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UAE’s construction slowdown bodes well for Ajman

Posted on 02/03/09

The United Arab Emirates' construction cycle is in retraction meaning since 2008 new developments and/or work on existing developments has been scaled back by construction companies and land developers. This slowdown in construction is evident in a lower steel demand that according to Arabianbusiness.com has declined 1-2 million tons. (arabianbusiness.com)

The slowdown in construction may be more intense in the private sector than in Government related developments as indicated by Construction Company, CH2M's increase in its Abu Dhabi government related construction work force. However, in the article reported by arabianbusiness.com, the remainder of the company's construction workforce is not cited as either increasing, decreasing or staying level. Thus, job increases in one emirate does not necessarily exclude construction cuts in another.

Despite any positive news in the UAE construction sector, the fact of the matter is the UAE construction cycle is in retreat. According to http://www.steelguru.com, 83.7 billion U.S. dollars les construction contracts were granted in 4Q 2008 than 4Q 2007. Just how far the construction cycle's retreat is, is the unanswered question.

Since slowdowns in the construction cycle mean a decrease in supply, demand should in theory, inevitably follow a construction slowdown as population and the economy grows. We know the UAE economy is still growing, 2.4% in 2009 according to http://www.business24-7.ae, however, the real rate of growth after inflation is -4.7% if business24-7's forecast of 7.1% is accurate. With a decline in population also forecasted, due in part to less demand for overseas labor, the numbers seem to indicate a continued retraction for some of 2009.

So what are the implications of UAE's construction slowdown on the UAE real estate market? So long as supply decreases at a faster rate than the population decline, real estate demand should rise. This seems to be the case especially for affordable housing in light of the high inflation numbers as a higher cost of living combined with higher real estate demand implies an increasing need for affordable rentals.

Since Dubai is one of the more expensive of the Emirates to live in, the construction slowdown bodes well for real estate developments in Ajman which boast lower purchase costs, free hold housing laws and an economic development model similar to Dubai's. Thus, the implications of the UAE construction slowdown appear to point to an increased demand for rentals, especially in Ajman.

Posted by A.W.Berry
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About me: I am an American with a diverse heritage and have lived in several countries. My work experience and background centers around corporate, marketing and financial areas and my educational background includes a M.B.A. in Finance and Marketing in addition to a M.A. in Philosophy.

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