Today, in the Middle East, it seems one just can't build enough, fast enough - that's the sheer size of the property boom, riding on a high-growth economy.

"Various government bodies and agencies are working to ensure a smoother transition into this high-growth economy, whether it is bridges, roads, sewerage, power, water, etc," says Sultan Bin Sulayem, Chairman, Dubai Ports WorldDubai Ports World, and Chairman, NakheelNakheel, the region's premier real estate and tourism property development firm.

Some indication of just how much the market has grown comes from Elaine Jones, CEO, Asteco Property ManagementAsteco Property Management. "The size of real estate funds invested in the GCCGCC increased to $ 5 billion in 2005 from almost $ 2 billion in 2004 and a paltry $ 42 million in 2002," she says. "The real-estate and property market in the GCCGCC is estimated at over $ 120 billion, 1.4 per cent of the global size. Of this, Dubai accounts for 47 per cent of all real estate projects and Abu Dhabi 14 per cent."

So what kind of property is most in demand in the GCCGCC: residential, commercial or industrial complexes?

"All facets of property are required," responds Jones. "Major townships and cities are being developed that are driven by an employment base and geographical need, for example the Media, Internet or Sports City. By doing this and then building all related facets, we are creating standalone, viable developments."

"The market started kicking in 2000-01," says Adel Lootah, CEO, National Properties, a full-fledged and full-service real estate subsidiary of National Bonds CorporationNational Bonds Corporation that aims to offer distinctive homes and lifestyle options. "Now developers are looking at projects catering to the middle-income groups. National Properties mainly focuses on middle-income housing too. The market is adjusting and consolidating partly. There are also projects like 'Industrial City', which also look after the interest of the low-income and middle-income sectors. Although increase in supply can cause a correction as debt is very low and banks are underleveraged on this sector, the market is likely to remain buoyant."

"Demand in GCCGCC can be viewed from two different angles. Demand for off-plan stock is much higher in commercial and retail compared to residential projects. However, at a micro level the immediate demand for off-plan villa and townhouse projects far outstrip that of off-plan commercial and retail stock," says Nesar Reza Khan, Head, Research and Project Consultancy, Better HomesBetter Homes LLC..

Projects and players
Let's take a quick tour of some of the top projects in the kitty of major developers that's got them excited!

"Park Towers, DAMAC Heights and Gamsha Bay are some of our key projects," reveals Peter Riddoch, CEO, DAMAC PropertiesDAMAC Properties, which has projects over $ 40 billion in hand. "Park Towers includes 100,000 sq ft of retail space over two levels connecting into the DIFCDIFC retail spine, over 200,000 sq ft of high quality office space spread across seven floors, and luxurious residential towers. The iconic 90-storey DAMAC Heights is our first branded tower. And the 320-million sq- ft Gamsha Bay, worth over $ 16 billion, marks our entry into Egypt."

Talking further about Gamsha Bay, loca-ted at the north of Hurghada, Riddoch explains how it will be the region's largest township, offering residents a wide array of housing options, entertainment venues and recreational amenities including an innovative extreme sports adventure theme park. The township will be built in five phases over 10 years, with initial components of the first phase completed within the next five years. The project will offer residents an open scenic environment with 39 km of coastline and 25 km of beaches.

"Our top projects include MotorCityMotorCity, our most ambitious project, Index and Limestone House," says Simon E Azzam, CEO, Union PropertiesUnion Properties. "All these are unique, aimed to set new standards in the property development industry." The com-pany has projects worth AED 12 billion under construction and expects a turnover of AED 2.7 billion. With over 24 projects, the company has created a portfolio of iconic landmarks in commercial, residential and leisure developments, from high-rise towers to multi-use complexes, hotels and theme parks.

Azzam explains that MotorCityMotorCity is a development across 38,000,000 sq ft in DubailandDubailand, based on a unique automobile and motor sport theme that includes residential, business, sports and leisure opportu-nities. A city within a city, it has five project components: Dubai Autodrome, F1 Theme Park, Business Park MotorCity, MotorCityMotorCity and Green Community MotorCity. Meanwhile, Index is an 80-storey multipurpose tower with state of the art offices and luxury apartments, and Limestone House, a unique residence that features an exceptional blend of architectural décor influenced by ancient Arabia and the exotic Mediterranean located in the Dubai International Financial CentreDubai International Financial Centre.

"Important projects for us are The Grandeur Residences with the Arch Group for its sheer location and grandeur; The Centrium with DCA for affordable middle-class living; and Star Hill Gallery with DP Architects, a unique resort in the bustling Business Bay," says Abid Junaid, Executive Director, ETA StarETA Star. The company has projects worth Dh 10 billion in hand and its projected turnover in the UAE alone is in excess of Dh 3 billion per year. "We work with various international consultants from time to time," he adds. "However, the consultant is only as good as his client. He must work with passion and be committed to produce an outstanding project appealing in both form and function."

