The construction sector in the UAE, Saudi Arabia and Qatar is expected to record average growth of 9% in 2015, industry heads told Zawya Projects.
The UAE market will see a spate of projects moving from design to construction stage by end of 2014, while Kuwait, where a slew of projects are planned, has yet to fulfill expectations due to domestic politics. Oman and Bahrain will remain flat in 2015.
"The UAE, along with Saudi and Qatar, are the top three markets for the construction sector in 2014. There are many projects in the design stage within the UAE and all consultants are lining up to get the concept design approvals [from authorities]," said Saleh Muradweij, managing director at Drake & Scull Construction. "We expect to see projects to come into the construction pipeline by the end of 2014 or the beginning of next year."
Of the USD 1.53 trillion worth of real estate projects under construction in the GCC up to 2025, the UAE tops the list with projects worth USD 940.55 billion in the design, bid or construction stage, according to Zawya Projects Monitor data compiled in May 2014 (values at nearest approximate figures for this report).
Saudi Arabia is second on the list with USD 461.21 billion worth of projects and Kuwait is third at USD 205.88 billion. The gap then widens drastically to Qatar at USD 82.84 billion, Oman at USD 63.54 billion and Bahrain at USD 46.07 billion.
Single digit growth
Overall, as much as USD 2.87 trillion worth of projects are in the design, bid or construction stage in the GCC up to 2025, according to Zawya Projects data. The real estate sector leads the building industry, followed by the infrastructure sector at USD 455.89 billion and the oil and gas sector at more than USD 360.73 billion.
"The days of double digit growth [in the construction industry] are gone. The UAE, Qatar and Saudi Arabia will see construction growth rates go up to a high 8 to 9% while Oman will be 4 to 5% and Kuwait and Bahrain are flat," said George Berbari, CEO at DC Pro Engineering.
"Clients are taking longer than usual to decide and that is slowing down the numbers. Or maybe, they are lessons learned by the public and private sector from the regional economic crisis in 2009."
Several mega-projects were shelved or put on hold during the crisis, but the GCC market started to revive in 2013.
Berbari said the GCC is heading in the right direction with priority towards development in healthcare and education as well as huge investment in metros and airports. "This will lead to a better quality of life in the Gulf. We feel good movement in Dubai and Abu Dhabi."
The UAE will see growth mainly in hotels and infrastructure said the head of a leading regional construction player based in the UAE, who did not wish to be named.
"Office space will be also growing but not as much. As for residential projects, the focus will remain on finishing unfinished projects. EXPO 2020 is more of optimism, but nothing concrete yet on the ground," he said.
"Saudi Arabia, Qatar and UAE are all growing and we expect a 10% growth in the coming year. In Saudi, the focus is on big infrastructure, hotels and residential while Qatar will see growth across all sectors," he added.
Muradweij sees small margins in Oman, which he termed as a mature market. "However, even though Kuwait has the intention to work, there are different constraints on the projects that they announce. We have been prequalified on certain projects and are more hopeful of the oil and gas sector in Kuwait," he said.
"[In Saudi Arabia] since Aramco has been given the responsibility to manage many government projects for the Ministry of Finance and the Ministry of Housing in Saudi Arabia, we expect to see a lot of opportunity and projects out there in 2014 and 2015."
Berbari said Saudi Arabia is still recovering from labor law issues. The country last year implemented stringent market reforms by changing work visas of around four million expatriates to correct their employment status and repatriated around one million illegal workers. It is also trying to increase participation of nationals in the labor force.
Fahd Al Hammadi, chairman at the National Contractors Committee (NCC) at the Council of Saudi Chambers, said in remarks published by Saudi media that the kingdom's contracting sector may record under heavy losses in 2014 for the first time in nearly 20 years.
"We expect nearly 80 percent of the total contracting companies in Saudi Arabia to suffer from losses by the end of this year," he was quoted as saying. He noted that project costs soared mainly due to decisions by the labor ministry, which increased labor costs by about 150%. This impacted industry, trade, services and construction sectors and pushed many contractors to quit the market because banks became reluctant to fund their projects.
Muradweij agreed that human resources would remain a challenge in the Saudi market: "Every year, the budget increases but the execution remains a challenge in Saudi Arabia. We have around 15,000 people on the ground there but the challenge lies in bringing the right people into the country."
"In UAE, competitive pricing will ensue as the market eventually opens up due to the amount of work coming up and the EXPO 2020 targets."
Power shortage is another issue in the long run. "There is a 7 to 8% y-o-y power demand within Saudi and it is putting an enormous strain on the Gulf resources," said Berbari.
In the UAE, Abu Dhabi is supplying more than 2000 MW to Sharjah and Northern Emirates to help the ease the restrictions against new construction, he added.
"If you look at the rest of the GCC, Kuwait and Bahrain are quite slow in terms of growth. Kuwait, in particular, has many issues to resolve – a shortage of power being one challenge in light of the public housing projects in the pipeline. We also see a delay in commissioning dates on projects ranging from two to four years at times in Saudi Arabia."
According to a Reuters report on 23 May, Kuwait and the UAE are increasing imported gas to meet power demand, especially in summer when consumption to power air conditioning goes through the roof.
Power and water scarcity will remain the main challenge in 2014 and beyond, according to Berbari. "Executing mega infra jobs like airports and metros are huge challenges in terms of meeting deadlines and schedule as they might interrupt traffic and normal life. Most mega projects are facing delays. We have also seen that metro projects, despite being on track, are not picking up as fast as expected," he noted.
Competition heating up
In the infrastructure sector under construction in the GCC up to 2025, Zawya Projects Monitor data shows that Saudi Arabia leads the pack with USD 138 billion followed closely by UAE at USD 128.38 billion and Qatar at USD 104.87 billion. The figure then halves with Bahrain at USD 56.96 billion, Oman at USD 36.51 billion and Kuwait at USD 20.47 billion.
In the oil and gas sector, the UAE has around USD 210.46 billion worth of ongoing projects, while Qatar stands at USD 155.77 billion, Kuwait at USD 96.11 billion, Saudi Arabia at USD 42.10 billion, Bahrain at USD 35.02 billion and Oman at USD 7.84 billion.
"We have not had an opportunity to penetrate the Qatar market as much as we thought – in light of the 2022 World Cup, which is coming closer and closer. But opportunity will increase and reach a point more than contractors can handle by 2016, 2017 or 2018. Overall, we are targeting a 20% y-o-y and see the construction sector growing in parallel," said Muradweij.
He expects to see serious competition in the UAE in 2015. "Margins will be thin due to the appetite of the big contractors that have been waiting for the past five years for the projects market to revive. Going forward, margins will open up, work will increase and we will hopefully have the good days before the crisis," he said.