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Proleads takes an in-depth look at the size of the construction market and status of projects in Abu Dhabi
The latest findings from Jones Lang LaSalles Investor Sentiment Survey
Mike Atwell, Head of Middle East Operations, Cushman & Wakefield, discusses the latest investment report
Contents:
03 08 22 25 28 30 32 33 34
Abu Dhabi: Tracking Foreign Direct Investment Abu Dhabi Market and Project Analysis
The latest FDI statistics into Abu Dhabi from fDi Intelligence, brought to you by the Financial Times Proleads takes an in-depth look at the size of the construction market and status of projects in Abu Dhabi
The latest findings from Jones Lang LaSalles Investor Sentiment Survey
The Logistics Sector: A review of the market in Abu Dhabi Abu Dhabi: A Legal Update
DTZ takes a look at the burgeoning Logistics market in the UAE with a particular focus on Abu Dhabi Denton Wilde Sapte provide an update on the new laws and regulations to be implemented in Abu Dhabi
Wael Tawil, CEO, Baniyas Investment and Development Company discusses ongoing development in Abu Dhabi
Abu Dhabi: Masterplanning the Capital Abu Dhabi: State of the Market 2010
His Excellency Falah Al Ahbabi, General Manager, Abu Dhabi Urban Planning Council (UPC) discusses the role of the UPC in Abu Dhabis future development Investment Boutique examine the latest analysis of the Abu Dhabi real estate market
Mike Atwell, Head of Middle East Operations, Cushman & Wakefield, discusses the latest investment report
The latest FDI statistics into Abu Dhabi from fDi intelligence by the Financial Times Ltd
e average project size was 152 jobs per project. Year 2003 2004 2005 2006 2008 2009 Total No of Jobs Created* 1,124 1,677 3,024 5,923 11,239 9,799 Percentage Growth 49.2% 80.3% 95.9% 5.5% -12.8%
3,024 5,923
10,650
11,239 9,799
2007 10,650 79.8% Tracking overseas investment projects into Abu Dhabi recorded by fDi Markets between January 2003 and January 2010.
Report Highlights
2010 Between January 2003 and January 2010, fDi Markets recorded a total1,677291 investment projects from 261 companies 127 n/a of 1,124 Total The average number of jobs created per project was 152 43,563 Average 5,445 The leading sector was Business Services, which accounted for 32% of projects
2003 2004 127
The leading business activity was Business Services, which accounted for 40% of projects Source: FDI Intelligence from Financial Times Ltd *Jobs data based on companiesand estimated valuesof all investment projects with Deutsche Post (Germany), Thales Group (France) and The top ten both actual accounted for 9% Millennium & Copthorne Hotels (UK) among the top 10 companies The top three source cities for outward investment were London, NYC (NY) and Paris, providing 16%, 6% and 3% of investment projects respectively
2005
2006
2007
2008
2009
2010
Percentage Growth
8
8 11 9 2007 Qtr 3
29 37
3 2010
Jobs Analysis
e average project size was 152 jobs per project. Year 2003 2004 2005 2006 2007 2008 2009 2010 Total Average Total No of Jobs Created* 1,124 1,677 3,024 5,923 10,650 11,239 9,799 127 43,563 5,445 Percentage Growth 49.2% 80.3% 95.9% 79.8% 5.5% -12.8% n/a
1,124 127 2003 2004 2005 2006 2007 2008 2009 2010 1,677 3,024 5,923 10,650 11,239 9,799
Between 2003 and accounted for the highest number of Business Services 2010, fDi Markets recorded a total of 291 projects, with a total of 92, representing 32% of the investment projects. Among the investment this sector also recorded the highest growth at 143% per annum on average. 19 top sectors,projects. 20 Percentage Growth
8
Sector 2004
2003 -20.0%
108.3% -4.0%
2004
2005
2006
2007
2008
2009
17
26
2010
Total
17
3 87.5%
-1.2% n/a
84.4%
1 2
1 3 1
1 1 1 1 2 3 12
4 2 1 2 1 1 3 1 4 6 25
2 3 4 4 53
5 3
1 2 1
2003
12 7 5 3 32 6 1 2004 3 2 2 1 10 45
8 9 3 5 2005 Qtr 1
31 8 7 9 5 2
4 8 9 3 2006 Qtr 2
36 38 6 11 6 9 5 2007 3
Qtr 3
3
29
1
9 2008 Qtr 4
92 25 37 24 24 14 2009 12 11 10 9 7 63 291
3 2010
Average Annual Growth 143.0% n/a n/a n/a n/a n/a n/a n/a n/a n/a 51.0% 42.5%
1 6 15
3 3 24
3 1 1 16 83
2 1 2 18 82
1 5
Business Services accounted for the highest number of projects, with a total of 116, representing 40% of the investment projects. Among the top business activities, this activity also recorded the highest growth at 110% per annum on average.
Business Activities
2003
2004
2005
2006
2007
2008
2009
2010
Total
Business Services Sales, Marketing & Support Construction Manufacturing Retail Education & Training Logistics, Distribution & Transportation Maintenance & Servicing Electricity Headquarters Design, Development & Testing Research & Development Extraction ICT & Internet Infrastructure Overall Total
1 4 4 1
3 1 2 3
4 6 1 3 6
5 5 4 4 3 1
20 7 7 6 3
40 12 12 8 2 3 1 2 1 1 1
40 16 6 3 4 3
3 1
116 52 30 30 22 7 7 7 6 6 4 2 1 1 291
Average Annual Growth 109.7% 92.2% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 42.5%
1 2 1 1
3 1 2 1 1 1
3 2 1 2 1 1 82
1 15 12 25 24 45 83 5
A total of 261 companies were recorded as investing overseas. Deutsche Post from Germany is the top company with a total of 3 investment projects announced between January 2003 and January 2010.The top ten companies accounted for 9% of the investment projects.
Company Deutsche Post Thales Group Millennium & Copthorne Hotels CapitaLand Time Warner Rezidor Hotel Group Marubeni General Electric (GE) Hyatt International Larsen & Toubro Other Companies Overall Total
Source Country 2003 Germany France UK Singapore USA Belgium Japan USA USA India
2004 2
2005 1
2006
2007
2008
2009
2010
2 2 1 2 1 1 2 2 1 2
1 1
2 2 13 15 10 12 23 25 22 24 41 45 74 83 77 82 5 5
Between January 2003 and January 2010, CapitaLand from Singapore created the highest number of jobs, with a total of 3316*.The top ten companies accounted for 47% of all jobs from the investment projects.
3,316 3,000 CapitaLand 3,000 2,611 Hollywood Adventures Group National Ranges Company (Mayadeen) Temasek Holdings Empire Holdings Besix Orascom Group 23,222 1,915 1,846 1,176 1,176 1,176 1,125 Bando Engineering & Construction Goodman Group GP Strategies Other Companies
London is the leading source city for outward investment with 41 companies providing 46 investment projects between January 2003 and January 2010. The top ten source cities accounted for 37% of outward investment projects and 33% of companies investing overseas.
16% London NYC (NY) Paris Mumbai Singapore Chicago (IL) Washington DC Tokyo Brussels Neuilly-sur-Seine Other Cities
6% 3%
63%
2% 2% 2% 2% 2% 1% 1%
Between January 2003 and January 2010, the country attracting the greatest number of projects was UAE , with 291 inward investment projects. This represents 100% of inward investment projects. This country also recorded the highest growth at 43% per annum.
