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GULF PROPERTY MARKETS FACE “PERFECT STORM” DUE TO OVERBUILDING

01/08/2016 0 12 views

Dubai – “ASWAQ”
The Arabian Gulf property markets are reported to be facing a “perfect storm” as a result of overbuilding by its developers, and the continued softening demand as market sentiment shifts on the back of lower oil prices, according to the management consultancy firm, AT Kearney.
AT Kearney has published a new report stating that the value of projects currently under construction is four times higher than the value of all developments completed within the past decade. While the value of projects at an earlier stage of development equates to about 10 years’ worth of work.
The report said, “Each year between 2016 and 2020, this pipeline would deliver anywhere between 7 and 12 times the real estate value delivered yearly between 2007 and 2009. By December 2015, the GCC registered US$2 trillion worth of property projects in the pipeline, and property accounts for 70 per cent of the construction sector’s workload for 2016 and the next year.”
The report however added that delivery is somewhat ‘patchy’ as the value of regional projects that have been cancelled is twice as high as those that have been completed, since 2006.
The report also revealed that with average GDP growth set to slow to about 3.2 percent between 2016 and 2020, this wave of new projects looks set to be delivered in a weaker market.
AT Kearney’s vice president, Federico Mariscotti said, “There is little evidence the real estate industry is preparing for the next market cycle. Developers need to probe for disruptive innovation beyond the traditional boundaries of their industry and beyond their known value chain.”
The report mentioned that developers have little choice but to transform working methods if they are to successfully deliver new schemes. It suggested a range of changes to working methods, including the use of construction techniques developed in space by sintering sand (the process of compacting and forming a solid mass of material by heat and/or pressure without melting it to the point of liquefaction), as well as calling for better collaboration between developers, architects and contractors.
The report also suggests a different approach to tendering, by offering a package of, say, three major projects to be delivered over several years to allow the different parties; including the facilities manager responsible for running the buildings; to create “value networks” with shared ideas and goals.
Mariscotti added, “But if someone makes a move to do something radically different i.e. by setting up this value network, tampering with innovation and doing more analytics about what customers want, then they can really break out. Nevertheless, the biggest developers could get through the next few years without changing just by taking more market share and forcing smaller firms out.”
According to Fitch Ratings, the present liquidity conditions are also tighter, with growth in banking loans set to slow by a third over the next three years. And although population growth remains robust, the 2.9 per cent increase that the Economist Intelligence Unit (EIU) is forecasting over the next five years is just one-third of the level experienced before the 2008 crisis.
Another comment by a director at AT Kearney, Douglas Pickles, mentioned that the industry’s current supply chain was “inherently inefficient” and that “this commonly accepted model leads to design changes on up to 40 per cent of project specs and delays of six months or longer.” He said, “The future belongs to those developers who can tackle these inefficiencies by introducing innovation and increase upfront collaboration within their supply chain.”
The harsher environment faced by property companies in the UAE could dampen profits in the second quarter results for 2016, as predicted by analysts. Although Emaar Properties reported a 17 per cent increase in net profit in the first quarter to Dh1.2 bn, analysts from Bahrain-based Securities & Investment Company are forecasting a 10 per cent year-on-year decline in second quarter profit to Dh1.06bn.
Meanwhile, EFG Hermes is predicting lower sales from Damac Properties with a 45 per cent drop in profit to Dh 771 million, down from Dh 1.4 billion in the same period last year.

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