A. Dissertation

Irshad Zafar Malik, Reg.
No: 081339095 1
Dubai Campus

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MSc. CONSTRUCTION MANAGEMENT
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DISSERTATION
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Dissertation
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School of the Built Environment
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Irshad Zafar Malik, Reg. No: 081339095 2

CONSTRUCTION & ENGINEERING INDUSTRY IN UAE AND

ITS FUTURE PROSPECTS IN VIEW OF PRESENT CRISIS

Irshad Zafar Malik

A dissertation submitted in partial fulfilment of the requirements for the degree

of

Master of Science in Construction and Project Management

Dissertation Supervised by: Professor Ammar Kaka

School of the Built Environment

Dubai Campus
Dubai Academic City
P. O. Box 294345
Dubai
United Arab Emirates

DISSERTATION 2008/9

17 August 2009

Submitted By:

Irshad Zafar Malik

Registration No: 081339095


DECLARATION

I Irshad Zafar Malik hereby confirm that this work which is submitted for the
purpose of assessment, is my own and expressed in my own words. Any references
made within this work from other sources or authors in any form (e.g. ideas, figures,
text, tables and datas etc.) are properly acknowledged at the point of their use. A full
list of the references which has been used is included with this work.

Signed;

Irshad Zafar Malik
Registration No.: 081339095

Date: 17 August, 2009


Table of contents Page

Acronym list iii

List of tables iv

List of figures v

Acknowledgement vi

Abstract vii

Glossary of terms viii

1.0 Chapter 1: Introduction
1.1 Introduction and scope of study 1
1.2 Aim and objective of the study 3
1.3 Main hypothesis 3
1.4 Literature review and pilot study 4
1.5 The main study; data collection and its evaluation 4
1.6 Layout and structure of dissertation; writing up 5
1.7 Conclusion and way forward 7

Literature review:

2.0 Chapter 2: Construction & Engineering Industry: Global overview
2.1 Introduction 8
2.2 Industrys definition and its sub sectors 9
2.3 Industrys profile and its global overview 10
2.4 Industrys global market and its future outlook 11
2.5 Industrys segmentation 14
2.6 Construction industry and economics 15
2.7 Impact of global financial crisis on the construction industry 21
2.8 Conclusion and summary 26

3.0 Chapter 3: UAE Construction & Engineering Industry: An overview

3.1 Introduction 28
3.2 Industrys overview in perspective of culture 28
3.3 Industrys vision and its overall overview in gulf region 30
3.4 UAEs legal concepts and regulations 32
3.5 Industrys regional market and its future outlook 36
3.6 Effects of global downturn in UAE construction industry 44

4.0 Chapter 4: Construction & Engineering Industry: In perspective of
competitive landscape

4.1 Introduction 49
4.2 Industrys segmentation in UAE 50
4.3 Industrys competitive landscape in UAE 52
4.4 Five forces strategy analysis 56
4.5 Strategic development process in industrys regional market 60

Research methodology and findings:

5.0 Chapter 5: Frame work of research design and data collection

5.1 Introduction 66
5.2 Pilot study 68
5.3 Research instruments 68
5.4 Data collection 69
5.5 Survey design and conducting survey 70
5.6 Ethics and confidentiality 71
5.7 Analysis and result 72
5.8 Conclusion 72

6.0 Chapter 6: Analysis of survey and results findings

6.1 Introduction 73
6.2 Analysis of individual answers 73
6.3 Awareness of UAE construction industry 75
6.4 Global crisis and its effect on UAE construction industry 75
6.5 UAE construction industrys barriers and threats 76
6.6 UAE construction industrys opportunities 77
6.7 Limitation of research analysis 79
6.8 Conclusion 80

7.0 Chapter 7: Discussion and conclusion

7.1 Introduction and summary 81
7.2 The way forward 82
7.3 Recommendation for UAE construction industry 83
7.4 Recommendation for market strategy 84
7.5 Recommendation for industrys stakeholders 85
7.6 Conclusion 86

8.0 References 87

9.0 Appendices


Acronym list

UK - United Kingdom
UAE - United Arab Emirates
GCC - Gulf Cooperation Council
MENA - Meddle East and North Africa
RERA - Real Estate Regulatory Authority
CIOB - The Chartered Institute of Building
CIArb - Chartered Institute of Arbitrators
RICS - Royal Institute of Chartered Surveyor
SCTDA - Sharjah Commerce and Tourism Development Authority
PJSC - Public Joint Stock Company
GLA - Gross Land Area
GDP - Gross Domestic Product
SWFs - Sovereign Wealth Funds
KIA - Kuwait Investment Authority
ADIA - Abu Dhabi Investment Authority
ICE - Institution of Civil Engineers
BSE - Building Services Engineer
QS - Quantity Surveyor
BS - British Standard
TCQS - Time, Cost, Quality, Sustainability
SM - Strategic Management
SWOT - Strength, Weakness, Opportunities and Threats
DM - Dubai Municipality


List of tables

Table 2.1: Industrys sub-sectors in terms of percentage
Table 2.2: Global Construction & Engineering Industry Value: 2003-2007
Table 2.3: Global Construction & Engineering Industry category
segmentation: %age share by value as per 2007
Table 2.4: Global Construction & Engineering Industry segmentation in
geographical zone: % share by value as per 2007
Table 3.1: Overview of Dubai real estate laws
Table 3.2: List of projects in UAE under execution or to be executed
Table 3.3: Major retail projects in UAE by GLA
Table 4.1: UAE Construction & Engineering Industry category
segmentation: %age share by value


List of figures

Figure 2.1: Industrys sub-sectors in terms of percentage
Figure 2.2: Global Construction & Engineering Industry Value: 2003-2007
Figure 2.3: Global Construction & Engineering Industry category
segmentation: %age share by value as per 2007
Figure 2.4: Global Construction & Engineering Industry segmentation in
Figure 4.1: UAE Construction & Engineering Industry category
segmentation: %age share by value
Figure 4.2: Porters five forces model
Figure 4.3: Seven theories of strategy
Figure 4.4: Implementing Strategy Key forces
Figure 5.1: Research methodology
Figure 5.2: Research instruments
Figure 5.3: Data collection procedure


ACKNOWLEDGEMENT

I would like to express my sincere appreciation and gratitude to my supervisor
Professor Ammar Kaka for his support, guidance, assistance, criticism and
suggestions, he provided to complete this dissertation. I also acknowledge the efforts,
courage, support and confidence given by Dr. Asem Al Hajj to complete my degree of
MSc. Both have been the lifeline and moving sprit all the time during my study in
Heriot Watt University, Dubai Campus.

This dissertation involved several discussions and information from the construction
practice in UAE construction industry. I would like to thank the invaluable
contribution to all respondents to my questionnaire who gave me their time for their
thoughts, input and suggestion for completing my pilot study part of dissertation.

The effort and time spent by me in completing the dissertation work would not have
been possible without the encouragement and tolerance of my family. They rendered
every possible help to see the dissertation to be completed in time. I shall be proud to
remember sacrifices made by family, especially my wife and my daughters Aayesha
& Maryam which are incredible to bear with me for this piece of work to be
completed.

At last but not the least, I wish to offer thanks to the university staff particularly our
teachers, librarian, IT department and security staffs without their help it would have
been impossible to complete this work. My appreciation and thanks to my class
fellows at Heriot Watt, relatives and friends including Hifzur, Naved and Mahender
Singh Gaira in completing my dissertation.

Abstract

The construction industry is one of largest and most valuable sector, being a major
driver of the world economy. The rapid economic development of UAE has fuelled an
unprecedented construction boom and infrastructure development in all corners of the
country that attracted investors from around the world.

However, the financial landscape is going through an upheaval period. This is one of
the most chaotic times in the past 80 years. Most of the countries are clearly
experiencing significant negative impact, through stock market turbulence and
domestic credit stringency. And, Middle East is not exiting in vacuum.

Despite this economic slowdown, the UAE construction industry is likely to continue
to grow fairly and strongly over the next few years, although its growth rate is
fluctuating. Gulfs much-discussed sovereign wealth funds (SWFs) are now more
likely to invest domestically to keep local economies moving. Further, the
governments efforts to diversify from oil-based income to other industries and
liberalization in policies will bring further investments.

Dubais aspiration to bid Olympics Games will boost up the industry in future, and
further development depends on winning chances to host Olympics.

The barriers to construction industry have been analyzed, trends revealed and
solutions to overcome those identified barriers to the industry have been discussed.
The gaps and constraints related to the construction industry have been highlighted for
the preventive action to be taken in future.

The upcoming year will be critical with the impact of the global economic downturn
and low oil prices still being played out.

Furthermore better regulation of UAE, shortage of housing in UAE particularly in
Abu Dhabi, record growth in hospitality markets are the strong drivers to sustain the
pace of development and to roughen the ripple effect of world economic crisis.
Lastly it could be concluded that UAE market is going to correct itself by shedding of
overpriced construction, demand and supply theory is about to play demand side is
at the top!!

Glossary of terms

Activity: A discrete area of action that leads towards project aim and goals. Normally
subdivided into tasks and reflected by time, cost and resources to be applied.
Amortization: A payment plan by which a loan is reduced through monthly
payments of principal and interest.
Appraisal: An expert valuation of property.
Architect: One who has completed a course of study in building and design, and is
licensed by the state as an architect.
Assessment: A value placed on the worth of a property.
Cost: The direct and indirect cost of achieving the project result.
Engineer: One who will represent the project during post contract phase as a Clients
representative and he is a qualified person for the project management and having
good knowledge of contract administration.
Milestone: The time by which a particular deliverable has to be achieved.
Network: The interdependent activities which will have to be completed and in a
particular sequence for the project to be delivered.
Programme: A group of activities of a project to be managed in a coordinated way.
Project: A complex set of activities that related to set of targets to deliver a specific
result within time and budget. Projects are temporary endeavors undertaken to create
a unique product or service.
Project life cycle: A collection of sequential stages or phases of a project.
Result: The collective deliverables of the project in terms of quantity and quality.
Scope: The size, duration and cost or other impact of a project.
Stakeholder: Individual or group of individuals who might influence the project or
Strategy: The plan that will guide to successful conclusion and with competitive
advantages.
Time: The total duration, not merely to complete a set of activities but also realizes its
deliverables for the success.

1.0 Chapter 1: Introduction

1.1 Introduction and scope of study

UAE and particularly Dubai has risen from desert. Trade and tourism contribute
major chunk of national economy. Concept of common currency among gulf
countries further augments the investment in trade and tourism. Huge investments are
coming for infrastructures and shopping malls.

The construction industry of UAE has taken many initiatives to launch various
projects in the booming and flourishing market of real estate and property. Rulers of
UAE are very keen to improve the eco-credentials of the cities. According to Gulf
News, there are new guidelines issued by the Dubai Government which require all
buildings in the emirate to be constructed as per RERA requirements and guidelines
to improve the confidence of investors in real estate sector.

The construction and engineering industry is composed of civil engineering
companies and large-scale contractors. The civil engineering segment was the
industries most lucrative in terms of generating revenues. Having climbed steadily
from 2003 to 2007, however the UAE construction and engineering industrys growth
rate is expected to decelerate slightly in the years up to 2012.

Construction and engineering industry is fragmented despite the existence of large
players. Most projects are granted to players through competitive tendering, which
provides buyers with a high degree of leverage over players, who can largely define
the required specifications of the project, contractual terms and then choose the most
favorable tender. There is significant country-specific differentiation within the
industry affecting competition. For example, rapid development within China
supports a lower level of rivalry and a higher threat of entrants than in Japan, where
the market is mature and growth stagnant.

The UAE construction and engineering industry displays moderate buyer power.
Clients are major private-sector customers, usually corporate and individuals from
various countries or else government agencies of some type. The specification of the
project is thus mainly defined by the buyer, although in certain tendering processes

construction companies can influence the final form. The tendering process for
public-sector projects is usually governed by local and national regulations, and there
may be supranational rules, such as the RERA directives or norms, to comply with.
Although in some cases, just as with private-sector buyers, contracts will not be won
solely on price, economic factors, such as the long-term maintenance costs, will
govern the decisions of buyers. Issues such as personal taste or brand loyalty are of no
account.

