paragraph 4, which the government released to the media, stipulates that "the government is not responsible for supplying electric power, sanitary discharge, water, wire and wireless extensions".

The delay in such a high profile development - which according to some sources was already 70% sold - is a blow to Umm Al Quwain, the smallest emirate by population. Given the degree of off-plan selling which has already taken place, it is a headache for Tameer too. The company has offered investors three options: a full refund, a roll-over to Al Arjan (a Dubai project) at a 20% discount, or a roll-over to any other project at a 3% discount. It also says that Al Salam itself is still merely "on hold", and work will resume once the issue of utilities has been resolved.

For some investors in Al Salam, however, the options offered by Tameer may not be attractive. Much like Damac's Palm Springs project, which was cancelled in March, the refund offered by Tameer reflects market prices at the time of signing contracts. Prices have doubled or even tripled in the past two years, and Tameer's new projects reflect current costs and valuation.

With estimates of some 300 towers currently under construction in the Northern Emirates, and real estate agencies in Europe and the US talking up the new boom, the stage would appear to be set for further bottlenecks in supply. Major power infrastructure is currently in the pipeline, including private sector investment under FEWA's supervision. Increasing capacity takes time though and also requires the sourcing of sufficient feedstock.

As the United Arab Emirates enters the hottest months of the summer, reports are emerging of repeated power shortages in emirates such as Ras Al Khaimah, as residents power up their air conditioners.

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