Areview on Construction Industry in Dubai ResearchBackground This research focuses on identifying andcritically reviewing those factors affecting the performance of propertydevelopers in the Dubai construction industry.
The primary objective of this study is to review the recent developments in theDubai real estate market by shedding some light on some of the dynamics within the industry. Dubai Construction Industry Dubai is known over decades for its stateof the art architecture, high rise modern buildings, shopping malls, desertsafaris, dhow cruises and gold souks. Moreover Dubai is also known for its highclass business facilities which it offers to global corporate players in theform of superior and unmatched services. It has one of the best and modern freetrade shipping ports and sound economic infrastructure based on tourism,banking, shipping, re-export and real estate according to Kawach (2011).
In the last five years or so Dubai hastransformed itself to become first choice business and leisure destination formany high profile multinationals, business executives and individuals. The cityhas focused on promoting free trade and tourism culture in a bid to stimulateeconomic growth and development, EmirateBizGuides (2011). In addition, according to Shimy (2008),Dubai has initiated a one of a kind concept in infrastructural development inrecent past to complement its fast developing IT, education, media and financesectors. Clustering knowledge workers as they set up businesses in industry specific and segmented free zones; includingDubai Media City, Dubai Internet City, Dubai Knowledge Village, Dubai AcademicCity, Dubai Technology, Electronic Commerce and Media Free Zone Authority(TECOM) and International Media Production Zone etc. In 2002, the DubaiGovernment took a major initiative by reversing a law whereby Expatriates wereallowed to own property in Dubai in especially dedicated areas. Those areaswere called freehold areas and properties were sold on the basis of 99 yearlease.
Dubai PropertyAccording to Hennessy (2005) the decision of opening freeholdproperty created a construction boom in Dubai from the period of 2002 to 2008largely driven by mega projects both in inland and offshore areas. The offshore construction consisted of Palm Islands &The World; whereas inlandconstruction comprised of Dubai Marina, Jumeirah Lake Towers & DiscoveryGarden etc.Until September 2008, all property developers enjoyed exceptional growth and revenuesin real estate projects due to the enormous demand from local and internationalbuyers who invested in the property with the intention of earning andcapitalizing from the vibrant and conducive economic environment. The effect of global financial crisisHowever,very few forecasted that global financial crisis would affect businessesglobally creating financial bubbles, currency crisis and sovereign defaultswhereby countries failed or reduce to pay off its debt. Dubai was one of themajor cities which was adversely affected by the global downturn as it felt thepinch of financial crisis. It was heavily dependent on foreign directinvestment (FDI) to boost its real estate and tourism industry and bolstergrowth in the Emirates according to Exclusive Dubai (2008). Many of the properties sold by thedevelopers were bought by both local and international buyers as amedium, short and long term investments.
According to Abdelgalil (2009) many ofthe organizations, businesses and individuals lost their savings in theaftermath of the global financial crisis and were therefore unable to furtherinvest or continue in the high scale projects offered by developers in Dubai. Since then it has been an extremelydifficult struggle for the developers to operate in Dubai, as it faces strongchallenges from both the customers and Dubai Government. With theimplementation of Escrow account, Real Estate & Regulatory Authority (RERA)laws property, developers find it extremelydifficult to complete undertaken projects.
Some of the major factors responsible foraffecting the performance of the property developers in Dubai are pertaining toglobal financial crisis, lack of adequate demand of property and excess ofalready completed and ready to move in properties. However, there are a seriesof other problems related to operational aspect of construction too which aproperty developers face. The most influential factor which tops the list ofproblems is related to the availability of skilled and semi-skilled labouraccording to Egbert (2011).
The Role of CostIn the present scenario, another factor thataffects the performance of a developer the most is related to cost. Heldman(2002) states that the developer faces severe cost constraints due tonon-availability of funds hampering the flow of the construction process. Many of the buyers who bought property fromthe developer on instalments have continuously failed to pay according to thepayment plan. Moreover financial institutions comprisingof leading local and international banks have revised their lending policiesregarding mortgages making it more difficult for developers to retrieve anykind of money from buyers to fund the construction. Mortgage ratio hassignificantly dropped down as many banks are now very careful in lending fundsto real estate clients according to Sambidge (2011). H.H Sheikh Mohammad, the Ruler of Dubaiissued a committee under the name of Dispute Resolution Practice (2009) toresolve ‘bounced’ cheques cases in Real Estate post-recession.
According to the Dispute Resolution Practice, developers were dependent onbuyers and banks to fund their projects simultaneously contractors andconsultant were dependent on the developers for delegating construction relatedwork to them. Suppliers, vendors and logistic companies were dependent oncontractors for material orders, transport and warehousing, DRP (2009). Trend factors affecting contraction inDubai At present developers in Dubai facesshortage of labour due to the existing political crisis in Middle Eastspecifically in countries like Egypt, Syria, Yemen, Palestine, Lebanon andLibya. It is becoming seriously difficult for them to complete on-goingprojects on time due to the non-availability of labour at construction sites,Egbert (2011). According to Shah (2011), other majorfactors which influence the performance of a developer are pertaining tocontractors, consultants, procurement, quality, time, cost, mobilization, cashflow, competitor, culture, communication, training and safety.
Each of themwill be discussed below briefly to share knowledge with the reader regardingchallenges and problems which developers face at the current time.A major problem with contractors in Dubaiis that they undertake construction work beyond their working capacity and thenallot part of their construction tasks to sub-contractors who work on theirbehalf. The entire process creates communication gaps between developer,contractors and sub-contractors resulting delays in project with only developerto suffer. According to Samantha (2008) Consultantsplay an important role too in the entire construction process. A consultant ishired develop construction drawings, designs, layouts and floor plans and anyhindrance from the consultant side effects the performance of a developer.