Also, a contractor can in principle move from non-residential construction to
homebuilding since many key competencies, such as knowledge of building
regulations and project management, are to be applicable to the homebuilding sector,
while project-specific constructional skills may be subcontracted out in any case.
Overall, rivalry in the UAE construction industry is moderate.

The Financial landscape is going through a period upheaval with some major firms
folding, other operations merging. Top of this only limited number of companies
being rescued either in USA or Europe. This is one of the most chaotic times in the
past 80 years.

Developing countries of Asia are clearly experiencing significant negative impact,
through stock market, turbulence and domestic credit stringency.

GCC countries are trying to respond the present crisis in a coordinated way. However
they are not success till date. The total value of real estate under Construction in GCC
is worth more than AED. 8.8 Trillion.

Opportunity for GCC and UAE
According to finding of Investor sentiment survey conducted by Jones Lang LaSalle,
the real estate market of Middle East will out perform all other regions. Sentiment is
the critical factor when considering the health of any market. Investors remain bullish
towards UAE, which is expected to show best performance over the short to medium
term. However Middle East is not exiting in vacuum. It will also be affected by
international crisis.

Furthermore better regulation of UAE, shortages of housing in UAE particularly in

over priced construction, demand and supply theory is about to play - demand side are
at the top!!

1.2 Aim and objectives of the study

Aim:
To study and analyze the UAE Construction & Engineering Industrys future
prospects and its forecast development in 2010.
Major objectives:
Some of the major objectives that are proposed to be achieved during the course of
the research are to:

To analyze industrys recent performance and its future prospects.

To analyze the key macroeconomic and demographic data affecting the
market.
To assess and analyze in depth view of markets competitive landscape.

1.3 Main hypothesis
Analysis of the industries recent performance in the region as a whole, along with in
depth information on development in the UAE, will give a broad indication of how
the industry is performing. Delivering further, detailed examination of the non-
residential and residential segments will offer practical understanding of the
construction industry.

1.4 Literature review and pilot study

Stage 1: Literature review & guide line
A comprehensive review of the relevant literature which will cover text books,
journals; including a computer-assisted search will be undertaken in order to develop
an understanding of Construction & Engineering industrys global overview and for
the UAE. The study will review the literature on the subject. It will also analyze the
current scenario of UAE construction industry and their performance from previous
study, trade magazines and web sites.

STAGE 2: Pilot study
The literature review will be followed by a pilot study to be conducted through field
survey. The survey will be conducted in the form of initially semi structured
telephonic interviews of few professionals associated with the construction industry to
get their feedbacks on current situation and its health for the preparation of
questionnaire. Professionals of higher rank to the industry will be targeted to get an
effective and comprehensive feed back. The reason behind this is to explore the
threats to the industry, facing at present in these tough economic times and how to
come out with this situation. The next step is to carry on with the field research; a
survey is conducting by establishing a questionnaire to obtain the response from
professionals involved directly/indirectly to the U.A.E. construction industry, as a
quantitative analysis. To check the viability of questionnaire a pilot study shall be
done before floating full fledged questionnaire on web site/or to be handed over in
persons to the respondents. And amendments are to be made according to their feed
backs if necessary.

1.5 The main study; data collection and its evaluation

Main Survey questionnaires
To achieve the research objectives, a questionnaire survey to be carried out to collect
information on prospective effects. Questionnaire will be developed to try to find out
all about the current market situation of UAE Construction & Engineering industry
and its future prospects, with the feed backs from industrys professionals and to be

amended further after performing pilot study. It is intended to collect the datas which
will reflect the true picture of the market in current scenario with respect to objectives
of the research.

Evaluation of data
At this stage all the datas and informations collected from literature review and pilot
study etc. are to be analyzed. These datas and informations will be evaluated with
their pros and cons in systematic way to conclude a better and comprehensive
recommendation for the industry in present crisis. And this would help in
understanding, how U.A.E. Construction & Engineering industry sustain in present
situation.

1.6 Layout and structure of dissertation; writing up

This stage involves the appropriate sections should also research and write up those
parts to the relevant sections of the dissertation. Writing up process must ensure that
the consistency and free of typing and spelling errors.

Chapter 1: Introduction

This chapter provides the introductory information on dissertation which explains the
aims and objectives of the research. The relevant problems related to the construction
industry in view of present crisis have been briefed to proceed further. This chapter
also described research methodology, details of data collection and its evaluation and
structure of the dissertation.

Literature review:

Chapter 2: Construction & Engineering Industry: An overview - Global

This chapter will provide with an overall overview and profile of construction
industry. How it has been divided into subsectors, their segmentation and markets
outlook. This chapter will also explain the construction economics and how industry
has been affected in this worldwide financial crisis.

Chapter 3: UAE Construction & Engineering Industry: An overview

This chapter will consist of culture, vision and overall overview of UAE construction
industry in perspective of local market, particularly for the GCC region. This chapter
will also provide UAEs legal concept and its regulation for the construction industry
and how industry has been affected in this global financial crisis.

Chapter 4: Construction & Engineering Industry: In perspective of competitive
landscape

This chapter gives an overall picture of construction industry in the region in respect
to industrys competitors. How industry is performing in competitive landscape in this
tough economic times. This chapter will also discuss the strategies to be adopted by
the industry to overcome with the present situation and will be ready for future
challenges after the recession.


Chapter 5: Frame work of research design and data collection

This chapter will describes the framework and methodologies to be adopted to carry
out the research and how to collect the material for the literature review and relevant
data related to the objectives of dissertation.

Chapter 6: Analysis of survey and results findings

To analyze the collected data based on hypothesis and objectives of the study and
discuss the results obtained from questionnaires in detail. Further, this chapter will
also discuss the findings of topics related to aim and objective of the research and
conclude the results with their findings.

Chapter 7: Discussion and conclusion

At this stage results and findings will be interpreted and analyzed. And
recommendations will be made for the industry leading to final conclusion of the
dissertation.


1.7 Conclusion and way forward

At last dissertation will be concluded along with way forward provide to overcome
with the tested barriers/threats for the UAE construction industry and suggesting
industry for the strategies and policies to be adopted to rid the current market
downturn successfully.


Literature review:

2.0 Chapter 2: Construction & Engineering Industry: Global
Overview

2.1 Introduction

The construction industry is one of largest and most valuable sectors. It includes the
design of buildings and infrastructure (engineering and architectural services), the
manufacture of buildings products and of machinery and equipment for construction,
operation and maintenance, and disposal of facilities.

The construction industry is one of a major driver of activity in the global economy. It
is made up of residential buildings, non-residential buildings, and engineering
construction. It includes architectural and engineering services and construction trades
such as bricklaying, plumbing, electrical, etc. The construction industry is also one of
major employment sector of any developed and developing countries, which requires
skilled workers and professionals for various disciplines. It was anticipated that
thousands of new recruits would be required each year. However, due to economic
slowdown, the availability of jobs will be declined as the construction industry also
facing tough time due to global economic crisis.

Construction is extremely fragmented in nature. It uses concepts developed in
Industrial Organization (IO) economics to derive five forces that determine the
competitive intensity and therefore attractiveness of a market. Porter referred to these
forces as the micro-environment, to contrast it with the more general term macro-
environment. They consist of those forces close to a company that affect its ability to
serve its customers and make a profit. A change in any of the forces normally requires
a company to re-assess the market place. In

2.2 Industrys definition and its subsectors

The construction and engineering industry is composed of civil engineering
companies and large-scale contractors, but excludes companies involved in
homebuilding. The market value is to be calculated based on revenues of those
companies whose primary activity is the construction of residential, non-residential
buildings and non-buildings construction (civil engineering).

The construction industry consists of the following sub-sectors:
Construction of buildings
Heavy and Civil Engineering Construction
Infrastructure, repair and maintenance works
Specialty Trade/Engineering Contracts

Construction of Buildings
Construction of buildings comprising public and private housing, non-residential
buildings includes; commercial buildings (e.g. offices, shopping center/malls,
restaurants and hotels etc.), public property (e.g. Government offices, banks, hospitals
and schools etc.).

Heavy and Civil Engineering Construction
Heavy and Civil Engineering Construction includes; construction of industrial
buildings with other facilities (e.g. factories, warehouses, workshops and processing
plant etc.), oil and gas projects.

Infrastructure, repair and maintenance works
Infrastructure, repair and maintenance works includes; roads and bridges network,
water and electricity network, railways and airport facilities etc. and their repair and
maintenance works.

Specialty Trade/Engineering contracts
Specialty Trade/Engineering contracts includes; specialized trade such as curtain
walling, district cooling system etc. and their repair and maintenance works.

2.3 Industrys profile and its global overview

The construction industry is one of the largest and most valuable sectors of any
developed and developing countries. It includes the design of buildings and
infrastructure (engineering and architectural services), the manufacture of buildings
products and of machinery and equipment for construction, operation and
maintenance, and disposal of facilities. It is broken down into five sub-sectors and the
sizes are based on number of firms as indicated in terms of percentage and figure
below:

Table 2.1: Industrys sub-sectors in terms of percentage

1) Civil engineering (residential and non residential construction) 29%
2) MEP (mechanical, electrical and plumbing installations) 18%
3) Construction exterior finishing 18%
4) Construction interior finishing 16%
5) Others;
a) Land sub division and land development 9%
b) Construction infrastructure development 4%
c) Other specialty trade 3%
d) Construction management 3%

Figure 2.1: Industrys sub-sectors in terms of percentage

The structure of the construction industry has remained unchanged during the
twentieth century and its sector remains largely configured around the traditional
project model. In this model, professionals, contractors and clients work in short-term,
low-bid contractual arrangements that entails high financial risk.

Since the early 1990's, the construction industry has experienced a significant growth
which increases the profitability due to strong residential construction demand and
many other large capital projects. The growth has also been supported by the
governments and they take initiatives to develop infrastructure to meet the
requirements. However, the growth of non-residential sector was little bit effected due
to showing signs of downturn, with industrial, commercial and institutional building
activity all declining. The engineering construction activity is driving the industry's
revenue, with oil and gas sector investments leading the way.

Further, the construction industry is one of major employment sector, which requires
skilled workers and professionals for various disciplines. It was anticipated that for
the next five years, an extra over hundreds of thousand new recruits would be
required each year. A third of these jobs were expected to be for typical graduate roles
such as architects, business process managers, construction managers and
technical/engineering staff. However following the economic downturn which began
in mid of 2008, the amount of jobs becoming available has actually decreased as the
construction industry has been hit quite hard.

2.4 Industrys global market and its future outlook

The strong market growth witnessed globally and particularly in Asia and Middle East
regions in the construction industry in 2006 and it was expected to continue for at
least the next two years. The Gross Domestic Product (GDP) of the construction
industry grew by 3.5% in 2008. The construction and engineering industry has
performed well in recent years, although its growth rate of the industry has been
fluctuating over the past four years and this rate of growth is set to decline over the
forecast period.


The construction industry market has been analyzed based on datas collected from
various sources as under;

Market analysis
The construction industry market climbed steadily from 2003 to 2007, but further to
market analysis the global construction and engineering industrys growth rate is
expected to decelerate slightly in the years up to 2012.

The global construction and engineering industry generated total revenues of $2,063
billion in 2007, representing a compound annual growth rate (CAGR) of 5.2% for the
period spanning 2003-2007. In comparison to above, the American and European
industries grew with CAGRs of 8.2% and 3.5%, respectively, over the same period, to
reach respective values of $736.4 billion and $690.2 billion in 2007.

The civil engineering segment was the industries most lucrative in 2007, generating
total revenues of $1,034.1 billion, equivalent to 50.1% of the industry's overall value.
The non-residential segment contributed revenues of $1,028.9 billion in 2007,
equating to the remaining 49.9% of the industry's aggregate revenues.

The performance of the industry is forecast to accelerate, with an anticipated CAGR
of 6.2% for the five-year period 2007-2012, which is expected to take the industry to
a value of $2,780.8 billion by the end of 2012. Comparatively, the American and
European industries will grow with CAGRs of 8.1% and 3.9%, respectively, over the
same period, to reach respective values of $1,084.6 billion and $836.7 billion in 2012.

Market value
The global construction and engineering industry grew by 6.9% in 2007 to reach a
value of $2,063 billion.

The compound annual growth rate of the industry in the period 2003-2007 was 5.2%.

