20/12/2018 06:17 AST

Dubai’s real estate downturn is forcing construction and engineering firms to cut jobs and halt expansion plans, in turn raising fresh risks for the wider economy. Known for its glittering skyscrapers and luxury villas, the Dubai property market is oversupplied, especially in the residential sector where prices have fallen steadily from a peak in mid-2014. Many towers stand half-empty, and some construction sites have been left dormant.

“We stopped expansion,” said Samer El Achkar, chief executive of Al Qabdah, which built the Kempinski Hotel on the man-made Palm Jumeirah island. Al Qabdah culled 10 percent of its roughly 7,400 workforce in June. “We are trying not to reduce our employees but when we complete or deliver a project we let go of some employees if we don’t need them in other projects,” El Achkar said.

A diplomatic row with former ally Qatar and sanctions against Iran, a major trading partner, have curbed foreign demand for property, while a new value-added tax has dragged on the domestic economy. A Reuters analysis of data from the Dubai Land Department (DLD) showed a 76 percent jump in the number of delayed developments and sales of villas and fl ats between 2016 and 2018.

The DLD told Reuters that 865 developers were registered with the department in 2018 but that only one in four had projects currently active. BNC, which provides news and data on the construction industry, estimates the value of delayed projects at $126.3 billion in 2018, up from $107.6 billion in 2017 and equivalent to about 16 percent of all projects this year.

The DLD declined to give “private data” on struggling projects. While real estate schemes flounder, road and other core infrastructure projects backed by the government are going ahead as Dubai prepares to host the World Expo 2020 fair, expected to attract 25 million visitors.

Raed Safadi, chief economic adviser at Dubai’s department of economic development, told Reuters: “Investments targeted at Expo 2020 and beyond have given a fillip to the construction sector that continues to exhibit healthy growth rates, while at the same time increased supply in the market is putting cyclical pressure on the real estate sector.”


Projects are often dogged by stalled payments from developers, long a headache for builders in the region but one that has become worse as banks have become reluctant to extend more credit to the sector. Krisjanis Krustins, a director in the Middle East and Africa team at Fitch Ratings, said he had “yet to hear a coherent thesis” for how Expo 2020 would sustain economic growth. Real estate and construction together accounted for 13.3 percent of Dubai’s gross domestic product in 2017, according to the Dubai Statistics Center. Slumping property companies and contractors have helped make Dubai’s stock market the worst performing in the Middle East this year, down about 24 percent.


“The construction sector has traditionally been a key source of growth for the wider economy, so any pressure on the industry would inevitably have an impact on both the rate of headline GDP growth and on other sectors that benefit indirectly from strong construction activity,” said Jean-Paul Pigat, head of research at Lighthouse Research in Dubai. The current situation is not comparable to the crash of a decade ago, which saw property prices fall more than 50 percent between 2008 and 2010 as the global financial crisis unfolded. But the outlook is grim. After falling 5-10 percent in 2017, real estate prices could decline by 10- 15 percent over the next two years, S&P Global Ratings said earlier this year. That is affecting construction firms and related contractors said Bishoy Azmy, CEO of Dubai-based Al Shafar General Contracting (ASGC).

“The reduction in the expectation of cost due to the pressure developers are facing and their own business model, means that contractors have to work at numbers that are even below their cost of a few months ago, or a few years ago,” Azmy said. “The entire margin of the construction industry now is not enough.” The strain is visible at two of the Middle East’s construction giants. Drake & Scull International (DSI), which has reported losses in eight of the past 10 quarters, has engaged advisers on a restructuring and new business plan.

Its shares are down nearly 84 percent year to date, while rival Arabtec Holding has fallen nearly 15 percent. Arabtec has hired investment bank Moelis & Co to work on a debt-restructuring plan, little more than a year after it raised 1.5 billion dirhams ($408.4 million) in a rights issue to wipe out accumulated losses. There was no response to requests for comment from Arabtec or DSI. The chief financial officer of an engineering consultancy active in Dubai for over a decade told Reuters 2018 had been a difficult year.