Procurement is another major area ofconcern to a developer. Similarly sometimes contractors are unable to order andmaintain a swift delivery process whereby material is received, stored and usedwith complete efficacy. Similarly there are minor to major changes in drawingsand designs from consultant or client who force the contractor to incorporatethe change again consuming time and delaying the project as indicated byFleming (2003).A major factor affecting the performance ofa developer is related to quality. Quality constraints causes long term damageto the image of the developer and requires a lotof financial, human and technical resources to rectify all quality relatedconstraints, Heldman (2002).Heldman (2002) further mentions that timeconstraints on the other hand also play equally important role in negativelyaffecting the performancesof a developer.
Due to procurement, mobilization, equipment, change orderrequest, management, contractor and consultant delays projects are notcompleted on time. Moreover unavailability of skilled and semi-skilled labourand restriction in working hours particularly in summer and the month ofRamadan by Ministry of Labour delays the completion of projects. According to Haoula (2007) another area ofconcern for the property developers in Dubai was the implementation of EscrowAccount Law by Government of Dubai back in 2007 which created furtherchallenges for the developers in post-recession period. The new RERA Law No.8emphasized on property developers to use the all funds received in relation todevelopment of property under strict monitoring and administration of DubaiLand Department. Major factors responsible for affectingperformances of developers are related to the economic environment; closure ofmany small & medium sized organizations, reluctance of financialinstitutions to fund in real estate sector, high job turnover, low savings anddecrease in tourists compared to previous years.
These factors have createdvacuum in the real estate market whereby developers find it even harder to selltheir residential and commercial properties to domestic and internationalbuyers. Nixon (2005) states that lack of propertraining of employees leads towards multiple discrepancies affectingperformance of the developer negatively. A multi-cultural environment existingin almost all organizations leads to series of arguments, conflicts andconfrontations amongst employees which creates lack of communication affectingperformance of the developer. Supply demand equilibrium in Real Estatemarket in Dubai also plays an important role. It can be noticed that numerousproperties are lying vacant in both free hold areas and other busy areas ofDubai.
Similarly Sharjah which is the neighbouring city is also offeringapartments to tenants on a relatively lower cost basis and still it is findingit difficult to attract tenants to occupy the space. On the other hand competitors are pushingto sell their properties at even more flexible terms and conditions. Thesefactors affect the performances of a developer and make it extremelychallenging environment for it to work in, Property Wire (2011). The above mentioned are some of the factorswhich influence the performance of the property developer in Dubai. Thisresearch introduction will identify and discuss all relevant factors in theresearch study.
Significance of the Study1.3.1 EconomicalMajor chunks of Dubai’s economy are based on thereal estate and construction sectors. The Real Estate sector plays asignificant role in contributing to Dubai’s economic growth and development,however due to recent the economic crisis the industry is badly affected andhence this study aims to contribute by way of identifying feasible solutions tothese problems. Thereby helping the developers to complete their projects andsuccessfully troubleshoot all problems. 1.
3.2 SocialThere are social implications factors to both thedeveloper and the community, the construction industry in Dubai is known foremploying thousands of employees. Any negative implication of the constructionindustry will influence their spending circles and disposable income adversely. Many of the workers working in the constructionindustry will be unemployed and will face risk of returning to their homecountries which will then create a skills gap in the UAE labour market.Therefore, it is expected that the recommendations from this study would to agreat extent considers these problems and ways of ameliorating them.
1.3.3 EnvironmentalDubai Government is poised to implement construction and buildingapproaches which are sustainable. They promote the concept of green building inorder to promote a culture driven by sustainable development. The study willhighlight the importance of efficiently using natural resources and enablingdevelopers to reduce waste, all kinds of pollution and environmentaldegradation. Furthermore emphasis on construction life cycle will be given inorder to integrate design, drawings, construction and maintenance of thebuilding according to Green building concept.1.
3.4 CulturalThe construction pattern in Dubai reflects the diverse culture itpossesses. The architectural trend adopted by the developers in Dubai is basedon a unique combination of new, modern, artistic yet cultural styles in somecases. The study will put forward rationale suggestions which can helpdevelopers continue to complete undertaken projects and help Dubai inpreserving its diverse culture. performances of the developers in Dubai.
1.6 Limitation of ResearchThe likely limitations of research are asfollows:· Issues related to sharing of information by therespondents when interviewed· Revealing valuable data which can create unwantedtrouble for respondents· Approaching key individuals will always be a concernwhen interviewing· Challenges faced in obtaining actual and correctinformation and insight on current construction trendsConclusionThis research introduction sheds light onthe factors affecting the performance of the property developers in the Dubaiconstruction industry. The primary objective of this study is to analyze andstudy the possible factors which might hamper the progress of a constructionproject undertaken by the developer. The research introduction has brieflydiscussed the overall background of Dubai to familiarize the reader with theeconomic environment and policies prevailing in the Emirates. The researchintroduction discusses the aim and objectives of the research study and itssignificance pertaining to economic, social, environmental, cultural andacademic purposes. Moreover the research introduction indicates the researchmethodology, sample size and software which will be used apart from shedding somelight on possible limitations of research.
The research study will help inraising awareness among all stakeholders present in UAE and will play asignificant role in educating and informing students simultaneously.