Table 2.2: Global Construction & Engineering Industry Value: 2003-2007

Year Value ($ billion) Growth (% age)
2003 1,681.8
2004 1,731.7 3.00%
2005 1,806.1 4.30%
2006 1,806.1 6.80%
2007 2,063.0 6.90%
CAGR, 2003-2007: 5.2%
Source: Datamonitor

Figure 2.2: Global Construction & Engineering Industry Value: 2003-2007

Future outlook
The construction industry is likely to continue to grow fairly and strongly over the
next few years, although its growth rate is fluctuating and forecast suggests that, this
rate of growth is set to decline for the period of next two years. The construction
industry, in particular, is being boosted by government led public-sector construction
projects. The fastest-growing sector is likely to be infrastructure because of the high
level of investment in transport infrastructure projects under the Government's plan to
the developing countries.

Looking forward, the construction and engineering industry is not expected to deviate
from its current value growth position and forecast suggest that it will accelerate to an
anticipated CAGR of 6.2% for the next five-year period up to 2012.

2.5 Industrys segmentation

Market segmentation I
The global construction and engineering industry primarily can be sub divided into
two segments namely civil engineering segment and non-residential segments. The
civil engineering segment and the other non-residential segment accounts for 50.1%
and 49.9% (remaining) respectively, share of the industrys total value.

Table 2.3: Global Construction & Engineering Industry category segmentation:
%age share by value as per 2007

Category % Share
Civil Engineering 50.10%
Non-Residential 49.90%
Total 100.00%
(Source: Datamonitor)

Figure 2.3: Global Construction & Engineering Industry category segmentation:
%age share by value as per 2007

The global construction and engineering industry can be sub divided into three
geographical zones/continents (segments) as under;

Table 2.4: Global Construction & Engineering Industry segmentation in

Geographical zone % Share
Americas 35.70%
Europe 33.50%
Asia-Pacific 30.80%
Total 100.00%
(Source: Datamonitor)

Figure 2.4: Global Construction & Engineering Industry segmentation in

2.6 Construction industry and economics

Scarcity forces us to economise. We weigh up the various alternatives available and
select those particular goods which yield the highest return from our limited
resources. Economists use this idea to define the scope of their studies, but since there
is no one definition which is complete and satisfactory. We keep ours, as simple as

possible. Economics is the study of how people allocate their limited resources to
provide for their wants (Harvey J. and Jowsey E., 2007).

The study of economics covers and become clearer if we examine certain points as
follows:
Economics is a social science
Economics is closely concerned with the findings of other sciences
Economics selects a particular aspect of human behavior
But, in pursuing such studies, economists are facing two major difficulties as under:
1. Economists cannot experiment
2. Economists cannot directly measure welfare

Economics in perspective of construction industry
The construction industry plays a powerful role in sustaining economic growth, in
addition to producing structures that add to our productivity and quality of life.

The construction industry is very important to the economy of any country because of
its size, the fact that it provides predominantly investment, and also this sector is one
of major source of employment at all levels.

The British construction industry had a share of seven to eight per cent of the gross
domestic product (GDP) in 1999 (Department of the Environment Transport and the
Regions: Construction Statistics and Economics). The construction industry not only
in the UK but internationally, is an important industry accounting for about three to
ten per cent of gross domestic product (less in developing countries than in developed
ones) and for 50 to 60 per cent of gross fixed capital formation in a majority of
countries.

The public sector, is one of the major client of the construction industry has far-
reaching effects on the industry and the economy because government has the means
to exercise very direct control over demand on the industry and the way it is put to the
industry.

The three characteristics which provide the key to the inter-relationship between the
industry and the economy are; size, investment-goods industry and dependence on

government as a client. The problems e.g. business failure in the construction industry
can affect the economy in general. There are also social costs of insolvencies to the
owners, creditors, and employers of the firm lead the direct government intervention
to aid the failing firm.

Construction economics produces a variety of materials and resources for tracking
construction economic information to help contractors, owners and the public learn
what is happening in regard to construction costs and its future prospects to enable the
stakeholders be prepared for the upcoming challenges.

The role of economic systems for resource allocation
Primarily economics deals with the individual or firm uses their resources to provide
what they want. Similarly, in context of construction industry, the firms output is
mainly depends on how he allocates their limited resources accordingly.

However, todays decisions as to what shall be produced are linked only indirectly
with the actual consumer. Thus if the maximum possible satisfaction is to be obtained
from limited resources, there must be a link between producer and consumers. In
broad terms this is the function of economic system and basically it consists in two
parts as described under:
a) Firms the business organizations which decide what product and services to
be produce and bring together the different resources required.
b) Consumer/Households which consume the goods or product, services and
supply, such as labour, to produce them.

The market mechanism
Market is laid on the freedom of the individual, both as a consumer and as the owner
of resources. Consumer expresses his choice of product through the price he is willing
to pay. And the owner of resources seeks to obtain as large a reward as possible. If
consumer want more of the products than is being supplied at the current price, as
indicated in their bidding-up price. This increases the profit and earnings of firm. On
the other hand, if consumers do not want a particular product, its price falls and
producers or firm make a loss, and resources leave the industry. In short, the
consumer is the king.


The same mechanism is being applicable in the construction industry e.g. between the
client (consumer) and the contractor (producer).

The theory of demand and supply
That animal was cheap, remarks Phil Archer as the auctioneers hammer falls. And
no wonder, replies Brian Aldridge. This has been a long winter. Were now in
middle of April, and the grasss is hardly growing. Hays running short and breeds are
forced to sell sooner than expected. Old Giles is about the only farmer wholl take the
risk of buying extra cattle (Harvey J. and Jowsey E., 2007, p-34).

Simply we learn from Brian Aldridges observation that, the sale was not really
determined by the final bid. In short, the price was determined by the interaction of
the forces of demand and supply. The same theory can be applied in construction
industry, for example at present the demand falls due to tough economic conditions
which dictates the prices of real estate in the market.

Types of Market Structure
In studying the market economy, it is essential to understand how price is
determined. The prices in the construction industry are very much influenced by the
market of construction material and supply of manpower. Therefore, type of market
structure plays important role in the construction industry and we can categorize as
follows:
World markets today modern transport allows many commodities to have
world market, a price change in one part of the world affects the price in the
rest of the world. Examples of such commodities in the construction industry
are building material, labour and skilled manpower.
Perfect and imperfect markets the price of one commodity in one part affects
its price in another part, hence the same price to be established. When price
differences eliminated quickly, we can say market is a perfect market.
Examples; if the client is aware about the construction process he can get
similar price from the market as per his estimate or budget.
Organized produce market

In context of market structure in the construction industry can be classified in various
sector as under;
1. Civil engineering residential and non residential buildings etc.
2. Industrial building plants and warehouses etc.
3. Infrastructure and transportation
4. Offshore engineering oil field, mining and marine engineering etc.

Micro and Macroeconomics

Microeconomics Price system largely concerned with the relationship of demand to
supply. It is a study of decision of individual consumers and of individual firms in a
particular market i.e. small part of the economy, usually referred as microeconomics
(from the Greek word mikros means small).

Macroeconomics In addition to studying how resources are allocated to different
uses, and level at which resources as a whole are being employed i.e. overall level of
activity. In other way macroeconomics deals with the variables in aggregate i.e. the
aggregate flow of income, aggregate investment, aggregate wages, and so on. In
broader sense macroeconomics (from the Greek word makros means large) is a study
of an organization or firm for its overall performance and this is widely used in
construction industry for their financial analysis at corporate level.

Sustainable development
Sustainable development can be defined as development that meets the needs of the
present generation without compromising the ability of future generations to meet
their needs.

There are differing views as to how to allocate resources efficiently and fairly over
time. The free-market argues that the self-interest will ensure sustainability because,
as resources become scarce, their price will rise in encouraging conservation and
development alternatives. The evolution of Green Building is one of important
aspect of sustainable development in the construction industry.

Business failure and government intervention in the construction industry
In general, the construction industry works on a lower profit margin than the other
industries. However, low levels of working capital and profit margin can place a
construction company in a vulnerable position. The traditional methods of tendering
(i.e. to price the product before it is produced) and the uncertainties of weather and
ground conditions all contribute to the degree of risk.

The construction industry is fragmented, very sensitive to economic cycles and highly
competitive. The cost is still the key factor for the selection of winning contractor,
which leads to put efficient contractors in a vulnerable and risky position.

Government policies can influence easily to the industrys economic cycle in
following ways;
- by raising interest rates and restricting credit
- by increasing taxes, or
- by reducing its own spending.

In addition to above, many other reasons are to be cited for the business failure in
construction industry at present, few of them are listed as under:
Low working capital requirement (often negative)
Sensitivity of the construction market to economic cycles
Characteristics of construction contracts
Insolvency
Bankruptcy
Liquidation
Receivership

The Economy and Construction: Measurement and Manipulation
The construction economics is very important to the modern construction industry,
which plays a powerful role in sustaining the built environment. The construction
economics can help in developing the business in competitive landscape and to
achieve their objectives to sustain in the market and its future growth. Following tools
and techniques are being used in the construction industry:

1. Corporate performance
2. Internal & external appraisal
3. Forecasting of future performance
4. Final corporate plan
5. Financial planning
6. Basic budgeting in construction
7. Establishing turnover budgets
8. Financial control
9. Financial resources
10. Project level financial management
11. Cash flow forecasting of construction contracts
12. Corporate analysis
13. Investment and development appraisal
14. Investment appraisal techniques

2.7 Impact of global financial crisis on the construction industry

Introduction
The current crisis in the worlds financial system has left the construction industry
facing its toughest challenges for a generation and the impacts look set to get much
worse before they get better. No country is immune from the impact of this crisis and
much of the world, is already in, or about to enter into recession. Even buoyant
construction markets of Middle-East such as the United Arab Emirates (UAE) are also
effected, with construction growth rate expected to slowdown from 20% to 15% in
2009 (Al Mal Capital). The United Nations (UN) predicts world economic output will
shrink by 0.4% in 2009 (UNs World Economic Situation and Prospects Report,
2009).

These are serious times and the industry needs to be prepared to contribute to the
recovery by retraining workers, maintaining the highest of standards of quality and
supporting innovation. Construction professionals should continue and must follow
their commitment to the issues of sustainability, health and safety, ethical business

practices and improved building standards. These will future-proof the industry and
allow it to grow after the recovery of economy.

Companies seeking to find an extra edge in an increasingly competitive market are
likely to employ greater innovation and techniques as they look to become more
efficient. This could have benefits for the industry in the future, where innovation has
never been more vital.

Impacts and challenges

Construction Output
It is clear that construction is going through a period of upheaval and entering into
deflation. Forecasts suggest that there will be a declination of 7% in output over the
next three years, however this figure is depending on Government spending coming
through as planned (Construction Products Association).

In the UK, construction output fell by 1.1% in the last quarter of 2008, and the UK as
a whole officially entered into recession (Office of National Statistics, January 2009).
The output of government and other services also fell by 0.5%, despite government
pledges to use public spending to stave off the worst of the recession. In the third
quarter of 2008 new order figures fell 39% below the average of the year before.
Public housing orders were down 36%, and private housing orders were down 62% on
the average of the year before. Private housing starts fell an estimated 43% during
2008, and it is anticipated that these will fall a further 32% in 2009.

A rapid decline in private work has been partly propped up by more public sectors
spending, however the outlook for the private sector over the next few quarters is set
to get worse. The Olympics will prop up the industry to a certain extent but the
cessation of office development will have a much greater effect.

Overall, even if all public sector funding was spent next year, the construction
industry in 2009 would still see the largest percentage fall in output since the early
nineties, when over 500,000 left the industry. This has been brought about by the

sharp fall in private sector investment in construction offices, retail, entertainment,
as well as private house building.

Public Sector Spending
The Governments decision to bring forward 3bn of capital spending on
infrastructure was cautiously welcomed by the construction industry (Pre-budget
statement, November 2008).

Given the extremely high levels of borrowing that the Treasury is expecting over the
next few years, there is a risk that Government will fund later debt repayments with
cuts in capital spending on construction further down the track.

There is also a risk that delays in the Governments existing build programmes will
lead to increased under-spend. Programmes such as the Building Schools for the
Future Programme have already fallen behind schedule, and reports suggest that this
is as a result of bureaucracy rather than a lack of funding.