For his part, Mohammed Muhanna Buti Al Qubaisi, Chairman, ManazelManazel, ranks the Dh 3.3-billion Al Reef Villas and Down Town residential project in Abu Dhabi, the Dh 400-million Dunes Village residential project in Dubai, and the Dh 4-billion Building Material City in Abu Dhabi as his company's top projects. The company was set up in early 2006 by about 80 shareholders and is capitalized at Dh 2.5 billion targeting the middle-income category. "Building Material City is our most ambitious project as it is a multiuse project that will comprise 32 residential towers and 17 office towers, a big shopping centre, a hotel and associated facilities, and the only building materials exchange in the region." According to Al Qubaisi, the best consultants ManazelManazel has worked with are Arte Charpentier, Dar Al Khaleej and Al Falasi.

"Dubai Silicon OasisDubai Silicon Oasis aims to be the world's leading centre of advanced electro-nic innovation, design and development," says Dr Mohammed Al Zarouni, Vice Chairman and CEO, Dubai Silicon Oasis Authority (DSOA) and Dubai Silicon OasisDubai Silicon Oasis HQ. "Providing state-of-the-art facilities for international companies in a globally strategic location, the oasis operates as a technology park for semiconductor-related industries, microelectronics, and IT-based companies including semicondots." To date, the value of the building project owned by DSOA under design and execution is AED 5 billion, while the total scope of development by DSOA and developers for the coming 15 years is AED 26 billion.

"Our most ambitious project is Marina 101, a one-of-a-kind hotel and hotel apartments development with a 101 floor hotel," says Abuali Shroff, Managing Director, Sheffield Real EstateSheffield Real Estate. "Other top projects include a 45-floor corporate office tower in Jumeirah Lake TowersJumeirah Lake Towers and a shopping mall with five floors in Majan-Mizin." The comp-any has projects worth $ 1.5 billion in hand and expects a turnover of $ 3 billion. According to Shroff, the best consultants the company has worked with include the National Engineering BureauNational Engineering Bureau and Arc International.

"Focusing on one project The Wave gives us the opportunity to deliver to the highest standards and ensure completion on time," says Nick Smith, Chief Executive Officer, The Wave, MuscatThe Wave, Muscat. The total value of the development is just over $ 2 billion. "We believe the success of any development is largely linked to the team behind it. Our management team, along with project manager Turner Construction International and design consultant WS Atkins, forms a winning team that strives to deliver a winning project." In Smith's view, some architects are best in master-planning, such as Miami based OBM International, while others are excellent at residential architecture, such as Italian Carlo Santini and Greek Alexandar Tombasis as well as the locally based Triad.

Ambitious projects all, with some really outstanding structures that will soon become landmarks. "Designs are born out of need rather than simply a need to create some-thing with a wow factor. For eg the Palm island design allowed us to have a long coastline, which was not available to us as our beaches are small," says Bin Sulayem. "Designs have to first cross the parameters of build ability, efficiency, practicality, time execution etc before they can move beyond the sketch boards. We do not just simply conceive fancy designs and then decide to see how they can be implemented."

The bugbears
Here's a concern: rising building material costs have thrown a spanner in the works of many projects. "Dubai is in the big league now," says Lootah. "The market has swelled and the need for manpower and building material is causing an impact on costs."

"Building material costs rose by over 25 per cent last year and we fear that prices of steel, cement and wood will increase to the same level this year too," agrees Junaid. "Unfortunately, as we do not have any con-trol over contractors, we are not able to control this rise in cost. However, we procure finishing items directly from all over the world." "I expect the cost of building materials will rise again by about 10 per cent this year," predicts Shroff of Sheffield Real EstateSheffield Real Estate. "We safeguard against such sharp rises in cost by booking a contractor with committed prices." Similarly Al Qubaisi says, "We safeguard against a rise in costs through lump sum contracts with selected contractors treated as partners, where a contract is signed at an early stage of marketing."

Meanwhile, Smith has his own strategy. "Last year, construction prices rose by about 15 per cent and it seems that we'll see a similar increase by the end of this year as well," he says. "We sell our properties in small quarterly releases (about 150 units at a time). This way, we remain on top of construction prices and can pass on any savings to our clients."

"The cost of building materials is not just continuously increasing locally but internationally too," says Al Zarouni. "At Dubai Silicon OasisDubai Silicon Oasis we are taking several measures to control the price and the increase in the cost." These measures include expediting the award of contracts by shortening the design and tendering procedure. Further, selective tendering and direct awarding after proper negotiations and detailed analysis based on current projects in hand can help matters.

