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Weathering recurrent crises are the responsibility of the Government & Private Sector

Cityscape 2016 creates feasible solutions for the issues in the Property Development Industry

A diverse and balanced real estate market that meets the demands and requirements of all parties concerned needs a well-integrated and resilient construction sector that can survive the existing property development challenges. The existence of such a buoyant market depends on the level of liquidity and funding mechanisms available and the prospects for growth possessed by operating real estate developers and contractors.

A reliable outlook of the real estate market entails an insightful review of the lessons learned from this sector across the region. This review, in turn, necessitates a consolidated strategy to find best possible solutions to any potential failures in the future. Within this context, the GCC’s construction sector has proved to be heading for a more efficient structuring, streamlining and re-organization of its businesses, including those already executed as well as those still in the pipeline. Developers in the construction sector now have the expertise that enables them to cope with market economics and cycles, which are always the main factors behind the challenges faced by the sector. However, risks of failure where companies might be forced to close their doors are still looming in the foreseeable future, as market integrity and efficiency are still subject to some factors, including competitiveness and the ability to control the market.

Al Mazaya Holding’s weekly report states that a decline in real estate enterprises has a negative impact on the level of competitiveness, producing a general tightening of liquidity that impacts investment in real estate development. This, according to the report, results in the increasing risk of failures. These are attributed to several factors, some of which are associated with real estate developers, while others are related to GDP and infrastructure development plans. The ultimate result is higher demand and soaring real estate prices.

The report shed extensive light on the UAE’s Construction Sector, being one of the fastest growing across the entire region, where it is likely to remain resilient and experience growth despite the pressing financial and economic challenges, thanks to its genuine level of demand in times of low economic growth and its high demand levels during an economic boom.

Moreover, external demand from different sources ensures sustained demand levels. However, it has transpired that the UAE’s Construction Sector has started to be negatively affected, as is the case in other regional markets, by tightening liquidity levels, which, in turn, impacts investment into real estate development, and consequently results in ebbing funding sources.

The report indicated that the UAE’s Real Estate Market continues to lead the region’s markets, with Dubai getting over 44% of the total construction contracting awards during the first half of 2016, bringing the total value of construction contracting awards to $13.6 billion. Statistics show that the UAE absorbs more than 58% of the total construction enterprises in GCC States, especially during the first half of 2016, a fact that proves the resilience of this market and reflects a positive outlook of its current and future state.

The report stated that the construction sector across the region suffers from many challenges and complications, with state governments failing to provide clear-cut and direct support to help the sector survive rising pressures. This lack of support leaves the construction companies in limbo, suffering from mounting financial burdens, and ultimately forcing them to withdraw from the markets due to their inability to make up for the accumulating financial losses, resulting from their failure to collect back funds spent on executed projects. The report indicates that more than 60% of Arab construction developers face liquidity-related challenges and that the decline in real estate activity and in government expenditures on infrastructure projects is likely to aggravate market conditions. Such a situation requires more deliberations and cooperation between all real estate development companies from all over the region in order to make use of the business activity registered on one market or another from time to time. Furthermore, such cooperation is likely to enhance these companies’ competitive edge overseas. It is noteworthy that revealed data indicates an increase of $2.5 billion in the due financial amounts of the construction sector, a fact that reflects the tightening liquidity levels, and consequently the burdens real estate developers are suffering at present.

The report revealed that there are many reasons behind the current fall among construction companies and that they differ from one market to another and from one country to another. The Saudi Market faces myriad domestic challenges, atop of which come the funding pressures, manpower and the state measures that are developed to limit foreign worker numbers as part of the Saudization Programme. Furthermore, the declining government expenditure on development projects as part of the Economic Transformation Vision 2030 has triggered tough restructuring measures in several large and medium-scale companies and augured the exodus of large numbers of small developers.

The report adds that the continuing pressures are likely to have a negative impact on other sectors, atop of which come the petrochemicals, telecommunications, insurance and industrial sector companies – the latter boast the largest share of government funding. It is noteworthy that a large number of the construction companies operating in KSA receive and rely on the government’s financial support, and therefore, the recent funding constraints are likely to aggravate the liquidity crunch, augmenting to over 40% of the percentage of financially ailing enterprises.

The challenges that major powers and oil-exporting countries are going through, and the failure to secure full recovery from the recent financial crunch have their own negative impact on all other sectors and activities, including the service sector in its entirety, according to the report. This negative impact, said the report, will reach out to the financial sector and hit the expansion plans of the industrial sector, which has boasted a large portion of the government funding over the past 10 years.

Cityscape 2016, according to the report, has provided clear indications of the construction sector performance in all the countries participating in this major real estate exhibition. The real estate units showcased during the event, the demand indicators, and the rates of the transactions clinched during the exhibition have provided clear indications of the present and future of this sector, creating solutions that real estate developers will rely on over the coming period in their quest for more efficient strategies in face of the current challenges, primarily the lack of liquidity. Such strategies include a change in direction toward more projects with more specialized and sophisticated themes that hold high chances of success in terms of execution, timed-fixed schedules and high-returns. This will not materialize except through exercising more focus on developments of high economic value and feasibility that enjoy increasing demand from different segments of the society, including both local and foreign investors and end-users.