Business Finance and Loss of Confidence
According to the Confederation of British Industry (CBI), more than half of British
firms have seen a decline in the ease of access to capital since the onset of the credit
crunch; 30% of businesses have been, or expect to be refused new credit; and 78%
expect business conditions to be worse next year.
The Government must urgently take steps to unblock the financial markets and
improve the flow of capital to business.

More innovative ways could be investigated by Government to help the industry
survive, such as providing credit insurance; relaxing bonding requirements on public
projects; setting up project bank accounts; and providing tax breaks/concessions for
sustainable construction R&D. At present, the latter has effectively ground to a halt
largely as a result of the deeply entrenched uncertainty that abounds.

Jobs & Loss of Skills
Almost 400,000 jobs in the construction sector in England could be lost over the next
two years. It is predicted that the worst affected area will be London, where 23% of

workers are expected to be made redundant (Public and Corporate Economic
Consultants for the Local Government Association).

On the other hand, Eastern Europeans are responding to the downturn in the market
by returning home, and this has eased the severity of the job situation in many
instances.

Forecasts suggest that the jobs in the public sector may offer more security than those
in the private sector. This reinforces the need for Government to establish how an
accelerated public spending package will be implemented.

The construction Industry, in particular the house building Industry, is having to
dramatically re-structure and down-size merely to survive. The loss of technical
resource and therefore expertise has been considerable.

This is a real concern, particularly as the technology that underpins sustainable
construction is becoming even more complex and at a time when we need
experienced people if we are to meet our sustainability objectives. Furthermore, it is
not something that can be addressed by short-term training and/or education.

Procurement
It has been reported that the credit crunch is likely to reverse the industrys trend
towards negotiated contracts and partnering. Instead, there could be a swing back
towards single stage, lowest bid tenders aimed at achieving the lowest possible
outturn cost.

While single-stage tendering may be seen as a quick fix during the economic
downturn, this does not take the long-term view, nor adequately consider best value
for money. It does however provide a more risky financial environment which is
likely to become a fertile breeding ground for claims and liquidations as contractors
cut their profits to secure work in a decreasing market.

Partnering has proved itself as the most efficient way of undertaking all kinds of
construction work including new buildings and infrastructure, alterations,

refurbishment and maintenance. Indeed the figures show that in the four years from
2001 to 2005, 700m of public money was saved, and the potential for two and a half
billion in savings, would have been feasible had best practice been adopted across the
board.

Fraud
An unexpected knock-on effect of the credit crunch has been a dramatic rise in
worldwide construction fraud. Evidence suggests that the average construction
companys loss to fraud has increased by 69% in the last year (Kroll Global Fraud
Report), driven largely by tough economic conditions.

Most frequent types of fraud occurring in the construction industry include theft of
physical assets or stock, financial mismanagement, management conflict of interest,
and corruption and bribery.

Companies will need to be even more vigilant than usual to reduce fraud in the
Sustainability
It is important that new buildings, not least those procured by government, are of the
highest possible environmental standards. Green building can be at the heart of a low-
carbon economic recovery, boosting growth and creating green collar jobs. This is
particularly true in existing homes and buildings, where we need a massive
programme of refurbishment to cut carbon, reduce energy bills and produce more
comfortable places to live and work.
By continuing to build using sustainable technologies the built environment will be
preserved for future generations, and a proven record in sustainable design will be
invaluable in gaining new contracts in the growing sustainable market.

Education and Training
The future success of the construction industry depends on the availability of skilled
professionals.

The credit crisis poses a significant threat to the number of students enrolling in
graduate construction courses. Students may be apprehensive about pursuing a career

in construction in this unstable climate. This would result in a loss of specialist skills,
which in turn would hinder the recovery and future development of the industry.
As a result of these risks the Government is working with Construction Skills to try
and secure as many positions as possible for students.

For professionals already within the industry, there is research to suggest that
individuals with specialist skills or training could potentially gain a competitive
advantage in the current economic climate (Consultative Committee for Professional
Management Organizations). The research predicts that professional qualifications
could result in an additional 152,000 in lifetime earnings. It also suggests that a
working knowledge of sustainable building and other innovative methods will be a
particular advantage, with major projects on the horizon requiring an extensive skilled
workforce in these areas.

It is important for employers to train and encourage further development if they want
to secure the future of the construction industry. This will ensure that their workforce
is properly trained in up-to-date techniques and will put them in a stronger and more
competitive position to win new contracts when market conditions improve. Although
it may be inevitable for some to make financial cuts to survive, it is crucial to
maintain a constant number of new innovative minds that will allow the industry to
recovery and continue to grow.

2.8 Conclusion and summary

The global construction industry is highly fragmented with a large number of small
players. However, with the adoption of new contracting practices, including design-
build, bargaining power of buyers is moderately high as the builders have to take care
of the interest of the buyers in the competitive market environment. Not many barriers
to entry exist as the investment involved in research and development (R&D) and
other activities is not very high.

However, the capital investment is subject to high risks due to the cyclical nature of
the industry. Threat of substitutes is also not very high as the alternative for site-built

construction comes from the construction industry itself in the form of prefabricated
buildings.

It uses concepts developed in Industrial Organization (IO) economics to derive five
forces that determine the competitive intensity and therefore attractiveness of a
market. Porter referred to these forces as the microenvironment, to contrast it with the
more general term macro-environment. They consist of those forces close to a
company that affect its ability to serve its customers and make a profit. A change in
any of the forces normally requires a company to re-assess the marketplace.

3.0 Chapter 3: UAE Construction & Engineering Industry: An
overview

3.1 Introduction

The United Arab Emirates (UAE) is part of south-eastern Arabian Peninsula. The
country is a federation of seven emirates Abu Dhabi, Dubai, Sharjah, Ajman, Ras
Al-Khaimah, Fujairah and Umm Al-Quwain. Abu Dhabi is the capital city of UAE.

The UAE is the most dynamic and a highly emerging economy in the Middle-East,
driven by its oil wealth; the country has witnessed an unmatched development and
transformation over a period of time. Oil exports and foreign investments are the two
important aspects which have completely changes the face of the UAE in the region.

The UAE is now one of the most competitive economies in the region when it comes
to attract foreign investment. The rapid economic development of UAE has been
fuelling an unprecedented construction boom and infrastructure development in all
corners of the country that attracted investors from around the world. Most of the
investments are directed in developing infrastructure for tourism, hospitality, retail
and healthcare industry. The governments efforts to diversify from oil-based income
to other industries will drive the infrastructure investments in the country in coming
years. It is anticipated that the UAE will continue to attract the bulk of investments
and will emerge as the gateway to tap the emerging gulf market.

Despite the economic slowdown all over the world, the UAE seems to be committed
to develop several projects in housing, tourism, industrial and commercial facilities,
education and healthcare amenities, transportation, utilities, communications, ports
and airports which are poised to change the face of urban landscape in the years.

3.2 Industrys overview in perspective of culture

There are several important points to be considered, whilst conducting a business deal
with Arabs. The foremost is saving face; typically Arabs detest being confronted,
they find it rather unpleasant and in all likelihood will avoid such a person in future.

Hard sell does not always work in this region, if you compel or force an Arab into a
position where he feels uncomfortable, even if you end up making the sale, there is
the threat of losing future business with him.

When dealing with an Arab, precaution should be taken to leave enough maneuvering
room for him or better still to allow him ample time to assess the current situation,
with minimum discomfort or hurting their dignity.

Many books written on this are aptly titled Business and Culture in the Middle East
or some other variation of above, implying that the two aspects are closely
intertwined. Even when making a business deal an Arab is never in a hurry. It is
always conducted giving due importance to conduct in light of their culture and
customs. It is not only about dos and donts, although they are important, but it is also
necessary to appreciate the essence of their culture, and understanding this is the
stepping stone to success in business in the Middle East. The Arab businessmen
generally are affluent and well traveled. Quite a high number of them are western
educated and will easily recognize attempts at observing their customs, even though
they may be a little awkward, and this will be appreciated and repaid in some kind.

Arabs by and large, prefer to have room for negotiations. Presentation of product or
service plays an important part. To allow the purchaser to negotiate over delivery
period, payments terms will enhance the possibility of closing the deal.

This also extends to construction industry, and this may be the reason of many
problems relating to quality of the product, time and costs. To tell an Arab contractor
he is performing inadequately, in front of his peers, even when it is obvious would be
a faux pas. The client in such a case, being generally also an Arab, would not
appreciate such an attempt. Enough space should be left to allow the contractor to
save his face. Majority of clients and contractors representatives are expatriate
workers and when the problem arises, the principals will meet, and the issue discussed
in a typical Arabic style away from the meeting room. Each awkward question is
phrased to allow maneuverability and eventually conciliation will be made, ensuring
that both parties are able to save face. During negotiations, a slow response should not
be misconstrued as the inability of the client to understand the subject matter. Always

ask if there is any clarification required. Repeating questions will wrongly imply that
you are thinking that the opponent is slow. Deliberation is inherent to the Arab nature.

An invitation to an Arabs home should be understood as an honour. Privacy is
important in Arab culture, males and females are segregated. After ringing the bell,
position yourself in such a manner that you dont see into the house directly, allowing
any females members to retire to female quarters. Upon welcoming one is taken to the
Majlis, an area reserved for greeting non-family members where you will be served
traditional gahwa with dates. Accept the drink offered even if you do not desire it and
if you do not want more, convey politely by shaking the cup. Make an attempt to learn
at least the formal greetings in Arabic. Remember to remove your shoes at the
entrance of the Majlis if you see other guests shoes there, and never sit with the soles
of your feet pointed towards anyone. Do not admire too much possessions of your
host, he will be obliged to present them to you. It is considered impolite in Arab
culture to ask about female members of their family.

Arabic hospitality roots from the old nomadic and extremely harsh environment in
which they lived. Water as well as food used to be limited. Quite often travelers found
themselves depending on the kindness of others, arriving at a camp they would share
whatever food is available. The host would always show this courtesy because he
knew that next time he might be the traveler.

3.3 Industrys vision and its overall overview in gulf region

For the past ten to twelve years, the Gulf Co-operation Council (GCC) region, which
comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates
(UAE), has witnessed rapid economic, demographic and social changes. Since 1998,
the GCCs real GDP has expanded by an annual average growth rate of 5.2% and by a
cumulative total of 65%. Meanwhile, the population has risen from just over 28
million in 1998 to an estimated 39 million in 2008.

Saudi Arabia is the largest in economy of the GCC, approximately 85% of
government revenues and 65% of GDP are based on the oil sector. UAE, the worlds
ninth-largest oil producer and arguably the most proactive of the GCC states, the
picture is mixed. Dubai, the most high-profile and showy of the seven emirates which

make up the federation, is reliance on foreign investment and cyclical sectors such as
tourism and property. Although only 6-7% of Dubais GDP comes directly from oil
output, the emirate partly built its success by establishing a liberal, high-return and
western-friendly business environment in the middle of a region of enormous wealth
where political and economic stability often discouraged inward investment. Abu
Dhabi is the capital of UAE, which controls more than 90% of the UAEs oil reserves,
despite sound growth in the non-oil sector in recent years, hydrocarbons are still the
mainstay of the economy and the lifeblood of investment. A similar picture is evident
in Qatar, which is being well-placed due to its gas reserves (the worlds third-largest)
and remains a much undiversified economy.

The recent boom has focused world attention on the GCC economies, not only as
exporters of oil and gas, but as investment destinations with major infrastructure
projects, tourism and financial services sectors. As US economic growth has slowed
down, therefore investors from GCC countries have begun to diversify their assets
and making investments in Asia, Africa, MENA, and within the gulf region itself.
Over the next decade or more, strong economic growth is to be underpinned by the
GCCs demographics and energy advantages. A range of major investments will be
expected that are already underway.

According to Gulf Talent (July, 2009), Gulf economies are still expected to perform
better than others due to high government spending in infrastructure projects and low
exposure to risky assets. Qatar, Bahrain, Oman continues to enjoy the highest growth
rate in the region due to ongoing development. The UAE, and in particular Dubai has
slowdown the pace, but government efforts have improved the situation and the
development, especially construction industry in infrastructure followed by other
developments are back on track.

