Year of the dragon in UAE construction

Dubai: It is the Year of the Dragon in UAE’s construction sector.

Chinese construction giants have been picking up major project wins, both on government contracts as well as those from the private sector. In securing these wins, they have been offering better facilities and payment schedules than the local competition.

Not just that, their attitude also counts as a huge plus, industry sources say. “With local contractors, the tendency is to stop all activity on the ground at the slightest delay in payments,” said Talal Al Gaddah, CEO of MAG Lifestyle Development. “These have been difficult times for the market and everyone could have benefitted with a bit of give-and-take. But we never see that happening.

“With Chinese contractors, the focus is on bringing the project to completion – there are no distractions whatsoever.”

Al Gaddah has opted for just such a “no-distraction” approach in awarding a Dh1.8 billion contract to China National Chemical Engineering Group for the first phase of the MAG City community project in Meydan. This particular phase is expected to take up 30 months.

Total contracts across the UAE could touch $80 billion this year, according to data from ProTenders, a marginal drop from the $83.4 billion in 2018 but an improvement on the $75.6 billion in 2017. The numbers were revealed on the opening day of the Big 5 show in Dubai.

“According to available data, there are $385.8 billion worth of projects forecasted in the UAE,” the report notes. “Although $252.9 billion of these are announced to be awarded in 2020, we highly believe that the contractors’ capacity, funding and real estate cyclical planning will result in only a maximum of $89 billion to be awarded in 2020 with the balance moving forward.”

Wins all over

Other developers in Dubai too have tapped Chinese support to get their projects rolling. According to market sources, rather than the standard payment period of 45/60 days, these contractors are willing to have payment periods of 90 days and more. For government-funded projects, the payment terms could stretch past two years or more.

In some instances, the Chinese are also aligning with local contractors to kickstart projects that were grounded for lack of funds. “The UAE and Gulf markets will see more Chinese players as within China, there is a drop in the number of mega projects,” said Samir Munshi of Silver Heights, a consultancy which has been negotiating with contractors to revive some projects. “They are being encouraged to actively seek international projects, typically in the Dh100 million range. Funds are being provided to them at extremely favourable rates, at 1-2 per cent interest.

“It’s proving difficult for local contractors to compete against those deep pockets.”

Troubled times

These difficulties are starting to crop up more frequently in the sub-contractor space, and even at the primary contractor level. “We had awarded a tender on a low-rise building, only to find that the contractor had gone bust because of accumulated debts,” said the project’s promoter. “We have wasted months because of the outcome – and all delays come with a cost.”

Sources say it is not the shortage of contracts that is troubling local contractors, but managing the payment cycle. Any delay anywhere in the processing and handover of the cheques results in a threat to business activity.

According to Dr. Deva Palanisamy, Vice-President of Project Intelligence at ProTenders, “Yes, we have noticed an extension in the payment cycle, on average it’s about 90-120 days from 60 days earlier.” But she then adds: “On the positive (side), there hasn’t been further delays than this and payments are released within this timeframe.”

Many in the construction sector would differ with the second part of the assessment. Payment drag is cited as one of the main factors in some of the businesses going under in recent times.

This is where, it seems, that the Chinese contractors have a decisive edge. “I’ve heard of projects where the payment kicks in only after three years when a Chinese partner is involved,” said a source.

Sure, the Chinese are also picking up direct stakes in some of the projects in place of cash. But on average, the emphasis remains on cash payments.

Drop in contract numbers

According to ProTenders’ data, in the first three quarters, just over $60 billion worth of projects were awarded in the UAE. For the whole of 2018, the tally was $83.2 billion. “On average, an estimated $19 billion worth of projects are awarded every quarter,” in reports. “We forecast that if
the same quarterly trend applies in fourth quarter of 2019, the total value of projects to be awarded will reach $80 billion.”

Not surprisingly, with the EXPO 2020 DUBAI launch date inching ever closer, the “urban” sector – made of up commercial, residential, hospitality and social infrastructure projects – made up 64 per cent of all projects.