Concerns over a choking up of capacity prompts developers to lock in contracts early
Local developers are moving to pre-empt a surge in demand in the construction sector by locking in project contracts well ahead of an anticipated rush for resources in the build up to major events in the GCC region.
“Staying ahead of the curve would mean doing everything possible to win contractor commitments now rather than 24 months later, when there could be a choking up of capacity in the construction sector,” said Rahail Aslam, CEO of Select Group, in a report by Gulf News.
Illustrating his point, Aslam added that his firm had just awarded a $272.26 million contract to ALEC as the main contractor for its Marina Gate 1 and 2 structures in Dubai Marina.
“There’s still plenty of spare capacity available right now,” he said, but pointed out that it may not be the case for long. The first six months of 2015 are projected to see a spate of major construction related awards, with government agencies expected to lead the way.
“We signed up with ALEC as per the original timeline, but it still meant five months of an exhaustive negotiation process and where a lot of things had to be resolved,” said Alsam. “The contractor will now start mobilising on site by January or February.”
Developers remain wary over a sharp spike in project-related costs, though this hasn’t yet happened. Key building material prices are still relatively stable, with enough to feed the short-to-medium-term demand.
In fact, some categories could do with an increase in production, with steel manufacturers pointing out that local production could be increased to lessen the dependence on imports. At present 60% to 70% of locally made rebar products are used by projects within the UAE.
“We expect 2015 would witness more demand [for steel-specific products] compared to the current year,” said Bharat Bhatia, CEO of Conares. “The forward indications remain promising as projects continue to be moving on … albeit, there have been concerns on further liquidity and Asian economic activities to catch up towards the later part of the year.
“[But] Dubai steel market has enough capacity to support the new wave of infrastructure developments that is planned up to 2020.”