The UAE Construction Industry, including Real Estate sector, had been experiencing
phenomenal growth rate in the past. The Construction Industry in the UAE had been
witnessing massive investments from private, public and government-based
organizations. The growth in the tourism sector was led by large number of real estate
developers both local and foreign by investing in hotels, resorts and commercial
projects. According to RNCOS (2009), in 2006, the total infrastructure industry stood

around US$ 11 Billion and contributed approximately 7.05% to the UAEs GDP, and
which was further increased in 2007 and was around US$ 12 Billion.

3.4 UAEs legal concepts and regulations

The Civil Code refers to the following legal concepts:
Real property; anything of a permanently fixed in nature and which cannot be
removed without damaging or altering its surroundings shall be regarded as
real estate property
Freehold; simply termed ownership and is best form of title. Holder has
absolute ownership of land for unlimited duration includes ability to dispose
absolutely of land and to beneficially use and exploit land
Leasehold; a progressive interest in land which is limited to a period of time
Usufruct; similar to leasehold concept. Right to occupy, use and exploit
property belonging to another person, usually for up to a term of 99 years
Musataha; also known as a as a ground development lease. Right to develop
the land owned by another person for a limited period of time. Holder is
deemed to be owner of the buildings constructed on the land during the period
of time.

Free Zones

The Emirates of UAE are having free zone and Dubai is leading among them with
having approximately 38 free zones includes JAFZA, DAFZA, TECOM and Dubai
Media City etc. All free zones shares with similar type of structure and regulation
such as:

Administration developed by free zone authority
Businesses in free zones can have 100% foreign ownership
Benefits relating to customs, currency, taxes, and recruitment etc. are offered
In general, free zones are having their own regulations. However, there is no
express regulation. UAE Laws and regulations are applicable few exception in
Dubai International Financial Centre (DIFC) which has;
o authority to self regulate

o enacted a comprehensive real property law (establishing its own
register and strata title law

Overview of Dubai real estate laws

Ownership;
Amiri Decree passed in 2002 allows foreigners to acquire freehold title to land in
certain designated areas. Law No. 7/2006 regulates ownership rights in Dubai (Article
4)

Table 3.1: Overview of Dubai real estate laws

UAE nationals (and
Companies wholly
owned by them)
GCC nationals (and
Companies wholly
owned by them)
Foreign nationals
The right to own
land, including
freehold, long
lease of 99 years,
right of usufruct
or musataha
The right to own
land, including
freehold, long
lease of 99 years,
right of usufruct
or musataha
The right to freehold
title to land and to
acquire usufruct or
lease hold of land for a
period not exceeding
99 years in certain
designated areas
Regulation No. 3/2006
named 23 designated
areas including
Emirates Hills, Jebel
Ali, World Island,
Palm Jumeirah, Sheikh
Zayed Road and Dubai
Marina etc.

Regulation of brokers

By-Law No. 85/2006, regarding the Regulation of Real Estate Brokers registered in
Emirates of Dubai, a person cannot carry on brokerage activities unless licensed and
registered. Exemption has been granted for Class A Brokers. Law imposes general
obligation to comply with code of professional ethics, record of transactions and
keeping documents, furnishing information as requested and responsibility for
brokers deception or mistake. Provision of penalty for breach of law includes;
warning, suspensions from work for six months, listing Brokers name on a black
list and even cancellation of registration.

Regulation of developers

Law No. 8/2007, concerning to guarantee of Account of Real Estate Developments in
the Emirates of Dubai;
applicable to all developers who sell units off-plan and receive payments from
purchasers or financiers before completion of the development
Lands Department maintains a register of all licensed developers and account
trustees
all funds received by developers from their clients or customers must be
administered through ESCROW ACCOUNT controlled by a trustee and the
Lands Department e.g.
Lands Department retains 5% of the total funds in the account until the
completion of the development.
Penalty for non compliance; fine of not less than AED. 100,000 and
incarceration

Landlord and tenants law

Law No. 26/2007, Regulating Relation between Landlord and Tenants of Property in
the Emirates of Dubai can be summarized as under;
all leases are to be registered with the Real Estate Regulatory Authority
(RERA)

rent caps are to be applicable, during the first two years of the term.
Subsequently rent increases can be agreed by the parties but ultimately
determined and approved by RERA
leases will be automatically renewed in certain circumstances
Law provides mechanism for dispute resolution by arbitration

Similar arrangement for Regulating Relation between Landlord and Tenants of
Property are also enforceable to other Emirates of UAE like Sharjah, Ras Al-
Khaimah, Fujairah etc. but, regulated by different Government Authorities.

Strata title law

Law No. 27/2007, related to the Ownership of Joint Properties (Condominiums) in the
Emirates of Dubai can be summarized as under;
applicable to buildings and land in Dubai that are divided into units for
separate ownership
special registration system at the Lands Department
requires establishment of a unit owner association
defines and imposes rights and obligations on unit owners in respect of
common property

Mortgage law

The Article 35, decree issued by His Highness Sheikh Mohammad Bin Rashid Al
Maktoum, Prime Minister and Vice President of UAE, and Ruler of Dubai. According
to this law, mortgage contracts must be registered with the Lands Department.
Further, to registration all the information related to finances, including amount of
loan, payback schedule i.e. period of repayment and the value of the property to
which loan is linked are must be furnished to Lands Department. Both financiers and
borrowers also need to provide full documents at the time of mortgage. However,
property granted by the government to the nationals comes under exception (Gulf
News, August 20, 2008).

Green building regulation in Dubai

Green building regulation in the Emirates of Dubai can be summarized as under;

a draft of green building criteria is under preparation with the Dubai
Municipality (DM) which will be reviewed by a special committee before its
enforcement
Environment Health and Safety (EHS) regulatory arm of Dubai World has
drafted and implemented Green Building Regulations in 2007 for Dubai
World Developments. This regulation known as EHS Green Regulations.
minimum requirements are based on the US Green Building Councils
Leadership in Energy and Environmental Design (LEED) rating system
What makes a building green according to EHS Green Regulations are;
o minimum disturbance to site conditions
o efficient use of water and water recycling
o use of renewable energy source (minimum 35% of a buildings
electricity consumption)
o use of recycled and environmental friendly building material
o effective controls and Building Management System (BMS)
In practice, the EHS Green Regulations are making their way into various
development contracts.

3.5 Industrys regional market and its future outlook

UAE is the most proactive state of the GCC states, have a potential and a promising
market of the construction industry in terms growth of market. Dubai is the most
high-profile and showy of the seven emirates. The rapid economic development of
UAE has been fuelling an unprecedented construction boom and infrastructure
development in all corners of the country that attracted investors from around the
world.

education and healthcare amenities, transportation, utilities, communications, ports
and airports which are poised to change the face of urban landscape in the years. The
construction activates are slightly brighter in the neighboring emirate of Abu Dhabi.
However, other Emirates have slow down significantly the construction activities. A

similar picture is evident in neighboring state Qatar, which, despite being well-placed
to see out the downturn due to its gas reserves (the worlds third-largest).

The projects in UAE currently are being executed or to be executed are tabulated for
the reference purposes as given below.

Table 3.2: List of projects in UAE under execution or to be executed
PROJECT TITLE CLIENT CONSULTANT
MAIN
CONTRACTOR
VALUE
(US $ MN)
STATUS
City of Lights C10,
C10a & C11
Tamouh
Investment
Palm & Turner
Architect
China State
Construction &
Engg. Corporation
101 - 250
Project Under
Construction
Royal City Seasons
Hotel in Abu Dhabi
City Seasons
Group
James Cubitt &
Partners
Tae Young
Contracting
101 250
Project Under
Construction
Ritaj Mixed-Use
Complex in Dubai
Dubai
Investment
Real Estate
Company
Al Jabal
consultants
Robust
Contracting
155
Project Under
Construction
NCC Harmony Tower,
Dubai
NCC Urban Islamic Architects
Al Mubarakia
Contracting
408
Project Under
Construction
Al Falah Development in
Abu Dhabi-2000 Villas
Aldar
Properties
Al Torath
Engineering
Consultants
El Seif Engg. &
Contracting
Company
251-500
Project Under
Construction
Synergy Tower in Shams
on Reem Island, Abu
Dhabi
Sanaya
Investment
Adnan Saffarini,
Dubai
Not Appointed 51-100
Project Under
Design
Union Co-operative
Hypermarket, Al Barsha,
Dubai
Union Co-
operative
Arch-dome
Consulting
Engineers
Bu Haleeba
Contracting
33
Project Under
Construction
Yasmin Tower in Ras Al
Khaimah
Asteco
Consulting
Engineering
Group
Jog Union
Engineering
14
Project Under
Construction
Arjaan Hotel Apartment,
Abu Dhabi
Bin
Hamoodah
Properties
GA Architects &
Engineers
Project Under
Design
Yas Hotel In Yas Island,
Abu Dhabi
Aldar
Properties
Tike, Abu Dhabi
Al Futtaim
Carillion
400
Project Under
Construction

Frankfurt Sports Tower,
Dubai
Memon Real
Estate
Al Hamty Design
& Engg.
Consultancy
Not Appointed 92
Bidding
Underway for the
Main Contract
The Villa Dubai- land Dubai Shadeed Al Shafer General 51-100 Project Under

Ph-3, Dubai Properties Engineering Contracting,
Dubai
Construction

Lilies Tower in Emirates
City
R Holdings Adnan Saffarini
Abou Seif
Building
Contracting
Company
87
Project Under
Construction
Al Jazeera Club Tower
Al Jazeera
Capital Real
Estate
Atkins
Al Habtoor
Engineering
35
Project Under
Construction
Sea View Club Hotel and
Apartments
Das Real
Estate
Al Wasl Al
Jadeed
Consultants
Bidding
Underway for the
Main Contract
Mixed-Use
Developments On
Marjan Island
Solanki
Holdings &
Investments
Kassian (Canada) Not Appointed 2450
Project Under
Design
Sami Business Tower In
Business Bay
ACI Real
Estate
Dimensions
Engineering
Consultants
Saquer Engg. &
Contracting
Enterprises
51-100
Project Under
Construction
Sandoval Townhouse &
Residences in Jumeirah
Village
Bavaria Gulf Diar consultant
Al Sayegh
Contacting
101-250
Project Under
Construction
Al Gurm Complex in
West Abu Dhabi-Banyan
Tree Hotel
Aldar
Properties
Dar Al Handasah Not Appointed 101-250
Project Under
Construction
Valencia Park at the
Jumeirah Village
AB
Properties
(Aspiring
Brilliance)
Federal
Engineering
Bhatia General
Contracting
Company
51-100
Project Under
Construction
32 Villas in Al Barsha
Mohammed
Al Nasser
City Space
Engineering
Consultant
Moal contracting 51-100
Project Under
Construction
Le Diamond Tower at
Waterfront
Darvesh
Group
Aedas Not Appointed 409
Project Under
Design
Altitude Tower in
Emirates City
BL
Properties
Adnan Saffarini
Mehwal Building
Contracting
44
Project Under
Construction
99 Villas in the Flame
Tree Ridge at the
Jumeirah Golf
Leisurecorp Mott Mac Donald
Al Nekhreh
Contracting
101-250
Project Under
Construction
The Kingdom of Sheba
Resort in Jumeirah Palm
International
Financial
Advisor,
Dubai
Wimberley
Allison Tong &
Goo
Dubai Contracting
Company
251-500
Project Under
Construction
New Building For Sharjah Art & Design Globe 41 Project Under

Sharjah Municipality Municipality Engineering Constructors Construction
The Binary in Business
Bay
Omniyat Dubarch
Dutco Balfour
Beatty
150
Project Under
Construction

Source: Construction Week (July 03, 2009)

Industrys future outlook

The UAE Construction Industry, including real estate sector, had been experiencing
phenomenal growth rate in the past. The Construction Industry in the UAE had been
witnessing massive investments pumped from private, public and government-based
organizations. The growth in the tourism sector was led by large number of real estate
developers both local and multi-national organizations by investing in hotels, leisures
& resorts and commercial projects which requires infrastructure as well other
facilities; transportation (road, rail and air) etc.. Few of them are described briefly as
under;

Tourism industry
UAE has been one of the most emerging and fastest growing tourism industries in the
part of middle-east, and particularly in the GCC region in the past. According
RNCOS (2009) in 2008, UAE was on the top of the list of 11 countries in the region
in terms of the travel and tourism sector. The UAE tourism sector has contributed
22.6% to GDP followed by other ME states Jordan at 19% and Lebanon at 18.7%.