Destination Country
2003
2004
2005
2006
2007
2008
2009
2010
Total
15 0 15
12 0 12
25 0 25
24 0 24
45 0 45
83 0 83
82 0 82
5 0 5
Proleads takes an in-depth look at the size of the construction market and status of projects
EXECUTIVE SUMMARY Based in Dubai, United Arab Emirates, Proleads global has compiled this report on behalf of Cityscape Intelligence to provide an overview of the real estate market within Abu Dhabi. For this report the market is divided into five asset classes: Commercial, Retail, Hospitality, Residential and Industrial. Buildings used for multiple purposes are classified as mixed use. To accurately analyse project value and project number across all asset classes, mixed use projects have been split and counted as one project per separate asset class in that development. For the purposes of this report, the Proleads database considers projects with a budget value greater than US$10m (although in some cases smaller valued projects are also included). The budget value denotes the owners cost for constructing the facility, which excludes the cost of land, financing and other elements such as final fit-out and related costs. The time period that is taken into consideration for analysis purposes as represented in this report is indicated on each individual pie chart, graph and bubble chart where appropriate.
The Glossary contains further information on terms used in the report. The current total residential asset class in Abu Dhabi consists of 140 projects contributing US$77.6bn. 89% of these projects are not cancelled, completed or on-hold thereby yielding 96% of the budget value active. The largest proportion of projects is still in execution both in terms of budget value and project number. Within this asset class, 30% of the budget value is in the pre-execution stages while 17.6% of the projects contribute almost 60% of the residential asset class. The current total commercial asset class in Abu Dhabi consists of 104 projects contributing US$58.8bn, 88% of these projects are not cancelled, completed or on-hold thereby yielding 97% of the project budget active. The largest proportion of projects are in execution, both in terms of budget and number, with very few placed onhold or even cancelled since Q4 2008. Within this asset class, 29% of the budget value is in the pre-execution stages while more than two thirds of it lies in 21.4% of the projects. The current total hospitality asset class
in Abu Dhabi consists of 103 projects contributing US$43.4bn. 88% of these projects are not cancelled, completed or onhold thereby yielding 98% of the budget value active. Within this asset class, 30.8% of the budget value is in pre-execution stages. The current total retail asset class in Abu Dhabi consists of 88 projects contributing US$40.9bn. 91% of these projects are not cancelled, completed or on-hold thereby yielding 98% of the budget active. The largest proportion of projects is in execution both in terms of budget value and number. Within this asset class, 3.3% of the budget value is in on hold. The industrial asset class is found to consist of 27 projects contributing US$14.2bn. 93% of these projects are not cancelled, completed or on-hold thereby yielding 98% of the budget value active. Within this asset class, 51% of the budget value is in the preexecution stages. Across all asset classes cash flow has seen growth during 2009 but is set to stabilise during 2010.
OVERVIEW
Based in Dubai, United Arab Emirates, Proleads Global has established itself as a leading market research company. With a focus on the construction markets in major sectors, Proleads researchers cover 19 countries in the MENA region. Please refer to the appendix labelled Exploring Proleads for further information. Report objective An investigation was launched to ascertain the current and forecasted climate of the civil construction industries in the Abu Dhabi Report scope Specifically, the report covers the Abu Dhabi real estate market which is segmented into the following asset classes: Residential Commercial Hospitality Retail Industrial
REPORT INSIGHTS
The findings and conclusions derived from the report are encapsulated in this section. The aim of the report is to quantify the market as accurately as possible. It is recommended to read the appendix labelled Market and Project Analysis: An Investigation into the Abu Dhabi real estate market to better understand the findings and the methodology behind them. The insights are ascertained through Data Mining using the Proleads Market Intelligence tool. Inference from the various sources of information has been consolidated in this section of the report. Conclusions are marked using keys ( ) and typically follow analysis.
Market size
MARKET SIZE
The size of the market is described in terms of the budget value and number of projects by asset class as follows:
Asset Class Residential Commercial Hospitality Retail Industrial US$m 77,671 58,835 43,422 40,994 14,257 235,178 Project Value Active % 96 97 98 98 98 97 Mixed Use % 82 94 93 98 0 85 Count 140 104 103 88 27 462 Number of Projects Active % Mixed Use % 89 59 88 88 91 93 89 80 81 94 0 72
Buildings used for multiple purposes termed as mixed use which comprise of 2 or more of the asset classes above have been divided into the corresponding asset classes. However, the effect of this is that the number of projects per asset classes is duplicated. In cases where mixed-use buildings are included, the project count will be defined as such. Research topics The information explored in the report covers the following topics:
Table 1 takes into account current projects across all statuses, except completion, with the percentage of mixed use buildings appearing in separate columns. Taking Residential as an example, there is a total 140 projects with US$77,671m budget value, with 96% of that budget PROJECT VALUE PROJECT NUMBER currently active and 82% of it allocated to mixed use projects that incorporate retail as an asset 6% class. 6%
17% 34% 19% There are currently 462 total active projects in Abu Dhabi, (excluding those completed) with Residential 129 extra counted from the mixed use category. Active % refers to all projects that are not Commercial MARKET SIZE cancelled, on-hold or completed. Hospitality Retail The Residential asset class contributes the most to the market, both in terms of budget Industrial value and the number of projects. Project Value Number of Projects 30%
18% Asset Class Economic overview per asset class and 22% % US$m Active % Mixed Use % Count Active Mixed Use % project status (historic and projected) All asset classes are found to be of proportionately equal value, meaning that there is not 23% Residential 77,671 96 82 140 89 59 25% o Market size one that in Commercial has an overriding contribution 94 terms of budget. 58,835 97 104 88 80 o Current status of total projects Hospitality 43,422 98 93 103 88 81 o Analysis of projects status in relation It is Retail found that in all asset classes except industrial, mixed use buildings constitute a 40,994 98 98 88 91 94 to number and available budget significant portion of the market in terms of project value and number. Industrial 14,257 98 0 27 93 0 o Analysis of project value 235,178 97 85 462 89 72 o Analysis of project starts Graphically, the market is as following: o Analysis of completed projects o Analysis of projects placed on-hold o Analysis of projects cancelled o Execution spread o Cash flow over time PROJECT VALUE PROJECT NUMBER o Analysis of spend, financial sustainability 6% 6% and project number and budget value 17% 34% 30% 19% o Sustainability analysis
Residential
Company listings o Major contractors in Abu Dhabi o Major consultants in Abu Dhabi o Major developers in Abu Dhabi The reader can refer to the appendix labelled Market and Project Analysis: An Investigation into the Abu Dhabi real estate market for explanations and elaborations on the terms used in this document.
STATUS
Current status of total projects
The current status of projects is shown below in terms of the project value and number.
462
Project Budget Number '000 000 USD Execution 153,918 307 The largest proportion of project budget and number across all asset classes is currently in execution.
VALUE
PROJECT NUMBER On-hold 6,798 42 Only 11% of projects are inactive which contributes 3% to the total market budget value.
Cancelled 491 9 235,178 462
Pre-execution
73,971
104
9%
2%
23%
PROJECT NUMBER
9% 2%
31%
23%
65%
65%
66%
66%
Project Number
Pr e-
10
Taking the pre-execution status as an example, there is approximately 31% of project budget value tied into approximately 23% of projects, where as the on-hold status has less budget allocated to more projects. Given that mixed use buildings are split out by asset class, Figure 3 indicates that a lesser number of projects are being planned for the future compared to the proportion of the budget that these projects bring to the market (this is shown in the pre-execution bars).