“We have had to resort to some layoffs. We laid off 25 percent of 145 employees mid-2018,” said the CFO, who spoke on condition of anonymity. Al Qabdah’s El Achkar said the sector’s problems had been exacerbated by banks squeezing financing for contractors and suppliers slashing their long-term payment options and asking for payment guarantees. “We were obliged to inject more cash into our company from personal resources of shareholders to cover this cashfl ow shortage,” he said. Al Qabdah, which also has projects in the neighbouring emirate of Sharjah, is “luckier than others in the market”, El Achkar added.

Fuel prices are reviewed regularly but there is no intention to increase other energy prices in 2019, Jadaan added without elaborating. Under previously announced policy, domestic prices of fuels including gasoline, diesel and kerosene may be raised in 2019.

Meanwhile, Saudi Arabia is slowing a drive to cut its huge fiscal deficit in order to revive the economy, but the state budget plan for 2019 suggests it may not have room to boost growth by much. With unemployment among Saudis at a record 12.9 percent, creating jobs is becoming increasingly important to justify reforms launched over two years ago by Crown Prince Mohammed bin Salman, who aims to diversify the economy beyond oil exports.

The 2019 budget, released on Tuesday, reflected that. It promised a 7 percent increase in spending, which officials said would lift growth in the non-oil part of the economy and start bringing down unemployment from next year. But even that moderate rise in spending will come at a major cost, the budget plan showed: a dramatic reduction in the pace at which Riyadh shrinks the deficit, which it has pledged to eliminate entirely by 2023.

For three years – ever since Riyadh ran an eye-popping deficit of 367 billion riyals ($98 billion) in 2015, or about 15 percent of gross domestic product, threatening its financial stability – fiscal policy focused to a large extent on reassuring markets by cutting the deficit. The finance ministry said on Tuesday that the deficit shrank to 136 billion riyals or an estimated 4.6 percent of GDP this year, from 230 billion riyals in 2017.


The 2019 budget, however, projected the deficit would shrink only marginally to 131 billion riyals or 4.2 percent of GDP next year. Many private analysts said the budget’s spending and revenue numbers implied the deficit would actually rise. Bilal Khan, senior regional economist at Standard Chartered, predicted a deficit of 5 percent in 2019 and Monica Malik, chief economist at Abu Dhabi Commercial Bank, forecast over 7 percent. Jason Tuvey, senior emerging markets economist at Capital Economics, estimated that if oil prices did not rebound from current levels, the deficit would near 10 percent in 2019 – a figure that Saudi Arabia could not sustain in the long run.

Arab Times

Ticker Price Volume
QNBK 197.99 234,436
APPC 54.60 245,093
SAICO 11.40 155,201
SIECO 83.40 632,434
CATERING 86.10 62,823
ALMARAI 53.90 542,352
SABIC 121.40 2,027,236
MENA printing business to grow to $32bn in 2019


The Middle East and North Africa (MENA) region continues to present one of the world’s key growth regions for printing.

In 2019, the total value of the commercial print business in MENA is

Saudi Gazette

Raysut Industrial Estate holds meeting with investors


The Quality Improvement Committee at Raysut Industrial Estate held its first meeting chaired by Eng. Hamad Al Qasabi, Director General of the estate and the committee’s chairman.

The meetin

Times of Oman

UAE, Chechnya explore economic cooperation


The Zayed Fund for Innovation and Entrepreneurship, established by the Khalifa Fund for Enterprise Development, is contributing to the economic development of Chechnya with a number of projects.

Gulf News

Oman’s first wind turbine installed in Dhofar


Masdar, the Abu Dhabi Future Energy Company, announced yesterday the installation of the first of 13 turbines at the 50 megawatt (MW) Dhofar Wind Farm. Located in Dhofar Governorate, the project is f

Oman Daily Observer

UAE on fast track to attracting investment and world talent


The UAE has moved ahead of other regional and overseas destinations in positioning itself as a hub for investment and international talent, say experts at STA Law Firm.

The introduction of

The Gulf Today