The Government is promoting the tourism sector in order to diversify its economy to
other non-oil based economy. The various departments such as Dubai Department of
Commerce and Marketing, Abu Dhabi Tourism Authority and Sharjah Commerce and
Tourism Development Authority are also promoting tourism at regional level to
develop UAE as an international tourist place.

The growing tourism industry is creating opportunities and ample demand for
infrastructure and tourism projects in the country. Due to current turbulence in
economy of the world has also affected the tourism industry. However, government is
optimistic about the development of countrys tourism sector and several new projects
have been announced to tap the opportunity created by the growing demand of hotels
and leisures.


Future and under construction projects in tourism and leisure industry

According to RNCOS (2009) the following developments are expected to come into
existence by 2009-2012.
The AED 280 Million (US$ 216.2 Million) Star Gate theme park, in
Zabeel Park would be operational in 2009.
The AED 800 Million (US$ 216.2 Million) amusement park expected to
give a jolt to Ras Al Khaimahs economy and would be operation by the
end of 2009. The first phase of the WOW RAK park, for the value of
AED 140 Million (US$ 37.8 Million) Snow-Themed Ice Land Water Park
would open its gate for visitors in 2009.
Dubai based developer Ruwad Holdings has shortlisted three locations
for its themed destinations with a tie-up with California based film studio
Paramount Pictures.
The Universal Studios will develop for a value of US$ 2.2 Billion theme
park in Dubai, UAE and the 22 Million sq-ft long theme parks will be
constructed within Dubai land.
Indian entertainment house Yash Raj Films (YRF) entered into a multi
million dollar joint venture with investment firm Dubai Infinity Holding
(DIH) to create an entertainment district. It would comprise theme park
attractions, a movie place, unique hotel concepts and Indian entertainment
concepts. The first phase of the project would be completed by 2012.

The construction of these leisures and theme parks will be undertaken in phases.
Obviously the current economic crises have impacted the planning which is currently
underway. The preliminary designs for the future plans are underway and the first
phase is expected to be completed by 2012.

Hospitality industry

The UAE hospitality industry has also emerged as the fastest growing industry in the
GCC region. The number of ongoing and planned projects has increased the
investments in the past which have given a new dimension to the UAEs hospitality

industry. According to RNCOS (2009) the hospitality industry had contributed
substantially and it is changing the infrastructure landscape of the UAE in the region.

The massive development potential of the travel and tourism industry in UAE
continues to be recognized with record level of investment in hospitality and its
infrastructure projects. It is anticipated that the investment in the hospitality industry
would increases to US$ 20 Billion by 2012, driven by the increasing number of
projects to be announced, aiming to tap the growing potential in the industry.

Moreover, it is the governments commitment, which is driving the investment in the
country. The legal framework, are more favorable for the hospitality and its
infrastructure development projects as compared to any other destination.
Establishment of a facilitative business environment that encourages investors to put
their wealth to productive and attracting the foreign investments has been an
important aspect of the governments policy towards the development of this sector.

According to RNCOS (2009), among individual emirates of the UAE, the city of
Dubai would add 50,237 new rooms by the end of 2012. The Dubai consists of 31%
of all the projects and Abu Dhabi, the capital city of UAE comes to next, has
embarked on its emirate-wide development programme. Although, the tough and
turbulent economic environment, slowdown the construction pace and their future
planning. Abu Dhabi would be the next to Dubai in the development of hospitality
sector in the country. Besides the UAE government efforts, emirates own developers
would play a key role in the infrastructure development. Most of the new hotel in Abu
Dhabi would come from the category of five star hotels, followed by hotel
apartments. The rooms in the five star hotels would account for 52% of the total
supply by 2010.

Sharjah is the third largest emirates of the UAE, is also witnessing a sustainable
growth in number of tourists. Sharjah is considered as one of the most prominent
regional destinations for GCC tourists, especially from Saudi Arabia and Oman
accounted for 30% of the total tourist influx into the emirate. According to SCTDA &
RNCOS (2009), the total number of hotels and hotel apartments has been increased to
103 by 2008 compare to 74 in 2007.

Future and under construction projects in hospitality industry

According to Zenath Real Estate (2009), the following projects are currently under
construction.
AED 60 Million (US$ 16.2 Million) Landmark Inn, a 4-star hotel, Al Rigga
Road, Dubai.
AED 150 Million (US$ 40.5 Million) Landmark Palace Hotel, Al Rigga Road,
Dubai.
AED 150 Million (US$ 40.5 Million), 4- Start Hotel, Salahuddin Road, Dubai
Investment Park.
AED 150 Million (US$ 40.5 Million), 4- Start Hotel, Corniche, Abu Dhabi.
AED 175 Million (US$ 47.3 Million), Dubai Deluxe Service Apartment in
Sharjah-Ajman corniche.

Retail; malls and business complexes

UAE, particularly Dubai has risen from desert. Trade and tourism contribute major
chunk of national economy which exhibiting the most vibrant retail scene in the
Middle-East. Concept of common currency among GCC countries further augments
the development of retail-businesses. Huge investments are coming for infrastructures
and shopping malls. The countrys retail sector was mainly boosted by increasing
house hold consumption and affluent population, supported by large no of expatriates
comprising tourists and professionals flocking to the UAEs booming tourism, trading
sectors as well as modern shopping malls anchoring state of the art hypermarkets
those were highlighting the Dubai on international arena. The recent world economic
crisis has affected the level of tourist inflow in the UAE and the job cuts have further
reduced the buying power of the customers. However government is optimistic about
the market and it is expected that market would bounce back in due course of time.

In GCC region, Dubai will have the highest per capita retail mall GLA as compare to
other emirates and GCC states. Further, large no of retail projects are under
construction and by completion of these projects, Dubai is expected to account for
approximately 25% of total GCC investments and more than 40% of the UAE
investments by 2010.


Major future retail projects and its area

According to Colliers International (2009) the Dubais cumulative supply of shopping
mall GLA would increase by almost 50% during 2008 to 2010. Some of the future
retail projects are given below.

Table 3.3: Major retail projects in UAE by GLA
Project Year GLA
(Square Meter)
MBZ City Mall 2009 23,200
Rotana Khalifa Park 2009 11,000
Mirdiff City Centre 2009 183,000
Dubai Marina Mall 2009 77,000
Mall of Arabia (Ph-1) 2010 400,000
Darwish Island City 2010 70,000
Al Reem Island 2010 130,000

Source: Colliers International (2009)

Healthcare sector

Despite the likely effect of the economic downturn the healthcare sector is continuing
to grow across the GCC, with a wide range of public, private and joint-ventures
initiatives from GCC as well as from other developed countries.

According to Vijay Sharma, Director of Crescent Investments (2009) UAE is one of
the fastest growing and most lucrative healthcare markets in the world, particularly in
the middle-east due to its demographic feature in the MENA region. The healthcare
market has seen a rapid growth in the past by increasing number of expatriate,
growing demand for health services, especially from adjacent GCC and other Mena

region countries. The government is committed to improve the facilities and making
all efforts to develop the best healthcare infrastructure.

For example the Dubai Healthcare City has ensure that the adequate services are
being provided and making all efforts to attract the worlds best chain healthcare
facilitators to serve this region and particularly to their own nationals. The
compulsory medical insurance system is also one of the government commitments
towards healthcare of all UAE residents and expatriate work force.

Major projects in healthcare sector
According to RNCOS (2009) the Dubai Healthcare City is one of the biggest
healthcare infrastructure projects, in the GCC region, with a total estimated
investment of approximately US$ 3 Billion. The project is expected to complete by
2010, however, it may be delayed due to global financial crises.

Furthermore, according to RNCOS (2009) there are various projects to this sector
come in to existence are as under.
Cleveland Clinic Abu Dhabi is a state of the art 360 beds hospital which
would be completed and open by 2011.
National Reference Lab, a fully automated reference laboratory would be open
in 2010.
Arzanah Wellness & Diagnostic Centre, a multi-specialty centre that is located
in the mixed use development surrounding Zayed Stadium, Arzanah, is
schedule to open in 2010.
Abu Dhabi Spine Centre anticipated to get opened in Arzanah in 2010.
Mohammed Bin Rashid Al Maktoum Academic Medical Centre expected to
open in 2010.

3.6 Effects of global downturn in UAE construction industry

The current global gloom and recent developments in the MENA region have not
made for good reading. Financial and credit crisis which began to engulf western

markets from late 2007, the Arab world is being increasingly dragged into the
worldwide economic downturn and slumping demand for its most valuable export:
oil. During first quarter of 2009 (February 2009) crude oil prices were hovering
around US$ 40 per barrel, having plummeted from an all-time high of US$ 147 in
July 2008. For the Middle Easts major oil producers, this has not only decimated
government revenues but also shattered confidence in stock markets, held back
ambitious infrastructure plans and slashed overall growth prospects. However, for
non-oil based economies the impact is different but arguably just as difficult, with the
entire regions key growth driver shuddering to a halt. But the region still looks set for
solid growth in 2009 and new opportunities particularly in the many under-explored
countries and sectors will arise.

The six GCC countries of Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates
(UAE), Qatar and Oman would appear to have most to lose from the dramatic fall in
global oil demand.

In the UAE, the worlds ninth-largest oil producer and arguably the most pro-active of
the GCC states, the picture is mixed. Dubai, the most high-profile and showy of the
seven emirates which make up the federation, is struggling to cope with the global
downturn due to its previous reliance on foreign debt and cyclical sectors such as
tourism and property, both of which are in crisis. Although only 6-7% of Dubais
GDP comes directly from oil output, the emirate partly built its success by
establishing a liberal, high-return and western-friendly business environment in the
middle of a region of enormous wealth where political and economic stability often
discouraged inward investment. However, things are slightly brighter in the
neighboring emirate of Abu Dhabi, which controls more than 90% of the UAEs oil
reserves. The government has built up sizable reserves which can be deployed to
sustain spending, while the pace of growth over the past few years was less breakneck
and perhaps more realistic than that of Dubai. But, despite sound growth in the non-
oil sector in recent years, hydrocarbons are still the mainstay of the economy and the
lifeblood of investment.

A similar picture is evident in Qatar, which, despite being well-placed to see out the
downturn due to its gas reserves (the worlds third-largest) remains a much
undiversified economy.


Outside of the GCC region, the situation is different. Not all middle-eastern countries
are dependent on oil for their income, and for economies such as Syria, Tunisia or
Jordan there may actually be some positive effects from the downturn. Inflation is set
to ease sharply across the MENA region in 2009, despite remaining at extremely high
levels by the end of 2008 in countries like Egypt (18-19%) or Syria (8-9%). This
slowdown will therefore provide much-needed respite for both consumers and
governments. But a sharp slowdown in growth is unavoidable. Inward foreign
investment into countries such as Jordan or Syria was heavily reliant on flows of
capital from the GCC, often in the form of over ambitious mega-projects in real estate
or tourism.

In view of above, dozens of grandiose tourism, real estate and infrastructure projects
are now being shelved, as credit shrivels up and buyers of off-plan property disappear.
On other hand the positive side, the Gulfs much-discussed sovereign wealth funds
(SWFs) are now more likely to invest domestically and keep local economies moving.
This is not only for political and strategic reasons, but also because many have lost
heavily on international investments. The Kuwait Investment Authority (KIA), for
instance, is believed to have losses of around 80% of its US$ 5 billion investments in
Merrill Lynch and Citigroup, while assets at the Abu Dhabi Investment Authority
(ADIA) are thought to be 25-30% over than they were six months ago.

Amidst all the doom-saying, there will be certainly opportunity for firms looking to
do business in the GCC region, especially in the UAE. Swollen government coffers
tend to erode motivation to diversify new areas of the economy and liberalizations in
regulations, improve the business environment or offer better incentives for foreign
investors. Due to under-valued stock markets and falling real estate prices, especially
in countries like the UAE, might also raise opportunities for brave investors, though
many will prefer to watch and wait over the course of the year.