Asset Class Commercial '000 000 USD Project count Hospitality '000 000 USD Project count Industrial '000 000 USD Project count Residential '000 000 USD Project count Retail '000 000 USD Project count 40,994 88 77,671 140 14,257 27 43,422 103 58,835 104
Project Value US$m Less than 190.29 190.29 to 375.64 375.64 to 2030.77 Less than 146.74 146.74 to 289.87 289.87 to 1512.44 Less than 169.26 169.26 to 327.51 327.51 to 1009.27 Greater than 1691.03 Less than 187 187 to 368.3 368.3 to 2045.49 Less than 153.02 153.02 to 302.44
Budget % 17.75 11.41 70.84 18.55 17.89 63.55 6.96 5.53 45.42 42.08 17.61 20.75 61.64 46.10 53.90
Number of Projects % 67.35 11.22 21.43 65.98 17.53 16.49 37.04 14.81 37.04 11.11 59.40 21.05 19.55 79.10 20.90
By taking the commercial asset class as an example, 71% of project value budget is allocated to only 22 projects; if any of these projects are cancelled a large amount of project budget value will be lost. Currently the majority of project budget value is attributed to a relatively small number of projects across all asset classes except retail, meaning that these sectors are potentially at risk. The retail sector contributes second least to the market in terms of project value.
11
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 2008 Q1 Q2
2008 Q3
2008 2009 Q4 Q1
2009 Q2
2009 Q3
2009 2010 Q4 Q1
Abu Dhabi has seen new projects started steadily over time since 2007 The graph above is a current snapshot, when new projects are announced, or when those on hold are re-started will have an impact on the results.
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Projects across all five sectors have been completed during the timeline shown. As the global financial crisis emerged, there was a surge of projects completed, specifically in the Industrial sector.
12
The residential sector was the first asset class to be hit by projects going on hold at the start of the economic slowdown. Since then smaller valued projects have been placed on hold.
250
200
150
Residential Industrial
100
Hospitality Commercial
50
0 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 2010 Q3 2010 Q4 2010 Q1
The global economic crisis does not seem to have had a significant effect on the way in which projects are cancelled in Abu Dhabi.
13
16000 14000
12000 10000 8000 6000 4000 2000 0 Retail Residential Industrial Hospitality Commercial
Q3
Q3
Q3
Q1
Q3
12
10
09
13
11
10
20
20
20
20
20
20
Projects across all asset classes are scheduled for completion across the given period, with the majority due in 2011 and 2012.
12000 10000
Cash ow US$m
20
20
20
13
11
12
Q3
Q1
Q1
Q1
Abu Dhabi saw a steady rise in cash flow across all asset classes.
14
Analysis of spend, financial sustainability and project number and budget value
The following graph depicts the relationship between projects announced, started, in execution and completed:
45000 40000 35000 Budget Value US$m 30000 25000 20000 15000 10000 5000 0 Budget Announced Budget Started Budget Completed Scheduled Completion
3 Q
20 08
20 08
20 09
20 07
20 09
20 07
20 10
20 10
Figure 10: Budget Announced, Started & Completed across all asset classes
During 2009 specifically, the ratio of project announcements and starts is close to one-to-one. A significant increase in project completions is forecasted from 2011 and beyond.
Sustainability Analysis
The analysis in Figure 11 compares the sustainability and nature of asset classes by comparing the project budget value, cash flow, the portion of the budget not yet spent, the status and the number of projects. The bubble graph indicates the cash flow predicted during 2010, which is mapped onto the number of projects per sector, while the sizes of the bubbles indicate the size of those sectors.
Project Count
Figure 11: Sustainability Analysis
15
20 11
20 12
20 11
20 13
20 12
The residential asset class has a large number of projects with healthy project budget values which tend to be spent quickly. The commercial building sector has a similar number of projects compared to the hospitality and retail asset classes and is supported by a good project budget. Cash flows are moderate for these projects when compared to the other sectors . The retail and hospitality asset classes behave very similarly to each other in terms of financial stability. The asset class market mapping in Figure 11 can aid investment decisions across different asset classes dependent on investment strategies. For further explanations of the bubble methodology please refer to the appendix at the end of this report.
Developer Aldar Properties PJSC Sorouh Real EstateCompany Emirates International Investment Company (EIIC) Reem Investments Capitala Abu Dhabi Department of Municipalities & Agriculture (DMA) Adnoc Linde Industrial Gases Company Ltd (Elixier) Tourism Development and Investment Company (TDIC) Tameer Holding
Phone +971 2 6964444 +971 2 4440006 +971 2 6577000 +971 2 4438900 +971 2 4121111 +971 2 678 8888 +971 2 6037700 +971 2 4061400 +971 6 5995099
Website www.aldar.com www.sorouh.com www.eiic.ae www.reeminvestments.com www.capitala.ae www.adm.gov.ae www.elixier.ae www.tdic.ae www.tameer.net
Consultant Halcrow Group Ltd - Abu Dhabi Maunsell Consultancy Services Ltd - Abu Dhabi Northpoint Sasaki Associates Incorporated Perkins & Will Cansult Maunsell GHD Global Pty Ltd - Abu Dhabi Studio Dror WS Atkins & Partners Overseas - Abu Dhabi RMJM - Abu Dhabi
Phone +971 2 6790804 +971 2 6713851 +27 11 7068400 +1 617 9263300 +1 312 7550770 +971 2 4146000 +971 2 6968700 +1 212 9442510 +971 2 6271500 +971 2 4492677
Website www.halcrow.com www.maunsell.com www.northpoint.co.za www.sasaki.com www.perkinswill.com www.cansultmaunsell.com www.ghd.com.au www.studiodror.com www.atkins-me.com www.rmjm.com
Contractor Linde - Abu Dhabi Al Futtaim Carillion LLC Target Engineering Construction Company (L.L.C.) Arabian Construction Company (ACC) - Abu Dhabi Beijing Construction Engineering Group STX Group Lahoud Engineering Co. Ltd. - Dubai Saudi Oger - Abu Dhabi SPK-Sentosa Corporation Bhd
Phone +971 2 6677204 +971 4 3331200 +971 2 6714700 +971 2 6771225 +86 10 63927200 +82 55 5402000 +971 4 2284131 +971 2 6815252 +60 3 21481344
Website www.linde.com www.afcarillion.ae www.targetconstruct.com www.accsal.com www.bcegc.com www.stx.co.kr www.lahoud.com www.saudioger.com www.spkb.net
16
APPENDICES Market and Project Analysis: An Investigation into the Abu Dhabi real estate market
This guide highlights the methodology that was followed to produce the findings of the report, and also provides a guide to interpreting the results. The reports explores the market as a whole taking into consideration all five asset classes; Commercial, Retail, Hospitality, Residential and Industrial. T he market is represented by the value and number of projects per asset class (Table 1, Figure 1). To understand it as a whole, the status of the projects has to be taken into consideration. If a large proportion of projects are in the announced status they may not reach execution. Projects being executed may change in scope, be put on hold or cancelled, which will impact the size of the market in terms of value and number (Table 2, Figure 2). By comparing the percentage of the total project value with the percentage of projects in that status, the relative project budget value and number of projects due to come into or leave the market can be concluded (Figure 3). If there are a small number of projects that make up a significant proportion of the total project value across one or a number of asset classes, the whole market and/or asset class is at risk because one cancellation will have a dramatic impact on that asset classes total value. An isochrome model is used to test for this situation (Table 3). It is important to understand that the majority of the project value is realized in the middle stages of the construction cycle with a small proportion being released into the market during the early and concluding stages. This impacts cash flow significantly (Figure 9). Project value will be taken out of the market when it is placed on hold, completes or is cancelled. The total project value is comprised of projects in execution, planning, bidding or being studied and new projects, this will indicate project budget value coming into the market (Figure 4). The rest of the project statuses; cancelled (Figure 7), on hold (Figure 6) and completed (Figure 5) will remove project value from the market. To understand when project value will leave the market, an analysis of completion dates has been made to help with asset class value forecasting (Figure 8). The sustainability of the market is represented by bubble graphs (Figure 11); these map project value to the number of projects along with the remaining budget in a sector. The following considerations must be taken into account: The vertical axis tracks cash flow predicted during 2010 only. The majority of the project value is spent is during the middle part the construction timeline. If the current project value is low it may be due to a large number of new projects coming online. Similarly when considering projects completing, bubbles will move downward over time as less project value is in that asset class. In the bubble graphs, new and completed projects are taken into consideration for all asset classes. The project number (or count) is applicable to current announced projects. The size of the bubble relates to the size of the remaining project value. A large bubble indicates a more sustainable cash flow over an extended period of time. The project count relates to the amount of work across all asset classes in the Abu Dhabi real estate market. ALL FINDINGS ARE RELATIVE TO THE ASSET CLASSES BEING CONSIDERED. If another asset class (or sector) is added or subtracted, the dynamic would change as the bubble is relative to the other bubbles on the graph.
