Optimistic GCC construction market believes cost of capital is ‘too expensive’

New study reveals GCC’s construction market is unhappy with its cash-flows

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A new survey by international law firm Pinsent Masons has revealed optimistic growth in the GCC’s construction market, adding that financial concerns will need to be redressed in order to sustain this growth.

The report said 90% of companies perceived increased optimism in the GCC market – 77% reported a healthy order book for the next 12 months relative to the last, said a report by WAM.

Respondents of the survey included some of the region’s largest developers, consultants, contractors and stakeholders. 43% of the respondents claimed the cost of capital was expensive, while 53% said it was more expensive than in 2012 – only 4% believed this figure was reducing. 62% of the companies complained of longer payment periods.

The figures have given rise to doubts regarding the financial capability and stability of GCC’s construction market. “The broad base recovery in the construction market sets a solid foundation for growth to continue in 2014,” said Sachin Kerur, head of Gulf region at Pinsent Masons, “but it remains crucial we capitalise on the potential of this sector at this critical juncture.

“Companies are reporting that the cost of capital is more expensive, and that accessing finance for projects more generally is a concern. They also tell us that their margins are being squeezed due to rising production costs and inflationary pressures.

“With traditional forms of bank funding still less available than has been the case in the past, it is likely that the trend of going straight to investors through bond issuance and other forms of financing will grow as various players position themselves for the significant projects likely to be procured. That presents a real opportunity for investors,” Kerur concluded.


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