The UAE is now one of the most competitive economies in the region and rapid
economic developments has been fuelling an unprecedented construction boom and
infrastructure development in all corners of the country that attracted investors from
around the world. Most of the investments are directed into developing infrastructure
for tourism, hospitality, retail and healthcare industry. The governments efforts to

diversify from oil-based income to other industries and liberalization in policies will
drive further investments in the coming years. It is anticipated that the UAE will
continue to attract the bulk of investments and will emerge as the gateway to tap the
emerging gulf market.

education and healthcare amenities, transportation (surface, rails and airports etc.),
utilities, communications, and ports which are poised to change the face of urban
landscape within the years.

According to Emirates Business and a study of Kuwait National Bank (quoting
Meed project database), reported that the UAE is carrying out projects in
construction and other sectors with a total value of nearly $929 billion (AED 3.4
trillion), which is around 45 per cent of combined value of projects planned or being
carried out in the GCC totaled around $2.1 trillion (AED7.7 trillion) at the end of the
second quarter of 2009, more than four times the estimated value of projects in June
2005, an annual growth of nearly 50 per cent.

The UAE accounts for by far the biggest share of project activity, and affirming its
position as the leading GCC country in attracting capital investment. Some 81 per
cent of the UAE projects are in the construction sector.

"Indeed, the construction sector dominates in every GCC country, though to a lesser
degree while the total value of projects in the UAE is far higher than anywhere else,
Saudi Arabia has a much larger base of non-construction related projects some
$224bn, which is 28 per cent larger than in the UAE. This probably reflects the larger
size of the Saudi economy in absolute terms, necessitating a greater degree of
industrial diversification.

"The overwhelming balance of non-construction-related projects in other GCC
countries comes in the oil and gas, power and utilities sectors, with the latter
reflecting the region's growing domestic power needs," the study added.

Markets to watch in 2009


The year 2009 will be critical for all countries in the MENA as well in GCC, with the
impact of the global economic downturn and low oil prices still being played out. All
markets will face both challenges and opportunities. However, government led funds
will boost the confidence in the market.


The UAE construction industry is likely to continue to grow fairly and strongly over
the next few years, although its growth rate is fluctuating and forecast suggests that,
this rate of growth is set to decline for the period of next two years. The construction
industry, in particular, is being boosted by government led public-sector construction
projects. The fastest-growing sector is likely to be infrastructure because of the high
level of investment in transport infrastructure projects under the Government's.

Looking forward, the construction and engineering industry is not expected to deviate
from its current value growth position and forecast suggest that it will accelerate to an
anticipated CAGR of 6.2% for the next five-year period up to 2012.

4.0 Chapter 4: Construction & Engineering Industry: In
perspective of competitive landscape

4.1 Introduction

Due to rapid changes into the professional competition in all over world, built
environment requires construction sector stands successfully through technological
development and according to market requirement. Therefore construction industry
requires strategies and its implementation for the successful business and to compete
with their rivals in todays business environment. Strategy development is essential
part to enhancing the performance of an organization and requires careful planning
and strategic thinking to achieve their business goals in competitive environment. And
strategic management is a development, about taking decision today, based on
uncertain information to improve the chances of success and competitiveness in
future.

According to Ansoff (1994), strategic management is a systematic approach to
position and relate the firm to its environment in a way which will ensure its
continued success and make it secured from surprises. Strategy is to be understood as
a guiding map for the organization to achieve its clear intention for development and
growth. As per Chandler (1962), strategy is to ascertain long term goals and objective
of any organization and devising a way and a course of action to achieve these goals
and allocating necessary resources to bring these plans to reality.

As argued by Mintzberg (1994), most of the organizations need strategy to set
direction for them and to outsmart the competitors; a company can outperform the
competitors only if it can establish a difference it can preserve. The assumption here
is that the company with better strategy will win or the competitor with clear strategy
will outperform the one that has none. Alfred Sloan (Sloan, A.D, 1963) supports this
idea and justifies the strategy developed at General Motors under his leadership:
some kind of rational policy was called for it was necessary to know what one was
trying to do. This idea can also be implemented into construction industry. Finally,
strategy not only defines the organization but also gives a direction and identity to the
people working in the organization.


In context of UAE construction industry, only few international and local companies
have separate department for strategic management. It indicates that higher
management is not giving enough significance to strategy within their organization.
Many strategic decisions are taken in contracting companies by higher management
based on experience and understanding of built environment rather than theories &
practices.

4.2 Industries segmentation in UAE

The construction and engineering industry of middle-east, particularly in GCC
primarily can be subdivided into segments as under:

A. Construction sector
B. Non-construction sector

Construction sector

In context of GCC countries market structure, particularly in UAE, the construction
sector can be classified as under;

1. Civil engineering residential and non residential buildings etc.
2. Industrial building plants and warehouses etc.

1. Civil engineering
Civil engineering sector includes; residential non residential construction
buildings. Further non residential buildings includes; shopping malls, commercial
complexes, office buildings, hospitality and healthcare etc.

2. Industrial buildings
Industrial building includes; industrial plants, warehouses and other ancillary
buildings etc.

Infrastructure and transportation sector includes; road network, bridges, water and
electricity network, storm water and sewerage system, telecommunication and civil
aviation.

Non construction sector

In context of GCC countries non construction sector is one of the major sector for oil
producing countries which includes; the petrochemical, power and utilities sectors.

As per recently published report in Emirates Business, the UAE is carrying out
projects in construction and other sectors with a total value of nearly $929 billion
(AED 3.4 trillion), which is around 45 per cent of combined value of projects planned
or being carried out in the GCC totaled around $2.1 trillion (AED7.7 trillion). Further,
Kingdom of Saudi Arabia is on top for the non-construction-related projects, stems
largely from the petrochemical, power and utilities sectors. The value of the
Kingdom's projects in those sectors is about 35 per cent larger than in the UAE.

Table 4.1: UAE Construction & Engineering Industry category segmentation:
%age share by value
Category % Share
Construction sector 81%
Non construction sector 19%
Total 100.00%

(Source: Emirates Business, 2009)


Figure 4.1: UAE Construction & Engineering Industry category segmentation:
%age share by value

4.3 Industries competitive landscape in UAE

In context of UAE construction and engineering industries, competitive landscape can
be classified as under:

1. Real estate developers
2. Contractors
3. Project Management and Engineering Consultants

The major competitors in the present UAEs Construction & Engineering Industry are
as follows and few of them are briefly described.

Real estate developers
Emaar Properties
Nakheel
Mubadala Development
Aldar
Tourism Development & Investment Company (TDIC)
Damac Properties
Union Properties

Contractors
Arabtec Construction
Al Nabodah Contracting
Al Futtaim Carillion
Al Habtoor Engineering
Guangsha Group
Pivot Engineering and General Contracting Co.

Project Managers and Engineering Consultants
Turner Construction
Hill International
WS Atkins
WSP Middle East

Emaar Properties PJSC

Emaar is a Dubai, UAE based public joint stock company (PJSC) and they working
in real estate properties investment and its development, property management,
education, healthcare, retail and hospitality sectors of businesses. In addition to these
services they are also working in the field of financial service providers. Emaar is one
of the world's largest real estate companies and is rapidly evolving to become a
global provider of premier lifestyles. Its major projects include Burj Dubai, Marina,
Ranches, The Lake and The Views etc.

Emaar was established in 1997 and contributing to Dubai's rapid growth by not just
building homes, but develops value-added, master-planned communities. In view of
its vision for 2010, Emaar is growing with a strategy of expansion to their business in
all segments. Due to its success in Dubai, Emaar is extending its expertise to
international markets and at presently working in over 36 countries of MENA, Pan-
Asia, Europe and North America regions.

Nakheel

Nakheel is one of the worlds largest privately managed holding companies and doing
business across five continents encompasses to nearly 100 countries in the real estate

development and a key player in the vision of the Dubai for the 21
st
century. Nakheel
has developed many innovative and landmark projects in Dubai namely The Palm
Jumeirah, The Palm Jebel Ali, The Palm Deira, The World, Waterfront and Dragon
Mart etc. Nakheel is the key entity within Dubai world.

Their investments includes in hotels and resorts in New York, Washington DC, Los
Cabos, Mexico and in the MENA region.

Mubadala Development

Mubadala PJSC was established in 2002 in the oil rich emirate Abu Dhabi, in the field
of economically diverse portfolio of commercial initiatives. It was created to diversify
and expand the emirates interests beyond domestic resources of oil and gas and it is
fundamentally based on long term investments that deliver strong financial returns.

The company manages several multi-billion dollar projects in the local, regional, and
international market of investments. Due to its investment and development projects,
they become an icon for Emirate of Abu Dhabi as a catalyst for, and a reflection of
economic diversification. Its impact is evident in domestic as well as in international
market in various sectors such as energy, aerospace, real estate, healthcare,
technology, infrastructure, and other services.
ALDAR
Aldar was launched in 2005 in the emirates of Abu Dhabi as a premier real estate
developer and investment company, and owned by leading Abu Dhabi institutions,
stakeholders and investors.
Aldar Properties has a key competitive advantage due to its financial standing,
resources, management expertise and the most important Governments support to the
Emirates booming property industry. Currently they are involved in various major
development projects within the Emirate of Abu Dhabi includes; Al Yas Island, Al
Raha Beach, Central Market, Nareel Island and Noor Al Ain etc.

Arabtec Construction LLC

Arabtec is a leading construction firm in the UAE as well in other parts of GCC. The
firm has created a unique characteristic of construction environment which relates to
their success in the past few years by adapting proper strategy and thinking to attain
its leading position in the market.

Arabtec was established in 1975 and since their creation; they have executed numbers
of major and prestigious projects in all sectors with Quality & Value. At present,
the company have equipped with modern plants and equipments. They have employed
a multi-national team of more than 52,000 staff at different levels. They have
integrated its construction expertise in other sectors like property, investing in other
businesses and by providing total solution to their clients. By making strategic JVs
and partnering, they have entered into international market and looking business
opportunities in other regions.

In view of present economic recession throughout the world, and the GCC in
particular UAE also hit badly where the company have main businesses. But the
Arabtecs strategic business policies and their expansion to other region, minimizes
the likely effect of crisis.

Pivot Engineering & General Contracting Co.

Pivot Engineering was established in the emirates of Abu Dhabi in 1978 and at
present they have a strong and multi cultural work force of more than 5000 employees
at different levels. Its continuous growth is not restricted to a particular sector or
territory, their services for wide range of projects from substations, desalination
plants, high rise buildings, commercial and residential complexes, entrainment parks
and shopping malls throughout the Middle East.

4.4 Five forces strategy analysis

Porters five forces

Michael Porters five forces model, reflects the competitive intensity and value or
attractiveness of the industry. This model is considered as outside-in strategic
technique and is widely used to study and analyze the five competitive forces. Porter
(1980) suggests that competition in an industry consists of five main competitive
forces. These are the level of threat that the new competitors will enter into the
market, the threat posed by substitute products and the bargaining power of both the
suppliers and buyers. These in turn affect the fifth force, the intensity of rivalry
between the existing competitors. This framework can be utilized on the UAE
Construction Industry to perform a profit analysis. This model also provides useful
data for SWOT analysis.
The rivalry among firms in the industry.
The bargaining power customer in the industry.
The impact of the suppliers on firms.
The threat of new firm entering in the industry.
The threat of substitute products in the industry.

Figure 4.2: Porters five forces model
(Source: Porters, 1980)

INDUSTRY COMPETITORS
(5)
RIVALRY AMONG
EXISTING FIRMS
SUBSTITUTES (2)
(Threat of Substitute Products
or Services)
SUPPLIERS (3)
(Bargaining Power of
Suppliers)
BUYERS (4)
(Bargaining Power of
Buyers)
POTENTIAL ENTRANTS
(1)
(Threat of New Entrants)

However there is certain limitation to Porters five forces model, it does consider
internal strengths of the company (inside-out strategy). This model primarily deals
with single individual business and does not cope with the complexities of large
corporations.

In order to beat the competitors, the organisation must analyse the competition and
establish a clearly defined marketing strategy in order to provide superior customer
satisfaction.