Following are some illustrations on how the bubble graph is can be interpreted.
Cash Flow
Sectors
Project Count A big bubble in the top right hand corner indicates a large project budget spend across a significant number of projects which is set to continue against a large budget.
Cash Flow
Sectors
Project Count A small bubble in the top right hand corner indicates that a large project budget spend on a significant number of projects, but this may not continue as the budget will not be able to sustain the budget spend.
Cash Flow
Sectors
Project Count A big bubble in the bottom right hand corner indicates that relatively little project budget is spent on a significant number of projects which may continue.
Cash Flow
Sectors
Project Count A small bubble in the bottom right hand corner indicates that relatively little project budget is spent on a significant number of projects which may not continue.
18
Cash Flow
Project Count A big bubble in the top left hand corner indicates a relatively large project budget spend on few projects which may continue for a long time because the budget is large.
Cash Flow
Sectors
Sectors
Project Count A big bubble in the middle of the graph indicates that more money and/ or less money may be spent in other sectors, while there may also be more and/or fewer project numbers in those sectors. The cash flow and amount of work in this sector will however last in future against a large budget when compared to the other sectors (or asset classes).
Cash Flow
Project Count A small bubble in the top left hand corner indicates a large project budget spend on few projects which may not continue. Project Count A small bubble in the middle of the graph indicates that more money and/or less money may be spent in other sectors, while there may also be more and/or less work in those sectors. The cash flow and number of work in this sector will however not last in future against a small budget when compared to the other sectors (or asset classes).
Cash Flow
Sectors
Sectors
Project Count A big bubble in the bottom left hand corner indicates a relatively small project budget spent on few projects which may continue.
Project Count The bubble graph is most useful when comparing sectors. As an example above, when comparing the orange and blue bubbles, each representing a separate sector, it is found that: Less money is spent in the orange sector than in the blue sector There are more projects in the blue sector than the orange sector The blue sector indicates an immediate opportunity: a large amount of project budget is available but for a limited period. The orange sector presents longer term opportunities: less project budget is available over a small number of projects but the sector will be stable for a long period of time because the project budget is sustainable when compared to the blue sector. The rate at which projects are announced as opposed to when these projects actually start construction is mapped against the rate of projects completing. Scheduled completions in future are also shown. These graphs are useful to understand how quickly money that enters the market will leave it again. Also, one may infer about a lag in time between announcement and completion of projects (Figure 11).
Cash Flow
Sectors
Project Count A small bubble in the bottom left hand corner indicates a small project budget spend on few projects which may not continue.
19
Glossary
Term Active project AED b Budget Cash Flow Civil Industry Financial Sustainability Inactive Project Industry m Denition Any project that is not completed, cancelled or on hold. United Arab Emirate Dirham Acronymn for "billions" The amount of money that will be spent on a project from inception to completion of the project. Typically, the Proleads database considers project with a budget greater than USD 10m although in some cases smaller valued projects are also included. The budget as used in this report denotes only to the owners cost for constructing the facility as described in the Scope of Work. This budget excludes cost of land, The estimated amount of money spent on any particular project or sector over a specied period of time The Civil industry refers to all projects and facilities that is non-process related. In other words there is no product/material inputs and outputs from these facilities when operational. The degree to which a sector can sustain a certain level of cash ow. This greatly depend on the size of the remaining budget (or budget not spent). Any project that is either completed, cancelled or on hold. A logical grouping of similar types of projects within a market. Acronymn for "millions" A market is dened in terms of four Ps: Product Price Placement Promotion Placement is explicitly considered in the survey, while Product and Price is also explored to an extent expanding the scope to include the other Ps is identied as an opportunity for further research. The index of the construction to the market size divided by the total market size. In some cases a large development will be announced while the project is executed in smaller sub-projects. This larger project is called a "masterplan" project. The reader is referred to the section in this document devoted to masterplans for an explanation of how the status of master plans are calculated (some subprojects may be in execution while others are still being planned). The budget of a masterplan is denoted as the budget for the masterplan as a whole, irrespective of how many sub-projects have been The proportion of mix use buildings to the total value or proportion in question A project that is announced in a certain time period A collective name for project in one of the Planning, Study, Design or Bidding project statuses. An endevour to create an entity. A project has a specic start and a specic end date. For the project to be considered by Proleads it must have been publicly announced as well as require a licence to be constructed The number of projects in a particular market segment. In many cases a developer announces a new development, called a master plan, which consist of many sub-projects. At the time of announcement these sub-projects are not known yet. As they become available Proleads adds these projects along with their respective budgets while reducing the master plan budget to allow for all the sub-projects not yet announced. Proleads accomodates this by estimating the number of median number of sub-projects per masterplan and creating a virtual project for each that is less than that median number of projects. The relationship of the budget and number of projects within a particulat sector. When few projects have a large cumulative budget, the segment is said to have great magnitude. The time between the start and end dates of the project, as related to actual construction. An indication of the relative nancial contribution of the project to the market. Please refer to "cash ow". The particular state a project is in at a particular point in time. This status refers to the tender process whereby the main construction or EPC [Engineering, Procurement & Construction] contractor is appointed The project has been cancelled by the owner Construction work has been completed by the main constrcution or EPC contractor and handed back to the owner. Further minor works may still be required by the owner before the facility is operational. At this stage a formal design contractor or architect has been appointed to carry out detail design work. The main construction or EPC contractor has been appointed to execute the construction work on this The owner has stopped all work related to this activity for whatever reason. No funds are committed This status typically means the owner has allowed capital in his long term budget for this facility. At this stage, no external parties has been appointed yet. Typically external parties has been appointed to carry out feasibility or preliminary design work. This phase could also include Environmental Impact Assessments [EIA] A forecast of future cash ows based on econometric models and market interpretation. Typically projects related to oce buildings, shopping centres and general places of business. This includes all forms of housing such as villas & apartments All facilities purpose build for trading [buying & selling] of goods such as shopping malls, showrooms, etc. All forms of facilities related to the tourism sector such as hotels, motels, serviced appartments. Typical Commercial projects are oces A slice of the market, typically a sector or industry. A calendar year starting from January 1 to December 31. United States Dollar
Market
Market share
Masterplan
Project Count
Project Magnitude Project Schedule Project Size Project Spend Project Status Project Status: Bidding Project Status: Cancelled Project Status: Completed Project Status: Design Project Status: Execution Project Status: On-hold Project Status: Planning Project Status: Study Projection Sector: Commercial Sector: Residential Sector: Retail Sector: Hospitality Sector: Building - Commercial Segment Time: Years USD
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Exploring Proleads
www.proleadsglobal.com P.O. Box 126199 Dubai, United Arab Emirates Reg. No. 16760 Tel: +971 433 1801
Based in Dubai, United Arab Emirates, Proleads global has established itself as a leading market research company. With a focus on the construction markets in major sectors, Proleads Global researchers work across nineteen countries in the Middle East and North Africa.
