A slew of upcoming mega-scale projects have breathed new life into the GCC's property sector in 2012 as total value of announcements reached over USD 69 billion, according to industry data compiled by Zawya.
Five years after the real estate bubble burst, the region appears to be entering a new phase of development boom, spurred by hydrocarbon giants Saudi Arabia, Qatar and the UAE.
In the first half of 2012, Qatar led the pack with USD 18.81 billion worth of projects, followed by Saudi Arabia with USD 15.85 billion and UAE with USD 10.50 billion. Other GCC countries have also shown activity with announcements from Oman reaching USD 4.58 billion, Kuwait at USD 2.30 billion and Bahrain at USD 88 million.
The second half of 2012 saw Qatar taking a backseat, with just USD 371 million of projects, and surrendering the top spot to Saudi Arabia, whose construction zeal remained unabated with USD 10.1 billion worth of deals. The UAE (USD 4.32 billion) moved to second place, followed by Kuwait, Oman (at almost USD 1.1 billion each) and Bahrain (USD 38 million).
Saudi Arabia played a very active role in 2012 within the infrastructure sector. In May, the Arriyadh Development Authority (ADA) invited international consortia to prequalify for the Riyadh metro project. In the same month, Jabal Omar Development Co said it plans to launch the third phase of its large-scale mixed-use real-estate project in Makkah.
In June, Gulf Capital, one of the largest investment firms in the Middle East, announced its formal entry into the Saudi Arabian residential market and the launch of an ambitious SAR 1 billion residential compound in Riyadh.
Other major projects in 2012 that made it to the spotlight included Abdul Latif Jameel Real Estate Investment Company's (ALJREIC) SAR 10 billion Jabal Al Ka'aba project, which aims to develop roads that connect to the Holy Haram, including the Makkah-Jeddah Expressway and Makkah-Madinah Expressway, the railway project to connect the developing Haramain Railway system with the Mashair metro service and the western suburb project being supervised by the Makkah Gate Company.
Saudi led in 2012 due to the budget - every year, the ruler of Saudi Arabia increases the budget and most of that is focused on health care and education. In Qatar, the drivers for the first half are the infrastructure related to the FIFA World Cup 2022 and the high emphasis on education.
Qatar Pauses for Breath, UAE Upbeat
The dramatic drop in second-half announcements from Qatar could be attributed to the fact that it is deliberately slowing down construction to balance the demand-supply equation.
While UAE regains the lead in project activity, construction and transport projects remain the predominant sector across the region, said a January National Bank of Kuwait (NBK) report titled 'GCC projects in 2012: On the rise again.'
"Large projects are seeing resurgent activity, which is good news for the GCC economies. At a country level, the UAE's project sector was by far the most concentrated in construction. As of 3Q 2012, the project sector seems to have revived with some previously held off projects coming back. UAE seems to be regaining its leading position in the region and adopting these multi-billion dollar projects again," noted the report.
UAE president His Highness Sheikh Khalifa bin Zayed Al Nahyan announced on December 1 the launch of a new housing program that aims to build 10,000 housing units throughout the country.
In the case of Kuwait, the long list of projects that had lagged in terms of awards and execution is now finally seeing better movement, thanks to renewed efforts by authorities. These projects should contribute and add to GDP growth in the coming years, some as early as 2013, the report added.
"The traditional projects market in the GCC was flat in the first half of 2012, with the value of projects being awarded down on a like-for-like basis when compared with 2011. This was largely due to a contraction in the Saudi market, where the government struggled, from an administrative point of view, to cope with the weight of proposed projects. Kuwait was also subdued due to political squabbling," said Andrew Greaves, head of the Dubai office of Addleshaw Goddard (Middle East), a legal firm.
"But on a positive note, we did see increased announcements and construction activity in Dubai, Abu Dhabi and Qatar in the second half of 2012."
There are many factors that influence government spending, or the lack of it, according to Greaves. The principal driving forces include budgetary constraints, the population's size and demographic, the need to spur job creation, as well as reduce or prevent political uncertainty, stabilize and/or maintain security and meet the desires of the people - not, by any means, an easy circle to square, particularly if there is a large population relying on the state.
Soon to Rise
Besides the airport project, the Louvre contract also made a significant difference to the construction industry in the region. These were the two significant and large-value awards in Abu Dhabi, said Bishoy Azmy, chief executive at Al Shafar General Contracting. The second half of 2012, however, saw more announcements from Dubai.
"The market revival was more by sentiment and not by facts. The UAE market, especially Dubai, is driven by real estate. The market went up and so did the international view of the Dubai sovereign risk. [During] the first half of 2012, [the] Dubai government issued bonds [and] had to pay investors close to 7%. But when they launched the same product in the second half of 2012, they were giving half the amount. That reflects [renewed confidence in] Dubai and the decrease in risks as viewed by the investors," Azmy said.
Phillipe Dessoy, general manager at Six Construct, added that Kuwait was quiet, except for the airport project announcement in March. The country has plans to launch in the coming weeks an initial tender for the construction of a second terminal at its international airport, a project worth USD 2.5 billion to USD 2.9 billion.