Another problem many developers face is that contractors are hard pressed to finish projects in time. "As the pace and order book position of projects is very high, quality takes a beating," says Lootah. "At times even safety is undermined. Construction and contracting firms get into unrelated areas of engineering and design or other unrelated areas or quantity surveying where they do not have technical expertise, causing great deal of financial and qualitative loss to the project." He believes ambitious deadlines set by developers and contractors lead to delays. "In Dubai, our culture is not to keep passing files and plans around forever and ever," he says wryly. "Beyond a point, the culture is to 'go ahead and do it', and then adjust to corrections required."

"Owing to a general resource crunch, there is a delay on the part of the contractors," says Junaid. "Also, contractors undertake more projects than their resources permit, thereby over-stretching themselves. Thus, they are unable to fulfill their commitments. However, some clients do impose unrealistic deadlines on contractors." "All contractors are hard-pressed," rues Shroff, although he concedes that there are "a few who can deliver on time".

For his part, Smith has no issues! "We work with internationally renowned, locally based Carillion Alawi, Al Turki International, as well as the JV between local Al Masriqia Travo and Beirut-based SNE," he tells us. "So far we are very satisfied with their performance and commitment." Al Qubaisi too is pleased with the performance of Fibrex (Al Reef Villas Phase 1), Fibrex-Thinet JV (Building Material City Phase 1) and UNEC (Dunes Village).

User or investor-driven?
It's clear that owing to price appreciation, investing in property in the Middle East is extremely lucrative today. But this begs the question: is the current construction boom lead by actual users or investors?

"When property was first made available to foreigners to buy, we saw a large number of speculators," explains Jones. "A speculator is an individual or group who has finance available to put down the initial deposit or payment required to secure an opportunity to sell a property at a higher price before the next installment is due. This is normal and expected. As the market begins to mature and property is completed and ready for occupancy it is expected that the end user will begin to buy in large numbers. We are seeing this in Dubai. The value of completed property is exceeding expectation. The number of mortgage providers had increased dramatically and this is a vital element to allow the market to develop."

"Projects delivering 1,000s of residential dwellings are finding it a challenge to attract end users given that the prices in some cases have appreciated 3 folds since the project launch," reveals Khan.

That the market is developing rapidly is undeniable. "Dubai has discovered life with-out oil," says Lootah. "It has now gathered the know-how of implementing large world-class projects and there has been a snowball effect. Human psychology reports suggest that people outgrow a home every 10 years and now Dubai has created ample choices to meet with this urge. An oversupply of around 10 per cent is healthy and Dubai is creating ample opportunities for demand to continue to grow in line with its vision."

For her part, Jones says, "Right now, demand far exceeds supply. We need more completed property urgently." No fear, the developers are on hand to deliver, not just in the UAE but beyond too. "We are looking for wherever we can add value," says Bin Sulayem. Our ability to execute massive projects of international standards has given us the power to leverage. We also look for partners who can bring value to the table in the form of land banks, permissions to build, or any other. Our ability to build from scratch, right from conception stage, is our plus point." Way to go!

Snapshot
Funds invested in GCCGCC (2005) $ 5 bn.

Funds invested in GCCGCC (2004) $ 2 bn.

Size of real estate market in GCCGCC $ 120 bn.

Size of real estate market in Dubai 47% of GCCGCC.

Size of real estate market in Dubai 14% of GCCGCC.

The art of the deal
Edward Sunna, Head of Construction & Engineering, Al Tamimi & CompanyAl Tamimi & Company, on smooth property transactions

In a property deal running into millions of dollars, involving numerous contractors and subcontractors, how do you ensure that transactions go smoothly?
In a multimillion dollar property development involving multiple parties, from developers, contractors and subcontractors to funders of a project, parties should always consider reviewing all contractual and insurance documents to ensure that they reflect the liabilities, obligations and expectations of the relevant parties to the development. For example, the appointment of a properly qualified and experienced consultant is material to the outcome of a development and its success. Contractual documents need to clearly identify the risks, and allocate the same accordingly to the relevant party.

What is the most amicable way of solving a dispute?
In Dubai, informal settlement discussions lead to the resolution of most disputes. Litigation is not an accepted part of local culture. With more serious disputes that are not resolved by way of informal discussions, lawyers are often engaged. If unresolved by legal representatives, arbitration is a viable option to litigation in local courts in the UAE. The UAE has recently acceded to the New York Convention on the enforcement of arbitration judgments that allows for the enforcement of foreign arbitration awards locally and awards made in the UAE to be enforced in other member countries internationally.

