First with Financial Comment from Arabia

Gulf construction in crisis after real estate crash

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The sudden termination of financial facilities and plunging value of property that has crashed real estate markets across the Gulf region is also very bad news for local contractors. Sites have been abandoned. Payments are way behind schedule. New contracts are like gold dust.

Against the worst business outlook since the oil price crash of the mid-80s the region’s construction sector meets in Dubai this week for the Big 5 exhibition. Remarkably the organizers say it will be 15 per cent bigger than last year.

Business prospects

Firms continue to look hard for new business in the Middle East. It is true that some governments are still spending. Others are still unable to pay the bills outstanding from pre-crisis work, or offering derisory fractions of the original amount due.

The real estate private sector is deeply mired in recession. With massive overbuilding in many major markets during the oil boom the need to finish projects, let alone start new ones is highly questionable, and generally impossible to finance in any case.

It is not only Dubai that is littered with stalled and go-slow building sites. Even go-go Doha has its share of commercial projects with cranes left flapping in the wind.

Against this reality the optimistic prognostications of the Big 5 organizers have to be taken with a kilogram of salt. With a successful show they are among the few winners in this year’s decimation of the construction and real estate sector in the Gulf.

Not a bright future

Anybody naive enough to think the ‘Future is looking bright for Gulf construction’ as the Gulf News headline suggested today is not likely to survive for very long in an industry as tough as construction.

Projects are being cancelled, slowed down and consolidated across the region. Private developers have vanished as far as new business is concerned. Even the governments are weary of making major new project commitments in this global economic environment.

In the Darwinian world of construction market forces should ensure the survival of the fittest, but that is a very painful process for anybody living through it.


Written by Peter Cooper

November 23, 2009 at 8:33 am

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