"[Bahrain's] political issues [seemed] to have stabilized. Oman remained the same stable market. Saudi will see a boom with the announcements on the new metro in Riyadh, the new airport and metro in Jeddah, the refinery in Jizan and the expansion for Yanbu. In Dubai, the activity seemed [contained within] the area around Burj Khalifa and the Nakheel projects," said Dessoy, who expects contracts to be awarded in 2013.
Meanwhile, Yahya Jan, vice president and design director at architectural firm NORR Group, said that while a mortgage law was passed in Saudi Arabia last year, the financial institutions have yet to embrace it.
"We expected a boom in housing finance post the law, but that has not happened. Things are moving slowly," he said.
Flush with Cash
Market sentiments have been a major influence in the GCC and part of that is being driven by the availability of funds, said Craig Plumb, head of research at Jones Lang LaSalle MENA.
"Yes, the construction activity is increasing in Saudi, Qatar and UAE but it depends on how you measure that. There were more projects starting between 2012 to date compared to 2011 since there is increased funding. But not everything that is announced will go ahead," said Plumb.
However, he sees great potential in Saudi projects such as the King Abdullah Economic City, the Haramain rail link, the Jizan Economic City and the King Abdullah Financial District in Riyadh.
"The larger projects are government backed by the PPA [Public Pension Agency] or GOSI [General Organization for Social Insurance] - so government spending is the biggest driver. Besides, the kingdom is serious about diversifying the economy away from exporting oil into the industrial and the economic cities and industry," Plumb said.
Saudi Arabia's construction boom has also been fueled by the population growth and the need for housing and, until recently, a shortage of affordable housing.
"As for Dubai, apart from the rush of projects in H2, we are also excited about the new Dubai Expo site at Dubai World Central. The decision on the expo will be made this year. If the UAE gets the go-ahead, one can expect to see a lot of activity around Dubai Central," Plumb said.
Despite some older contracts being cancelled following the property bubble crash in 2008, new projects are entering the pipeline, reflecting a general upward trend for the GCC, NBK reported.
"Of course, this infrastructure spending has contributed to the outperformance of the GCC economies recently, with more to come," the bank noted as it gave GCC developers and the construction industry a positive outlook.
Dubai Regains Luster
The first half of 2012 saw Abu Dhabi in robust mode with the awarding of two major contracts - the massive AED 10.8 billion deal for the construction of the Midfield Terminal Building (MTB) at Abu Dhabi International Airport and the AED 2.4 billion contract for the prestigious Louvre project. Both projects ignited renewed investor confidence in the UAE.
However, Dubai also began to show serious intent to revive some stalled projects and developers have started to seek bank financing.
In February, the emirate's Department of Finance successfully completed a dual currency financing of USD 675 million, the proceeds of which will be used to complete the construction of Phase 1 of the Al-Sufouh Tram project in Dubai.
In March, Nakheel said it will go ahead with the major expansion of its retail operations, doubling the size of both Ibn Battuta Mall and Dragon Mart.
In May, Al Hilal Bank and Mashreq Bank, acting as mandated lead arrangers, announced the financing of Marvel Adventure, an indoor family entertainment center spanning 350,000 square feet within the City of Arabia.
The project, originally announced under Tatweer's portfolio in 2008 and eventually put on hold, is now being developed by the Ilyas and Mustafa Galadari Group.
In H2 2012, Dubai again surprised spectators with a flurry of announcements, indicating that the emirate's intention to pick up where it left off five years ago.
In October, His Highness Sheikh Mohammad bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai, endorsed the extension of the AED 1.5 billion Business Bay Canal project. Likewise, the developer of the USD 1 billion Taj Arabia in Falcon City of Wonders, Dubai, said it will go ahead with construction of the project, originally announced in 2005.
India's Sobha Developers said it will break ground on the USD 3 billion Sobha City project in 2013. The development will be built adjacent to Meydan Godolphin Parks. Land sales, which totaled approximately eight million square feet and concluded in February 2012, represented the largest sale of Meydan City offerings to date, said the Meydan Group.
In November, Sheikh Mohammad approved the fourth phase of the AED 2.5 billion Madinat Jumeirah expansion project. Emaar during the same period also said it will commence expansion of the Dubai Mall by building a new high-street boulevard-style retail destination. In addition, the developer will launch new luxury homes and serviced residences within the Downtown Dubai district.
Planning a Big Future
However, two announcements in the second half of 2012 brought the "wow factor" back to Dubai.
Sheikh Mohammad announced plans for the Mohammad Bin Rashid City, a massive tourism and retail development that includes the largest shopping mall in the world. The project, to be developed by Dubai Holding and Emaar, will also house a park that is about 30% bigger than London's Hyde Park.
Dubai's ruler also approved Dubai Adventures Studios, which will comprise five theme parks valued at AED 10 billion. Meraas Holding, a Dubai-based real estate developer, will build the project on a land area of around 30 million square feet.
"The landscape has really changed in the last six months to a year, especially in Dubai. Key developers like Emaar and Nakheel are going to start work in pockets like Downtown and Marina. We are seeing renewed optimism - as if there is a need to make up for lost time," said NORR Group's Jan.
"The rebound is hopefully sustainable, which is a concern. But barring the commercial sector, I am very optimistic about Dubai in the high-end residential, hospitality and retail sectors. Tourism is on the rise and the Arab Spring has resulted in a flight of capital into Dubai. The emirate is reigniting the confidence of international investors and continues to grow as a global city."
© Zawya 2013
