(Are we in the GCC experiencing economic slow down before the bubble is burst?)
By Joseph George on Wednesday, September 17, 2008
Work on more than 150 projects across the GCC is currently on hold, according to statistics released by companies monitoring construction projects.
The UAE accounts for the largest number of the projects, followed by Saudi Arabia, Qatar and Kuwait. However an industry expert says the phenomenon is simply part of a global trend.
Some of the most common reasons cited for putting projects on hold are a failure to obtain approval for designs, disputes between contractors and developers over payment and delivery, design changes and the rising cost of materials.
Other reasons include site changes, investors backing out, sale of projects to other users, premature announcement of project details, information leaks before the finalisation of design details and a lack of water and electricity connections.
Research firm ProLeads says Gulf projects valued at $48.4 billion (Dh177bn) are either on hold or have been cancelled. They include at least 88 projects in the UAE, 54 in Saudi Arabia and 15 in Kuwait. Sean Hearn, Sales and Marketing Manager at ProLeads, says the rising cost of construction materials is one major cause.
"I believe the majority of cancelled or on-hold projects in the region are caused by materials costs," he said.
"Disputes arise between developers and contractors regarding ownership of the risk if the cost of materials increases after a project's budget is agreed."
Obviously the credit crunch and global economic slowdown force some investors to pull out of certain projects.
"BNC Network, an online construction product database, says 25 per cent of the GCC projects currently on hold are in the UAE. Saudi Arabia follows closely with 22 per cent, Qatar and Kuwait stand at 14 per cent, Oman at 13 per cent and Bahrain at 12 per cent.
BNC Network says delays are caused by factors such as regulatory hurdles including non-approval of projects and the withdrawal of permission by municipalities and other authorities.
Contractual disputes and rising cost of construction materials are the most common causes of delays in Dubai, while a lack of electricity and water is the leading cause in Ras Al Khaimah.
Ben D'Souza, Chief Operating Officer of BNC Network, said the reason the UAE leads the list was because of the enormous number of construction projects in the country.
"The number looks big but it only reflects the construction boom in Dubai," he said. "It is in proportion to the size of the market. In countries such as Bahrain, where there are relatively fewer projects, the number of projects on hold is also less."
A senior industry expert from a leading engineering consultancy says it is too early to reach a conclusion based on the present trend.
"We are working on projects worth several billions but none has been put on hold or cancelled. Neither is the market slowing down. According to him, the market is getting busier, especially in Abu Dhabi."
He said the only matter of concern was project delay. Many developments were running late or are being delayed due to various factors.
"But the delay is a global problem, and with the steel and cement crisis easing out the problem should ease a bit," he said.
Meanwhile, developers say demand for property is set to increase, resulting in a further escalation of prices.
Ali Al Rahma, CEO of international property consultants Eqarat.com, said: "The Dubai Government is spending billions on infrastructure development. We see the government putting things on fast track. The demand for property is still there."
Commenting on the number of projects cancelled or on hold, Yadvinder Singh, President and CEO of Aakar Developers, said: "More than 90 per cent of plot owners cannot be considered as developers. There are so many projects announced without proper design and study. It is natural for these projects not to take off. To become a developer one needs to put the infrastructure in place. Therefore, it is wrong to consider such projects as cancelled or being put on hold."
Singh said he believed the market was becoming more mature.
"Most of the properties launched are sold. Even if there is a slowdown in construction or if some of the projects are cancelled, prices will not fall. There are areas such as Burj Dubai and The Palm Islands where prices went up by almost 100 per cent last year. Prices will continue to rise but at a much slower rate."
Ahmed Shaikhani, Managing Director of Memon Investments, said: "The supply is currently linked to demand and hence there shouldn't be an issue. The demand for properties will continue to increase, resulting in further escalation of prices."
He said though a few projects had been delayed he did not believe developments would be cancelled on a mass scale.
"The demand for properties will continue to increase, resulting in further escalation of prices. A correction in prices is possible but on a routine basis only."
The Global Construction Survey released earlier this year identified poorly defined scope and design creep as the two most common reasons for projects being delayed around the world.
When asked about the three most common causes of delays, 57 per cent of respondents pointed to poorly defined scope and an equal number to design changes. The other reasons cited were lack of approvals and contractual disputes.
$48.4bn: Value of Gulf projects either on hold or that have been cancelled. They include at least 88 projects in the UAE, 54 in Saudi Arabia and 15 in Kuwait 22%: Percentage of projects on hold in Saudi Arabia. Qatar and Kuwait stand at 14 per cent, while Oman at 13 per cent and Bahrain at 12 per cent
DELAYED PROJECTS A GLOBAL ISSUE
Research presented to Britain's House of Commons by the Chartered Institute of Building (CIOB) shows complex construction projects in the UK are likely to be finished more than six months late due to poor time control. And the same is true in the GCC, the institute's recently elected President told Emirates Business.
"Delays are a problem not just in Dubai or the UK," said Keith Pickavance, who in addition to his CIOB role is Senior Vice-President in charge of construction risk manager Hill International's Hong Kong office.
"The CIOB recognises that delayed completion is an issue for the industry globally and one that we want to address. Our research results indicate the growth in training, education and skill levels within the industry in the use of time-management techniques has not kept pace with the technology available."
There is a need for the CIOB to promote an increased awareness of the importance of project planning and scheduling in the industry. We are focusing on finding ways to deliver projects on time and on budget and are developing codes of best practice, training and qualifications that will provide some of the solutions to the challenge.
Pickvance is only the second architect to lead the CIOB since it was founded in 1834. The institute, which has more than 42,000 members, is the international voice of the building professional, representing a body of knowledge concerning the management of the total building process. Members have included Arup, Costain, Shepherd, Laing, Lutyens and Winston Churchill.
Emirates Business spoke to Pickvance about the organisation's plans for the Middle East.
What are your plans for setting up a CIOB in the region?
We plan to establish a CIOB Middle East with five centres in Dubai, Abu Dhabi, Qatar, Oman and Bahrain and an office and staff covering the region. Preparation is beginning now and an interim infrastructure is due to be in place by early 2009.
Do you have courses or workshops that deal with local issues such as delay and disruption in the UAE and can non-members attend?
Our international branches run a variety of continuing professional development courses. Delay and disruption has not been a specific focus of the branches, but the CIOB has worked with Hill International and invited members to attend delay and disruption courses in Singapore, the UAE, Australia and Hong Kong. We held two last year here and are planning another in early 2009. They are open to anyone to attend.
Can you elaborate on time management on projects in terms of rising prices, materials shortages, lack of skilled labour and deadlines?
Effective time management means creating a time model from which the effect of slippage and events can be calculated. By identifying what will happen in the future the predicted effect can be managed pro-actively. Currently, most people see the programme as no more than a picture of diary dates against which they monitor historically, by how much the dates have been missed. That is not time management, or indeed management of anything. Of course, time management can do nothing to ameliorate the problems with rising prices, materials shortages and skills shortages. On the other hand, whenever there is a risk of delayed completion causing economic loss effective time management during the course of the project is essential. Otherwise the effects of missing the completion date can be catastrophic. Fast-track deadlines only enhance the importance of effective time management.
Can you tell us more about the activities that will be carried out by CIOB centres in GCC? Activities will centre around providing events for members and other industry professionals and providing training in construction management leading to CIOB qualifications. We currently have about 350 members in the region, many holding senior positions. (Sonia Nambiar)