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Developers pre-empt high demand in construction

Gulf News - December 6, 2014

367947219Dubai: Local developers are moving in to lock in their project contracts well ahead of the anticipated demand rush on construction industry resources in the medium-term.

“Staying ahead of the curve would mean doing everything possible to win contractor commitments now rather than 24 months later, when there could be a choking up of capacity in the construction sector,” said Rahail Aslam, CEO of Select Group, which has just confirmed a Dh1 billion award to ALEC as the main contractor for its Marina Gate 1 and 2 structures in Dubai Marina. “There’s still plenty of spare capacity available right now.”

But that may not be for long. The first six months are projected to see a spate of major construction-related awards, with government agencies leading the way in awarding them.

“We signed up ALEC as per the original timeline … but it still meant five months of an exhaustive negotiation process and where a lot of things had to be resolved,” said Aslam. “The contractor will now start mobilising on site by January-February.”

Thankfully, for developers, there hasn’t been any sharp spike in project-related costs to date. Key building material prices are still relatively stable, and there is still plenty around to feed much of the short- to medium-term demand.

It could even be that some categories could do with an increase in production. According to the promoter of privately owned Conares steel plant, local production of steel products could be increased to lessen any dependence on imports. Currently, 60-70 per cent of locally made rebar products are absorbed by projects within the UAE.

Asian economic activities

“We expect 2015 would witness more demand [for steel-specific products] compared to the current year,” said Bharat Bhatia, CEO of Conares. “The forward indications remain promising as projects continue to be moving on … albeit, there have been concerns on further liquidity and Asian economic activities to catch up towards the later part of the year.

“[But] Dubai steel market has enough capacity to support the new wave of infrastructure developments that is planned up to 2020.”

For developers, as much as making sure they have contractors come on board for their projects, they need to ensure the works are finished on time. For the Marina Gate development, Select Group is looking to complete one of the high-rises by the third quarter of 2017 and the other by second quarter 2018. (There is a third structure within the project for which the construction timeline has not been announced.)

The overall project will cost Dh4 billion. Between Marina Gate 1 and 2, there will be just under 900 high-end apartment units, with the top-of-the-range coming in at Dh2,500 a square foot. The developer looks to sell out the inventory in the next three to four months. (Marina Gate 1 has already attained sold-out status.)

“Sure, the market is consolidating in terms of demand for off-plan sales,” said Aslam. “But we haven’t seen an impact from what’s being felt by the wider market — sales of units at Marina Gate have already seen commitments of Dh1.5 billion in sales, with 60-70 per cent coming by way of overseas investors.

“We are not dependent on securing a huge buyer interest from within the local market itself.”

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