proSCOPE
ProSCOPE is a consulting division which focuses, broadly, on Supply Chain Optimisation, Planning & Engineering at a tactical and strategic planning level.
proSpec
ProSpec is a free online product specification guide that provides architects and consultants details of thousands of products supplied to the construction industry. Subscribers can upload their products with specification guides, training videos, green info, etc. These give the user a very important 360 degree view of the entire industry. Proleads Global, Cityscape Intelligence 2010
Disclaimer Neither Proleads Global nor Cityscape Intelligence offers any specific guarantee regarding the accuracy or completeness of the information presented, but the professional staff members at Proleads Global and Cityscape Intelligence make every reasonable effort to present the most reliable information available to them and to meet or exceed any applicable industry standards. The material displayed in this report site is provided without any guarantees, conditions or warranties as to its accuracy. Neither Proleads Global nor Cityscape Intelligence are registered investment or financial advisors. Nothing in this disclaimer excludes or limits liability which cannot be excluded or limited by law. We will not be liable, in contract, tort (including, without limitation, negligence), pre-contract or other representations (other than fraudulent on negligent misrepresentations) or otherwise out of or in connection with these Terms of Use for any: (i) direct, indirect or consequential loss or damage incurred by you in connection with this report or in connection with the results of this report; or (ii) economic losses (including without limitation loss of revenues, data, profits, contracts, business or anticipated savings); or (iii) loss of goodwill or reputation; or (iv) special or indirect losses; or (iv) any other loss or damage of any kind, however arising and whether caused by tort (including negligence), breach of contract or otherwise, even if foreseeable suffered or incurred by you arising out of or in connection with these Terms of Use.
proLeads
ProLeads offer online access to data relating to over 8,000 active projects valued at more than USD 6 Trillion. Subscribers can access detailed information on each project, which includes the scope of work, ownership, budget, schedule, companies involved, contact details (telephone & e-mail) and the latest updates of the project. Included is a corporate monitor that provides the user with a company profile for each project. Profiles consist of the basic contact details, senior management structure, projects analysis and more. In addition to this information, a number of analytical tools are available to assist clients.
proCost
ProCost is an online model used to calculate and control Escalation and Contingency in projects. It uses a proprietary developed matrix to calculate and monitor changes in costs for the construction industry. Subscribers get access to historical construction cost indices and a 5-year forecast, enabling them to estimate the impact of cost escalation.
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Craig Plumb, Head of MENA Research and Andrew Charlesworth, Head of MENA Capital Markets, discuss the results of the latest Jones Lang LaSalle Real Estate Investor Sentiment Survey, Middle East & North Africa
Key Points
Sentiment shows greater stability. Sentiment towards the majority of MENA markets has remained broadly similar over the past six months. This stability is considered a healthy sign, reflecting the ongoing maturing of these markets. Two clear drivers of investor sentiment are emerging: Local demand is key with investors favouring those markets with large local populations and a strong domestic demand base. Investors are relatively optimistic about the markets of Saudi Arabia and Egypt on the basis of their large local populations. Energy-rich markets have the necessary capital to support large scale infrastructure and will benefit from potentially higher oil and gas prices as the global economy recovers. The markets of Saudi Arabia, Abu Dhabi and Qatar have continued to be viewed favourably by investors on this basis.
Saudi Arabia emerges as the clear local winner. Being the only MENA market to score highly on both of these drivers, investors expect Saudi Arabia to experience the strongest real estate performance over the next 12 months. Greater Focus on North Africa. Egypt and Morocco are viewed as attractive real estate markets by investors due to their strong local populations, the relative lack of new supply over recent years and the availability of income producing assets. More buyers than sellers in most markets. To date this has not resulted insignificant sales volumes as there remains a lack of institutional stock being offered at the level of pricing being sought by investors. Yield expectations have increased by an average of 90 bps over the past 6 months. This has contributed to the lack of sales activity as it has increased the price gap between investors and vendors.
What were the key points to emerge from the survey? The first point to emphasise is that there is far more stability and the results of the survey were not dissimilar to the last survey conducted in October 2009. On the one hand you could say that this is a positive sign because investor sentiment is not getting any worse. However, on the other hand we are still not seeing any real increase in expectations of transactions volumes or pricing growth. The second key theme relates to investors and what factors are influencing their investment decisions. A couple of points have emerged quite clearly. The first is that investors are now looking at centres of high population where there is an indigenous demand or a large population that will drive demand going forward. This type of demand is considered important because it means less reliance on the global economic environment in terms of creating jobs etc. The second key attribute appears to
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be an emphasis on countries that have a strong underlying economic base such as the presence of hydrocarbons. If you take those two points and correlate those to the countries that are more interesting from an investment perspective, we see that Saudi Arabia remains the most interesting investment market in the MENA region. It has both a large and growing population as well as an energy based economy. There are signs that Egypt is also now starting to move up the ranks quite rapidly. Again a large local population base, a relatively neglected real estate sector, congested inner city and the fact that the country has broadly escaped the effects of credit crises has resulted in increased investor interest in this market. Whilst 30% of respondents to the investor survey felt that Saudi Arabia would be the strongest performing market over the next 12 months, Egypt has gone up from 6% to 13%. The markets which fall into the category of energy- rich economies and thus are perceived to have a positive investment outlook due to their financial strength are Saudi Arabia, Qatar and Abu Dhabi. How does Abu Dhabi rank compared to last year? Twenty six percent of investors said it would be the number one market compared to 25% last year, so there has been virtually
no change. Saudi and Abu Dhabi were first equal last year, but Saudi has pulled ahead slightly. The interesting point about Abu Dhabi is that there is a tremendous amount of supply coming through and if you look at the statistics, the market is heading for significant potential oversupply. On the other hand, it has a huge infrastructure development programme which should go some way to absorbing that excess supply. For example, it is estimated that the nuclear power programme could employ 14,000 people over the next few years, and it is these sorts of industries which are going to drive demand. Abu Dhabi also has financial strength. We asked respondents to rank the most competitive cities and Abu Dhabi scored highly on four key factors financial strength, availability of liquidity or capital for investment and on providing support to the real estate sector. Dubai however, was the clear winner in the remaining categories in terms of infrastructure, quality of life and progress over the last ten years. To what extent do you think investor sentiment towards Dubai has been affected by the Dubai World debt restructuring? The reality is that Dubai World was an issue that was sending negative signals to the rest of the world. It was a negative problem that has been dealt with successfully and although this will not kick- start the economy in its own right, it will help prevent things from getting any worse.
