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Tue 6 Jan 2009 07:27 AM

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Construction chief predicts many firms will go bust

EXCLUSIVE: Dubai MD says cancelled projects will force many out of business.

A number of contractors could go out of business over the next three to four months due to a combination of project cancellations and continued labour and overhead costs, the managing director of a leading Dubai industrial construction firm has said.

March would be crucial for the industry in the UAE as by then it would become clearer which projects banks were willing to lend money to finance, Minoo Jamaji, MD of Roshan Construction, told Arabian Business.

He said his own firm, which specialises in turnkey industrial construction, had seen the value of the contracts in its order book for 2009 slide by around 15 to 20 percent to 1.5 billion dirhams during the last four months because of projects being cancelled or delayed.

But he said contractors in the freehold sector had been harder hit by a slowdown in the construction industry, with up to 80 percent of the projects some firms were involved in suspended in recent months.

“The next three to four months will be a test of survival and will be crucial for contractors to decide who moves forward and who will stop,” Jamaji said.

“Many will go bust as so many contractors have had projects cancelled and clients have not been paying, while overhead and manpower costs have continued.

“Up until now banks have not been giving a clear picture on whether they will give finances to developers and investors.

“March will see banks decide how much financing is available and developers will continue with projects accordingly as they depend on banks to build, plus by March we know how bad the market will be.”

His comments follow those by Sachin Kerur, a partner with construction law firm Pinsent Masons, who said that February and March would be crunch time for the industry as developers decide whether to go ahead with projects that have been placed on hold, or cancel them.

A number of projects in the Gulf have been cancelled or have slowed down due to a collapse in the real estate market and a freezing of the credit markets as banks decline to finance new projects due to the high risks involved.

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Mohamed 11 years ago

I guess the problem here in Dubai is not mainly the liquidity for financing projects, its all about the correction of real estate market values, no investor or developer can start a new project when he cannot sell, end users need to get a bank loan to finance their flat, however banks will not finance as the selling price of the developer is based on 2008 prices which is not valid anymore, for investors & contractors to increase their efficiency to bring down the overall cost of the project, they need sometime to revise their procedures & the way they are managing their projects, it was too obvious in the last decade that a project which may cost you 1 M$ to build anywhere in the whole world, will cost you 10 M$ to build in Dubai.

Hal-Luke Savas 11 years ago

The crucial element in success of the building construction industry in UAE (and elsewhere in ME) is to allow existing buildings to be managed more efficiently and only to allow new buildings to go up if due consideration is given for carbon neutral structures and communities. It is a fact that, even if the construction boom was to continue, the sustainability would have suffered irrevocably. As far as I am concerned IT IS A GOOD OMEN THAT CONSTRUCTION ACTIVITY IS SLOWING DOWN AND SLIM THINKING HATS ARE REPLACING THE 10 GALLON HATS!! Long live the Facility Managers and slim hat makers of M.E !!! Hal-Luke Savas MBA FCIM MBIFM ICIOB aff.CIBSE londonmanagement@aol.com

Thomas Joseph 11 years ago

According to my thinking, UAE's problem is not only because of the global economic crisis but also due to instability of laws and the change from day to day. UAE is inviting foreigners to invest and assuring people that all fruitful basement will be provided them to do business and / or enjoy the visitors, Just for example, for the New Year Day, all of a sudden, declared no celebration, then, what will be the factor consideration of the people who invested and spent lot of money in the hospitality industry? Another, the world community invested a lot in real estates and the govt. promised to give residential visa for all such investors but, one day it become void, and under this circumstances, how can you invite new investors in this field? Still uncertainty is going on in many things due to instability of the laws in the emirates. Govt has to re-think to boost the countries developments.

Shafeek 11 years ago

Developers and real estate giants had grabbed exorbitant profits, that is the reason whole world developers,real estate co., and investors were attracted to Dubai. It has been the reason for increasing the accommodation cost as well as the higher accommodation allowance from employees, which will affect the overall living cost of this locality. Major correction is indeed coming and rents should be brought down to affordable standards.

ANIL MATHEW 11 years ago

I guess the writing on the wall is there for all to read. The other day, I casually offered 400K for a three bedroom Arabian Ranches villa with pool. This is the kind that normally goes at 5 million. They took me seriously and now they've been trying to contact me to finalise the deal. I guess the smart ones will cut their loses and get out ASAP.

Shailesh Patel 11 years ago

I think U.A.E and in particular Dubai has been going haywire with thoughtless mega projects without verifying the financial viability of the same and also wether the country is geared up to withstand the requirement of infrastructure which does not end with construction of bridges and new roads. I think very little thought has been given to the requirements of manpower and their sustaining the ever increasing cost of living. This laws in the country keep on changing every other day be it regarding the residence visa, Emirates I.D., Salik, health Insurance, rent, or even the year end celebrations and basically no thought or due consideration is given to the needs or requirements of common people who are the ones who put in the maximum hardwork and still cannot find decent accommodation as they cannot afford to bring in family and don't find bachelors accommodation or are not allowed to share. I hope the government thinks about this and addresses the same at the earliest before it gets out of hand and the majority of people start packing their bags.