Generally, how long does a serious dispute take to be resolved? Meanwhile, what happens to work on the project?
In the event of a serious dispute, the accepted position is that work continues till the dispute remains unresolved. However, every effort is made to accelerate the outcome of the dispute, which would involve an attempt to reach an amicable settlement. If that is unsuccessful, arbitration would be likely. Principally, the Civil Code in the UAE does not recognize the right of a party to simply terminate an agreement unless it is with the court's prior consent. As for suspension, unless it is by mutual agreement or if the employer has not met a prior obligation (like failure to pay an invoice on time), a suspension of the work will simply not be recognized by the courts.

Tell us about a well-known property development dispute - what was the problem and how was it resolved?
A recent dispute involved the construction of the world's tallest tower, the Burj Tower. The dispute involved the main contractor and a formwork subcontractor nominated by the employer for the main contractor to employ. The subcontractor went into liquidation and ceased work; the formwork part of the project fell behind the critical path schedule. Under the general conditions of contract, the main contractor is responsible for the nominated subcontractor regardless of whether the main contractor was compelled to accept and employ the services of the subcontractor as directed by the employer. In this case, the risk for delay remained with the main contractor.

The main contractor was not permitted to argue that the employer should bear the risk because the employer nominated this particular contractor. The employer refused to acknowledge it was responsible in any way and relied upon the contract, as it was entitled to do. However, both the main contractor and the employer had a common goal: proper and timely completion of the works. Further, both parties wanted to avoid adverse publicity resulting from a delayed project. The dispute was resolved amicably following informal settlement discussions and after the parties obtained legal advice. The resolution involved the acceleration of other parts of the critical works schedule while the issue pertaining to the appointment of a new formwork subcontractor was dealt with in time. The end result is that the works are back on track and the delay issue has resolved itself with the acceleration of other work.

"Dubai will be the Monte Carlo of the world"
Darshan Hiranandani, Director, Hircon International LLC

Hircon LLC, ETA StarETA Star's JV with India's Hiranandani Developers Pte Ltd, is building a 90-storey edifice known as 23 Marina. Towering to 380 m, 23 Marina encompasses 48 exclusive duplex apartments on the top floors of the tower. Each duplex promises a regal way of living with unique features such as independent elevator, open-to-air swimming pool, and private Jacuzzi.

Dubai Civil Engineering (DCE)Dubai Civil Engineering (DCE) was awarded a Dh 500 million construction contract to complete the project in 33 months. The enabling (substructure) works were awarded to Swiss boring Overseas Piling Corporation Ltd. Hafeez Contractor from India, was the concept architect for the project, while KEO International Consultants is the lead consultant under the guidance of regional director Paul De Vylder. Kulkarni Quantity Surveyors, has been chosen to carry out the postcontract cost consultancy and cost management services considering their expertise in value engineering and success in achieving target costs on other projects.

"I foresee Dubai being the Monte Carlo of the world in a few years and our development has been designed to cater to that kind of clientele," Darshan Hiranandani, Director, Hircon International LLC, told media. Here's what Hiranandani told CW at a meeting at his Emaar Business Park office in Dubai...

On rising building material prices: Luckily for us, we have not been affected adversely owing to the structuring of a lump-sum contract for the construction of our project.

On sales of 23 Marina: The project is completely sold out. The buyers constitute Indians to the extent of 30 per cent while the balance comprises expatriates.

On market trends: The past six months January 2007 to June 2007 have been the best. The market has moved onto the next level. Supply is yet to commence. Even office space is available only in 2009. Even if 100,000 units come in, prices will not be dented as sectors are expanding rapidly. Rents have gone up by 30 to 40 per cent. Look at Palm Island; it only provides 5,000 villas with a coastline. But it will provide a boost for tourism. Now look at what Emirates AirlinesEmirates Airlines is doing. It is likely to add 200 airplanes. Each plane adds at least 300 people per plane in terms of crew and other support staff. This will mean an addition of 60,000 people. In another case, there is an expansion plan of adding 50,000 rooms in hotels. This too will lead to addition of staff and therefore the population explosion. Today at the Marina, the lowest price available is AED 900 going right up to AED 1,800.

On his next project: It will be a sea-facing, ground floor plus 20 boutique building. Inter-national designers are being roped in for furnishings, sanitaryware, etc. We will be using designer stuff for the interiors.

On going international: 23 Marina symbolizes our appetite for gaining the most cutting-edge experience in mid income to high-end housing in the international arena. he secret of Dubai is its ability to deliver infrastructure quickly. It is very expensive to build infrastructure. So once infrastructure is built with high capacity, the city can come up very quickly.

© Construction World 2007

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