One point that did come out of the survey was that investors are less concerned about transparency than they were six months ago. Regulation, legislation and risk are the most important factors that people are really focusing on now in terms of how they are making their investment decisions. Risk was also ahead of rate of return so institutional investors are focusing their attention on limiting downside risk rather than chasing high returns on the upside. Are many transactions taking place? An interesting point to come out of the survey was that there are still active institutional buyers in the market across the region. In fact the survey indicated more buyers than sellers. However, there are still relatively few transactions taking place and there are probably a number of reasons for this. First of all in the UAE for instance, the Government has provided substantial financial support to the local economy and the banks have worked to re-schedule loans. The result is that widespread forced sales or re-capitalizations have been limited which has prevented the market being flooded with cut price assets. Many of the buyers who are looking to buy are really after distressed prices but due to the limited foreclosures there have been limited investment options. In general there remains a mismatch in pricing expectations between buyers and sellers and a lack of motivation from either side to close the gap. Consequently whilst there
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has been a lot of talk about distressed funds and vulture funds we have not seen these materialise in the way expected. As a result of this, what do you think will galvanize the market? The general sentiment seems to be that the global economy is beginning to improve and so it would be expected that those markets which are more aligned to the global macro environment are likely to benefit from this improvement. Dubai would be an obvious case with an economy focussed on finance, tourism and trade. As these sectors improve one would expect Dubai to benefit particularly as the country is now more competitive as a result of the price reductions. Other markets such as Saudi Arabia and Abu Dhabi should benefit from higher oil prices which we expect to occur again as the global economy gathers momentum. Increased oil prices should mean increased budgets and opportunities to press ahead with widescale infrastructure programmes. If we go back to the survey and review what the respondents think general sentiment suggests the region will see recovery occurring over the next 12 months but for Dubai the expectation was that recovery will more likely be seen in around 24 months. Do you think Middle East investors will look regionally to invest or do you think they will look for international opportunities? We asked respondents which regions in the world would show the best returns over the next year, and Asia Pacific was by far the big winner. 46% of the respondents this time compared to 36% last time stated Asia Pacific would be the market they would expect to see the strongest performance globally in the near term. The Middle East went down slightly, it was 26% and is now 23%. What were investor expectations in terms of yields? We asked respondents about their yield expectations today versus where they were six months ago. What they have suggested is that their yield expectations have increased from 10.4% in October 2009 to 11.3% today. That is blended yields across different real estate markets and sectors. This illustrates the point that despite people being more stable in their thinking, there has been a slight drop in value expectations compared to six months ago. So on the one
hand we see values having dropped slightly since our last survey in October 2009, but on the other the sentiment was that values in most MENA locations will improve over the next 12 months. Specifically, average yield expectations across the MENA region have increased by around 90bps over the past 6 months. This reflects ongoing concerns over softening market conditions and potential oversupply in many markets. Yield expectations have increased everywhere with the exception of Qatar where they remained the same (10.7%). Yield expectations have expanded in all sectors of the market over the past 6 months with the exception of hotels where they have dropped marginally. Investors have demonstrated a greater differentiation between markets and sectors. Most notably, the logistics sector saw the largest increase in yield expectations growing from an average of 10.3% in October 2009 to 12% in this survey. This increasing yield expectation suggests that investor confidence in the logistics sector across the region may be waning. Similarly, the retail sector has also seen a 140bps increase in yield expectations reflecting the reduced spending and increased supply experienced in many markets across the region. Which asset classes are generating the most investment interest and are there any emerging asset classes? In a number of markets the most popular traditional investment sectors of residential, offices and retail have been the ones most impacted and which suffer from over supply issues. Investors are clearly wary of these sectors so unless there are compelling investment reasons they will tend to be avoided. Investor focus has shifted to previously untapped sectors such as low cost housing, again particularly in high population destinations such as Saudi Arabia and Egypt. Other real estate asset classes of interest include logistics, particularly where there is a lease in place to an international occupier. Other non-traditional investment sectors are also attracting interest and these include healthcare, education and staff accommodation in general anything that can show stable revenue, good underlying demand and limited new supply. There is very much a back to basics investment mentality.
As alluded to earlier cash is king and income and revenue stability are key investment decision making drivers. Investors are focussed on longer term secure income rather than development opportunities or land transactions. Do you think there will be development opportunities in Saudi and Egypt? Yes, Saudi and Egypt will continue to see development and another reason people are getting excited about Saudi is because of the new mortgage law. Historically you couldnt get a mortgage to buy a house so if the new mortgage law is passed it should open up a whole new market dynamic as developers will be looking to take advantage of the inherent demand for houses aimed at the local domestic market. Similar demand for affordable housing exists in Egypt and there is plenty of development occurring on the outskirts of Cairo. In conclusion, whilst transactions volumes within the institutional investor market remain subdued across the region investor appetite remains quite firm and broadly investors remain optimistic for prospects over the next 12-24 months. However, investors are much more cautious in both the types of investment they seek and where as well as are much more price sensitive. In the absence of motivated sellers we expect volumes to remain subdued and activity to remain focused on those markets with the higher local populations and / or that have a strong economic base that can support the real estate market.
Craig Plumb Head of MENA Research Jones Lang LaSalle and Andrew Charlesworth Head of MENA Capital Markets Jones Lang LaSalle Talk to Catherine Walker, Editor, Cityscape Intelligence
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Andrew Edwards, Associate Director and Joe Garwood, Associate Director, DTZ, discuss the findings of their latest report on logistics and warehousing in Abu Dhabi
What were the main conclusions of the report? The main objective of this report from our point of view was to provide an overview of the logistics and warehouse market in Abu Dhabi because as far as we are aware, no one has done a report focusing on this asset class. One of the aims was to set the scene and provide an overview of the main locations, key performance indicators such as rents, lease terms and also provide some commentary on where we see the supply and demand coming from in the future. One of the key messages coming out of the report is that Abu Dhabi is essentially a very immature market from a logistics point of view. It lags behind Dubai, which is seen at the regional hub for distribution and warehousing. Going forward there are some interesting opportunities in Abu Dhabi. What are the major drivers for growth? To set the scene briefly, Dubai is ahead of the game in terms of infrastructure, it has the main airport of the region and the main
port with Jebel Ali. What that basically means is that a lot more trade and shipments are transported through Dubai than anywhere else in the Gulf. If you imagine that most things in the Middle East are imported, they tend to come into Dubai and then are distributed regionally. Therefore it is fair to say that Dubai is a trans-shipment hub, whereas what you find in Abu Dhabi is that it is only servicing the local market in Abu Dhabi. As a result the infrastructure and any logistics or warehouses tend to be focused on just supplying Abu Dhabi. This explains why it is not as well developed as Dubai. There is a big push from Government bodies such as Mubadala to diversify the economy, bringing in new industries such as aerospace and nuclear energy. So what you are going to find over the next 10 or 15 years is a lot of new industries which will bring in new employment which in turn will also bring new demand for logistics. The key point there is that Abu Dhabi can afford to make these ambitious plans as opposed to some of the other countries in the GCC which dont have that supply of oil.
