Gulf Construction Online - Global growth will 'fuel construction’

UAE Focus

Poloz... long-term vision.

Global growth will 'fuel construction’

01 November 2006

The global economic slowdown has started and is beginning to be felt but the UAE construction industry has no cause for worry, says Stephen Poloz, the senior vice-president corporate affair and chief economist of Export Development Canada (EDC).

“The slowdown should leave much of the UAE’s infrastructure plans intact, as those are based on a long-term vision of the global economy. The world should move back to that trend as early as 2008,” he forecast in an interview with Gulf Construction.
The Gulf region is presently experiencing a massive construction and property development boom which, according to recent estimates, have topped the $1 trillion mark.
According to a McKinsey report, electricity, highway, telecommunications, water, and other infrastructure projects – along with agriculture, education, health care, and information technology initiatives – will consume more than $500 billion over the next five years. Dubai alone is spending billions on undertakings such as a Wall Street-style financial centre, a million new homes, the world's largest airport, and 40 new duty-free “microcities.”
But with the slowing down of the world economy are global players well positioned to help meet the Gulf’s massive infrastructure needs?
“Yes, the world appears to be ready and willing to work with Dubai-UAE in infrastructure development,” says Poloz, who is a much sought-after authority on domestic and international economic issues. “And while the global economy is slowing, global trade growth will continue to grow and this distinction will help fuel the UAE construction industry,” he says.
“Canada, in particular, is in the sweet spot of the UAE's needs – whether in the oil and gas sector, aerospace, ground transportation, environmental systems and telecommunications. There is, at present, some supply constraints in the global construction sector, but these should ease in 2007 as the world economy slows. This will reduce the demand for such resources elsewhere in the world,” predicts Poloz.
He dismissed arguments that the UAE construction sector was over-extending itself. “Those who argue that Dubai – and the UAE more generally – are over-reaching themselves in infrastructure development, are not taking into account that we need to do more and more commerce to generate one more dollar of income. This is because international trade is becoming a tool of production rather than a simple sales tool. If the UAE wishes to take advantage of this global trend, some over-investment in infrastructure will be necessary. If constraints are encountered, or the slowdown introduces uncertainty into these plans, infrastructure projects could be stretched out in time, not abandoned.”
Property developers in the UAE are in general agreement that the construction boom will continue for the next five years before it peaks and then plateaus out. They, too, have dismissed warnings of a threatened major real-estate bubble burst.
“It is very difficult to diagnose a property bubble, especially in an economy that is developing as quickly as the UAE,” says Poloz. “Rising property prices are in fact symptom of a successful convergence or economic catch-up path. If there is a bubble, the coming slowdown should correct it, but the economy would return very rapidly to its original expansion path. With such ambitious long-term plans, it would be reasonable to expect the local construction sector to weather this short-lived slowdown relatively easily.”
However, despite such forecasts, the Hamburg-based realty fund DIFA is shunning the Gulf. According to a DIFA board member, “with the rise of Dubai to a regional financial hub, with cash pouring into the property market, prices have shot up so much that an investment here is not worth it.” In fact, it favours growth markets such as South Korea and India over an “expensive” Middle East.
But that, says Poloz, is because it is quite possible that a market like India or Turkey would deliver higher real estate returns than the UAE in the next few years.
“This does not mean that UAE property prices would stop rising. I would expect them to continue as the economy develops and catches up to the major economies in terms of aggregate purchasing power,” he says.