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Gulf Realty Wakes Up
to Harsh Realities

Indications to this effect were available in plenty during the second day of the Arab World Construction Summit being organised here by the MEED Middle East Intelligence Group.

“There is a strong feeling of uncertainty in the real estate industry in the region. Nobody is willing to make any projections. Many of the developers in the UAE and Dubai in particular are reviewing their projects. Some may delay, reschedule, scale down and even drop certain projects in the coming days. They all know that the real estate sector is not going to have the same pace of growth witnessed during the first six months of last year,’’ Edmund O’Sullivan, chairman of the event, told Khaleej Times.

He however said the construction industry in the Gulf region as a whole is making some progress, but the growth rate in 2009 will be significantly slower than what was achieved in 2008.

According to him some of the delegates at the conference felt that the investments in the real estate sector in the Gulf region might pick up in 2009, while others felt it might take more than one year to recover. Those who think that the sector would recover this year were basing their assessments on the hope that there will be increased government expenditures in areas like roads, railways, air traffic, education, health care and other infrastructure sectors. Giving an overview of the discussion, Richard Thompson, Editor of MEED journals said there was an intense feeling among the delegates that “we are going to witness some serious problems in the real estate sector in the region in coming six months. We may have to witness corporate failures, litigation against clients over delayed cash flows and a host of other issues.’’

The real estate boom marked by high returns in short periods is now over, at least for the time being. This boom period was mainly resting on high oil prices and easy debt possibilities. Now the oil prices have crashed and the banks are very cautious on lending. The companies in the real estate sector are now engaged in a serious reality check, they know that they are now managing a different industry than what it was in the first half of 2008. Some of them may not face much of a problem in 2009 as they have a backlog of projects, But there is a grave uncertainty about the possibility of new projects coming up after that. The companies are trying to make use of small investments in the most efficient manner so that they can earn the same margins they were making before,’’ Richard Thompson said.

Kuwait, Saudi Arabia, Abu Dhabi and Qatar may have resources to invest in infrastructure projects in the coming days. But the uncertainties in oil price raise question marks about their potentials in the long run, he said.

· ramavarman@khaleejtimes.ae