Do you think demand in Abu Dhabi will be affected by the supply in Dubai? They are two different markets, so it depends on what the warehouse developer or operator is trying to achieve. If the warehouse operator or developer is trying to be a regional hub and supply all the countries in the GCC, then at the moment, they will go to Dubai because of the infrastructure in place and the larger supply or cheaper warehouses. So it makes sense for anyone who does not need to be in Abu Dhabi to go to Dubai. However, it may be the case that you need to be in Abu Dhabi, and a lot of people do because that is where the growth is in terms of the main employment sectors of the economy. This is especially true for oil and gas contracts, which is one of the main drivers for logistics. Would you say that Bahrain and Saudi Arabia are again completely separate markets? Saudi is definitely separate because any growth in logistics or trans-shipment there is pretty much servicing the Saudi
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Arabian market. There is a larger population, around 26 million, so if youre building new warehouses or infrastructure in Saudi Arabia, youre not trying to become a hub for the rest of the region, youre trying service your local market. Bahrain is a bit different because it is trying to compete to a certain extent with Dubai and Abu Dhabi. To what extent has the logistics sector been affected by the global financial downturn? I dont think anyone can debate that the main players in the logistics market have all struggled in the last year or year and a half. Youve seen that in terms of demand for warehousing, particularly in Dubai. I think one thing that is worth saying going forward is that because of the infrastructure that is in place in Dubai, it is likely to recover more quicker than other countries in the region. As there is more supply coming on stream, there is more downward pressure on rents there. One of the problems occupiers face in Abu Dhabi is that the quality of whats available is generally poor and wont meet their needs, so they often have to build what they need. Therefore the answer is twofold - one that it has been affected, and two, we see the UAE as a whole in a good position to recover sooner. To what extent is the logistics sector driven by regional demand? Going back to what I said earlier, Dubai and the UAE as a whole is seen as a hub. It shouldnt be forgotten that many shipments to Saudi go overland through Abu Dhabi and Saudi is the largest market in the region.
Imports come in to the UAE via ship or via air and then are distributed by ship or by land to the rest of the region. So there is no denying the fact that the demand for logistics in the UAE is driven by regional demand. To be clear, when we talk about regional, were talking about the GCC. North Africa has different supply chains as they are closer to Europe and they have got the Mediterranean coast to be able to distribute imports and exports. In conclusion, it is worth pointing out that the current situation in Abu Dhabi is that there is very little good quality logistics space, so we see opportunities in the right locations and developed in the right way will be successful. The market is very immature but it is changing quickly. The other point to bear in mind is that currently there are a number of big retailers or suppliers who have to build their own warehouse space and this is not the best way of doing things. We have seen it in other parts of the world where, as the market matures you find that third party logistics operators provide the quality warehousing for retailers and entities which need storage and distribution space in order to distribute stock. Furthermore, we believe the market will eventually evolve into a more institutional investment friendly marketplace. This is essentially where you will have pension funds or strategic investors looking for secure income producing investments which have good quality tenants on long leases of 15 25 years which will produce a steady income back to that investor. That market doesnt exist here at the moment, as it has always been a very much owner-occupier market.
How does the logistics sector fit in with the Governments Plan 2030 There are a number of things we see driving this demand going forward. One is the diversification policies of the Government. The other is the potential change in the partnership laws where some industries will not need a local partner to come and set up in the UAE outside of the established Free Zones. Basically what the government are trying to do is attract employers to Abu Dhabi and make it easy for them to set up business in the region and in the Emirate without the red tape that comes with having to deal with a local partner. The other thing that is going to encourage the growth of the Abu Dhabi logistics market is the evolving nature of the Free Zone law. At the moment Dubai has the majority of the UAEs Free Zones, but if it is easier for companies to come and set up in Abu Dhabi then that is going to drive employment and demand for warehousing.
Andrew Edwards Associate Director, DTZ and Joe Garwood Associate Director, DTZ Talk to Catherine Walker, Editor, Cityscape Intelligence
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What is the status of the laws which were passed to the Executive Council last year? EF: The escrow law, strata law, mortgage, a version of the Real Estate Regulatory Agency and some regulations on developers presale are as far as we understand it still with the Executive Council. We still havent got a time frame for when they will passed. We understand they are imminent but they have been imminent for quite some time now. PD: It is hard to say whether there are political issues behind any delay. More usually it is just that there is so much going on that the key decision makers have to prioritise their time. In Abu Dhabi, the property market still has a lot of on-going activity from the major developers and it has not been affected quite as much as Dubai. In Dubai you see that there are a lot more regulations being passed and thats because there is a perceived desperate
need for these, whereas in Abu Dhabi it is more a case of business as usual. In addition, there is less property in the hands of end users in Abu Dhabi. A lot that has been sold so far has been sold in bulk often to local family purchasers or to institutions who are not quite so worried about the detail of the law and regulations behind their purchase. EF: The other consideration with the new laws is whether they need implementing regulations. For example if the Abu Dhabi strata law takes a similar form to the Dubai strata law, it will need subsequent implementing regulations to be passed. So even if the principal law comes out soon, it could still be some time before the full range of legislation is in place. PD: This is very important in that personally Im not convinced that investor confidence
will be now satisfied just by the passing of new headline laws. People are sophisticated enough to want to know the detail of the regulations to be made under them, because this detail has a very important bearing on how individual positions are affected. Also investors need to know that there is a strong likelihood of, and a strong indication of how, those laws and regulations will be interpreted by both the courts and the authorities. So however quickly you get an appropriate suite of laws in place, there still could be time before people are comfortable in the way in which they are working in practice. EF: When RERA was introduced in Dubai, it was probably a year before they started to be as active and vocal in the market as they are today, to voice their views and to indicate how they wanted people to behave. It will probably be the same with the Abu Dhabi regulatory authority.
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PD: If you look at ARRA in Ajman, that also took quite a while to get going, so the precedents that you have in the UAE are there but it does take a while from the very creation of an entity to it being an effective and well known force - there has to be a bit of time gap there. Do you think that means investors will feel there is no guarantee their interests will be safeguarded? PD: There are certain risks attached to all emerging markets and I dont think it is very different in the UAE, but much will depend on interpretation of whatever legislation is introduced. I think people like to see a bit of history and how the regime is actually working in practice before they feel safeguarded. So I dont think it is so much a question of transparency, it is a question of being comfortable with the way law is being interpreted and enforced. What further regulation needs to take place? EF: At the moment we are waiting for more regulations on the foreign ownership procedure in Abu Dhabi because at the moment it is still practically impossible for foreigners to be registered on the official real estate register. They are still being registered on the developers registers so these are regulations which are still awaited. Other than that, we probably need to wait to see the content of the five laws we have just been discussing we wont know what gaps there may be until we see precisely what these say. PD: We would expect those laws to take the form of enabling legislation and, as earlier mentioned, I think that now a lot of investors are sufficiently sophisticated to feel the need to see detailed regulations and will not just be comfortable with having the headline law in place. One of the other areas weve singled out as being important across the UAE for individual owners is the need for greater certainty in terms of what happens with regard to real estate on death and inheritance matters. There are a lot of differing opinions at the moment on that and if that the position could be clarified I think that this would certainly be to the benefit of the real estate industry. The thorny issue of the rights to residence in the UAE in conjunction with property ownership is another issue which has a perennial affect on investor confidence.
EF: Another key general point weve noticed throughout the UAE and which will apply to Abu Dhabi is ability to control service charges. This will tie in to the strata rules in Abu Dhabi and it is a big issue for end users. Throughout the whole of UAE they will want transparency on what they are being charged for. PD: Its not just what youre being charged for but it is also the constituent parts of those items and how these are made up, particularly in cases where some of the services which have been charged back to unit holders by the management company are actually provided by a another company within the developers group. In terms of market confidence there is one other big issue which, although isnt really related to real estate rules or regulations, has more to do with the general economy. We have got to be in a position where there are more banks providing finance to end users and those lenders in turn have to have confidence that defaults will be dealt with in a consistent and reliable way - lenders need to know that there can be a quick resolution to the enforcement of security over real estate and end users need to feel comfortable that there will be a just and fair solution to it all. In addition, we need more liquidity in the economy and funds available for lending to end users before investor confidence can be fully restored. At the moment, the loans to value ratios that banks are prepared to adopt are still quite low which therefore requires sizable deposits from purchasers and a lot of the sales that do take place are to cash buyers. But it may only be that the banks themselves will feel more comfortable in terms of lending at lower cost and higher loan to value ratios if they can see that there are more laws and regulations in place which are providing a degree of certainty in terms of what will happen if there is a default. Why is there a lack of liquidity in the Abu Dhabi market? PD: Although there has been a return of substantial liquidity in many other global real estate markets, this hasnt been so much in evidence here. Of course the position has not been helped when two of the biggest providers of end user finance, Tamweel and Amlak, have in effect been out of the market for a year and a half, in terms of providing any finance for new purchasers.
Do you think there is a drive to encourage end users in Abu Dhabi or do you think it is very different market to Dubai? PD: I dont think it is a massively different market. There are fewer developers and these are more generally institutionalised. This helps in a way because banks tend to get more comfortable quickly with lending to major developers than might be the case with small-time sub developers. But it does remain that so far in Abu Dhabi, sales havent really been to end users as much as is the case in Dubai. Are foreign investors encouraged in Abu Dhabi? PD: There are certain areas open to foreign investment and foreign ownership. I think many developers are just happy to see these schemes get underway successfully and sold to creditworthy purchasers rather than being too worried about the identity of those purchasers. Are there moves to create a more structured mortgage market in Abu Dhabi? PD: If sufficient liquidity does enter the market then eventually we might have to have a more stringent form of regulation of brokers and providers of finance. We dont really have that need at present, but that would be very much phase 2 of the evolution of the market. Once youve actually got substantial liquidity in the market, then you will see a lot of different financial products being developed by a number of different vendors. This isnt really the case at the moment.
Paul Davies Partner Denton Wilde Sapte and Emma Frost Associate Denton Wilde Sapte Talk to Catherine Walker, Editor, Cityscape Intelligence
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What projects do you currently have under development? Currently, we are steadily progressing with the construction of our prestigious Bawabat Al Sharq Project. Bawabat Al Sharq is an AED 3 billion mixed-use development located in Baniyas city. While offering an assortment of luxury services such as exclusive retail outlets, world-class entertainment, quality health services, and a renowned educational institution, this project is meticulously designed to meet the requirements of different customers. The project, being built in three phases, also encompasses a destination mall within the community, featuring high profile retail outlets and a hypermarket. One of the key highlights of Bawabat Al Sharq is its unique FIFA standard football stadium with a seating capacity of 20,000 spectators. The residential offerings in the project consist of three, four and five bedroom villas in both
detached and semi-detached layouts plus various sized apartments with one, two and three bedrooms. Construction on Phase 1 of the project is 60% complete; with the residential segment due for handover in Q4 2010. The construction on Phase 2 is scheduled to commence soon. Phase 2 and 3 villas and apartments, including the School, Medical Centre, Health Club, Community Facilities and the New Baniyas Stadium, will be completed in Q4 2012. We also recently announced the completion of our new state-of-the-art Baniyas Sports Club Stadium in Al Shamkha, Abu Dhabi, which was completed in a record breaking six months time. Has your strategy or focus changed in light of the global financial downturn? We believe that adjusting business plans to changing market scenarios is the key to achieving sustainable business results.
We at Baniyas have remained focused on the construction and delivery of our projects. Our aim is to continue with our construction schedule while maintaining our project timetable. We have ensured to maintain seamless communication with our customers and are updating them regularly on the progress of the project. We will remain focused on our vision, which is centred on becoming a regional developer of world-class and distinctive community projects that are contemporary, yet preserve the rich tradition and heritage of Abu Dhabi. Is affordable housing an area in which you would be interested? Affordable housing is our area of expertise; in fact all of the residences that we launch and develop are within our clients reach. In addition to offering our products at a very competitive price, we provide owners financing to all our clients, as well as flexible payment plans and options that cater to their needs and lifestyles.
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Do you have any plans for development of any other sporting arenas? We at BID aspire to create an integrated development that fosters various aspects of life, ranging from education, healthy lifestyle and sports. Needless to say, our iconic Bawabat Al Sharq project is designed to offer all the above. We have put a special emphasis on preserving the inherited customs and traditions of the footballloving city of Baniyas with plans to build up the FIFA-standard football stadium with a seating capacity for over 20,000 spectators in Bawabat Al Sharq. We aim to position Baniyas as the football hub of UAE in the coming years. To what extent has the Abu Dhabi property market been affected? The global economic downturn has had adverse effects on the property sector across the world and Abu Dhabi was not an exception to it. However, Abu Dhabis extensive resources and strong fundamentals have augured well for the economy. The local projects within the city have been planned to create a good investment environment. In addition to this, the potential for a growth in population, job creation and steady demand, collectively, make Abu Dhabi a good destination for medium to long-term investments. In line with Abu Dhabis 2030 vision, many private developers and government entities have restored confidence in the market and are investing in the Emirate to create an ultra-modern city conforming to global living standards.
To what extent has liquidity tightened? Due to the economic crisis, trust was replaced by fear and the spreading anxiety of the safety of ones money led to apprehension among banks, depositors, and customers worldwide who adopted a wait and see approach. But this phase was shortlived. Our governments have been extremely proactive in this regard and have taken timely steps by injecting liquidity into the market and urging banks and mortgage lenders to come up with flexible payment plans and mortgage products to give the required boost to the sector. Abu Dhabi infact has taken a decisive action to lower the cost of home loans in the emirate in a bid to boost the sector. What regulations would you like to see introduced to the market? Increased transparency, building lost confidence in the market, injecting further liquidity and providing stimulus to the economy on the whole are some of the remedial factors that can contribute towards stabilizing the market further. Our governments are already taking the required steps by introducing new legislations that will protect the interests of both the developers and the investors. Do you think transparency needs to be improved? Yes, there is no second thought about that. Progressive transparency and regulations are instrumental for the success of the sector. A diminishing speculative market and an evolving transparent market are the need of
the hour and this is not an option now but a necessity. Increased transparency will boost confidence levels among the investors and the buyers and will be critical to the timing of recovery in UAE. In which locations are you planning to invest in real estate in the MENA region? We are presented with several opportunities for real estate development in a number of Arab countries which we are currently reviewing. These projects need to be assessed from a commercial standpoint as well as deciding on the best operating model to employ to realise these opportunities. At the current time, we have nothing to announce to the general public though I expect by end of this year we may be active in one of these proposed projects. Do you think distressed assets are available? Yes, I think distressed assets are available. Assets are usually considered distressed when their value is severely depressed for a reason that is not related to that of the general market conditions. But distressed assets in the UAE property sector are a result of the market and global economic conditions and will become a thing of the past soon.
Wael Tawil CEO, Baniyas Investment and Development Company Talks to Catherine Walker, Editor, Cityscape Intelligence
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Mike Atwell MRICS Head of Middle East Operations Cushman & Wakefield (Middle East) FZE Licence 1656 Formed pursuant to law 2 of 1996 with limited liability Mobile: +971 509227827 Email: mike.atwell@eur.cushwake.com
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