Bargaining power of buyers

Increasing raw material prices reduce bargaining power of builders

UAEs cement industry is highly integrated with high barriers to entry. Most of the
companies are vertically integrated, operating for example ready-mix concrete
companies, construction companies and aggregate businesses. Besides, as the costs of
construction materials like steel and concrete have been rising, it has been putting
pressures on the builders to pass some of these costs on to the customers in order to
proceed with the projects. Compounding the pressure of the fuel surcharges levied by
gravel, lumber and concrete suppliers as diesel prices have soared. Thus the builders
are left with little bargaining power in the run. Over the last several years, increases in
high-rise construction costs have been steadily absorbed by developers fighting to
preserve market share in a fiercely competitive environment. However, due to recent
financial crisis, costs of diesel has been gone down and due to slow down of
constriction activity the demand of construction material is also reduced.
Canada
Shortage of skilled workforce

The UAE construction industry is generally marred by the shortage of skilled labor
during the boom period of construction. UAE has traditionally obtained much of its
labor supply from other countries, particularly from Asian countries. The sector works
on the basis of having a pool of human resources available to projects teams.

The private sector relies on external sources or other countries from medium to higher
level and trained the workforce internally and made available for their, job
requirements. Locally available workers are generally seen to be costly. Among the

foreigners, westerners are seems to be costly but providing better quality of
workmanship and professionalism. Although increased automation of the building
process and intelligent building technologies may reduce some of these impacts, the
increasing pull of the high-tech and service industries exacerbates the skills shortage
issue. As a result, skilled labor is a valued asset in the industry and hence enjoys
higher bargaining power.

Bargaining power of suppliers

Construction firms serve the changing requirements of buyers

Construction activity in UAE was booming during the past five years and the demand
for all types of housing particularly in the Emirates of Dubai and Abu Dhabi is set to
surge ahead over the next few years. Strong affordability levels and lower borrowing
costs, and governments regulations for the expatriates, besides changing
demographics are seen as the factors fuelling the market performance. A significant
change in the demand is likely to come from the baby boomers moving into their
prime ownership years in this decade. The increasing trends towards UAE population
and influx of expatriates are expected to lead to increased demands for specialized
facilities and improved building automation. Builders have to develop maintenance
free communities for the peoples of UAE and provide more and sophisticated
amenities. The boomers are defining what they want and in the process leading the
construction companies to customize houses according to their requirements. This
generation looks favorably at communities which provide an active lifestyle and a
secure environment. With the competition increasing and customer preferences
changing, condominium developers are also following a trend to incorporate housing
upgrades as standard features.
Construction Industry in Canada
Competitive rivalry in the industry

Highly fragmented industry

The cyclical nature of the construction market has had an immense impact on the
industrys structure. The result has been an industry that is highly fragmented,
specialized and comprising primarily of small companies. There are many small
companies, associations and agencies developed only during the boom period of

construction in the market at dispersed at local and national levels. Small
subcontracting companies comprising a considerable size of the construction
businesses. Construction is considered primarily to be a domestic activity.
Geographically, most of these firms are based in three Emirates, Dubai, Abu Dhabi
and Sharjah. In order of importance, Dubai has the largest number, and with the
important Emirates driving the construction growth in the country. It is followed by
Abu Dhabi and Sharjah. The largest numbers of these companies operate in the
residential construction, electrical, plumbing and equipment installation, exterior
finishing and interior finishing sectors.

Very few UAE firms provide the full range of services required to carry out the entire
construction process (e.g., development, design, engineering, construction). However,
with the adoption of new contracting practices, including design-build, vertical and
horizontal consolidation of companies is taking place gradually. There are some
indications that both these types of consolidation are likely to accelerate in the mid-
term. However, it is expected that international companies are likely to penetrate in
the market lead to more competitive market in near future.

Thus, although the UAE construction industry is highly fragmented with a large
number of small players competing fiercely for market share, the industry is moving
towards consolidation gradually.

Low differentiation increases competition

Most construction work is project-oriented involving a unique design, site and team
setup to perform the work. The majority of construction work is carried out at a
building site rather than in a factory to produce a custom designed and often complex
product. Although the final constructed product is often unique, standard processes
and methods can be employed to develop designs, manage projects and deliver
products that meet customer requirements. Besides, most work is procured at a fixed
price and awarded to the lowest bidder. Thus the competition for price becomes
intense and intensifies rivalry.

Industry in Canada

Threat of new entrants

Project-based hiring makes entering and exiting easy

Given the cyclical nature of the construction industry, labor force and hiring practices
in the industry are subject to the boom-bust cycle. Most workers are hired on a
project-basis, and only a small number of key employees are employed for the long
term. As a consequence, firms are able to expand and contract their operations (and
enter and exit the industry) in a relatively easy manner in response to changing
business conditions.

Uncertainty may deter capital investment

Although the R&D expenditures in this industry are low, capital investment involves
high risk and uncertain returns due to cyclical nature of demand in the industry. The
construction sector is considered to be three times more volatile than the service
sector. Firms are inhibited by the substantial upfront costs involved in bidding on
prestigious and international projects and in establishing a presence in the markets.
Companies often find it difficult to access financing and investment capital and to
assemble the necessary financial packages.

Threat of substitutes

Increasing popularity of prefabricated structures

Factory-built housing has been coming up as an alternative for site-built construction.
Factory-built housing includes pre-engineered, panelized, modular and
manufactured.
C

4.5 Strategic development process in industrys regional market

Success of strategy in the Built Environment depends on a formulation of path or
framework as discussed below;

Strategic management thinking and its analysis

The sources of competitive advantage are: organization resources and capabilities,
excellence in strategy implementation, quality, time, innovation and creativity (Fearer

and Chaharbaghi, 1997). However, many scholars argued that the best source of
sustainable competitive advantage is the organizations ability to learn.

Porter (1980) analyzed the structure of an industry in terms of five basic forces which
are buyers, suppliers, potential competitors, substitutes and competitive advantage.
And competitive advantage is the most important force which shapes the market
environment. It is a combination of factors that makes an organization more
successful than others.

Organizations internal strengths, weaknesses threats and opportunities

Chinowsky & Meredith (2000), states that the formulation of strategy related to built
environment businesses being represented by seven theories of strategy as shown
below;

Figure 4.3: Seven theories of strategy
(Adapted from Chinowsky & Meredith, 2000)

On other hand, the key external forces of the organization should be identified and
compared with their strengths and weaknesses. This is one of important exercise for
the strategist to enables them to make a strategic decision. SWOT (Strength,
Weakness, Opportunities and Threats) analysis is generally used for this purpose and
this technique forecast the futures which find a match between organizations
capabilities and opportunities in the competitive landscape. Further, according to
Argenti (1990), this stage is the most important for the organizations to generate
strategic choices based on SWOT analysis or other similar techniques.

Strategic alternatives

Ansoff (1994) has presented a matrix that focuses on existing and potential products
and its market for the organization. This can be explained as if a developer is losing
by developing luxury villas due to lack of demand while there is a good opportunity
to develop low cost villas with better margin or profit. If the developer feels the
market is promising for this, obviously he will go for developing the low cost villas.

In next step of strategic development process is to evaluate the available alternatives
and select the best option based on conditions as described under:

1. The strategy must give a chance to the organization to meet their targets and
protect it from risks that might drag its performance below target levels.
2. The strategy must utilize the most impressive strengths of the organization and
to correct all major weaknesses.
3. Finally, it must reduce the impact of threats and exploit all high potential
opportunities (Fellows et al., 2002).

Argenti (1990) argued that there will be one permutation of strategies that will come
closer than any other to meet the above conditions.

This argument appears true as the evaluation of strategy options or alternatives are
governed with a lot of parameters. And the evaluation report should be prepared in
consideration of these parameters such as market conditions, resources, calculation of
projected turnover and profit, and optimistic and pessimistic assumptions.

Implementation of strategy

Once a strategy has been analyzed and selected, the next task is then how to
implement it into organizational action.

Resources and capabilities can originate different areas of the organization and it is
the task of strategists to identify those who can be used to differentiate the
organization from its competitors (Rainer Feurer & Kazem Charbaghi, 1995, p
15&16).

The next task is how to implement the selected strategy into organizational action.
The implementation of strategy is an administrative process which requires a balance
between the selected strategy and way the organization operates.

Figure 4.4: Implementing Strategy Key forces
(Adapted from Cole, 1997)

Mc Kinseys 7s Model may deal in succession for the implementation of any
strategic changes. This model consists of seven factors that help the strategists in
understanding the extent of change required in implementing strategy are:

The top 3Ss, termed as Hard Ss are described as under:

1. Strategy; the direction and scope of company for long term.
2. Structure; basic organization, area of expertise and responsibility of company
and how to inter-relate.
3. Systems; formal and informal procedures that govern day to day working
which covers from management information systems to the system at the point
of contact with the customer.

The other 4Ss or Soft Ss are described as under:

1. Skills; the capabilities and competencies which exist within the company.
2. Shared values; the values and belief of the company, which guide employees
towards, valued behavior.

3. Staff; the companys people resources and how the have been developed,
trained and motivated to meet the companys objectives and goals.
4. Style; the leadership approach of top management and companys overall
approach towards day to day business.

Monitoring and review of performance

The final stage of SM process requires a continuous and effective monitoring system
for the tracking of strategies and its plan of action. The purpose of review process is
to check whether the adopted strategy is working in the right direction or not. Hence a
certain methodology is required to develop for this purpose and the performance of
the organization needs to be analysed according to their targets and objectives of
business.

This process can be performed at three different levels: operational, commercial and
corporate level. Rescue measures, in the form of effective and proper decisions are to
be taken if performance doesnt meet the requirement and objectives of the
organization.

On other hand, SM is a process of continually changing, if management realized the
strategy does not fulfill the requirement and not producing the anticipated results then
necessary changes required to be adjusted into the strategy and their plan. Here the
term change indicates for introducing new ideas or plan in the system.


Construction in UAE is primarily focused on the domestic market and is extremely
fragmented. It uses concepts developed in Industrial Organization (IO) economics to
derive five forces that determine the competitive intensity and therefore attractiveness
of a market. Porter referred to these forces as the microenvironment, to contrast it
with the more general term macro-environment.

However, the capital investment is subject to high risks due to the cyclical nature of
the industry. Threat of substitutes is also not very high as the alternative for site-built
construction comes from the construction industry itself in the form of prefabricated

buildings. Commercial environment has also been transformed into a competitive one.
Therefore, strategy development is essential part to enhancing the performance of an
organization and requires careful planning and strategic thinking to achieve their
business goals in competitive environment.

Another critical part of SM process is monitoring and reviewing of performance in
accordance with the established criteria. Monitoring and reviewing the whole process
can improve the chances of success in the business.

If the selected strategy does not attain its target then some radical changes may be
needed to modify the old strategy, in order to stand and compete with the competitors
in the existing market condition.


5.0 Chapter 5: Frame work of research design and data collection

5.1 Introduction

The Financial landscape is going through a period upheaval due to present crisis and
the construction industry is also facing its toughest challenge of the generation. Top of
this only limited number of companies being rescued either in USA or Europe.
Developing countries of Asia are clearly experiencing significant negative impact,
through stock market, turbulence and domestic credit stringency. This is one of the
most chaotic times in the past 80 years.

GCC countries are trying to respond the present crisis in a coordinated way. However
they are not success till date. UAE and particularly Dubai construction industry is also
going through a period upheaval.

There are limited researches into the factors that may act as barriers to achieving
sustainability. However, recently many reports have been published on the present
crisis relating to construction industry and facts finding data has been published for
the industry at present.

Conceded that, researchers have paid more attention to the financial aspects rather
than facts finding issues on barriers or threats to the industry. In case of UAE and
particularly for Dubai construction industry there is limited research till date on
barriers to the industry. Therefore this study focused on both quantitative and
qualitative research approach in order to understand the barriers to the industry at
present crisis and how to minimize its likely effect. The survey data was used to
confirm or deny the perceived validity of assumed barriers interview data was used to
further test the perceived barriers and to find out ways to over come those barriers.

In short two phase study was conducted The first phase of study involved a revision
of a variety of literatures regarding construction industry and its overview in present
economical crisis, testing tools barriers to the construction industry and its
implementation. Documents included research papers, journals, government policies,
construction industry journals, case studies and various web sites such as Arabian
Business, Frontier Middle East RICS and CIOB etc.

The second phase of the methodology consisted of web based survey with
questionnaires related to aim and objectives of the research. And semi structured
interviews in person for the industry health checks with key professionals and
represented a variety of discipline industry, Architects, developers, project managers.
Care was taken to include diversity in order of perspective be obtained.

Figure 5.1: Research methodology

Literature Review
Perceived Barriers
Web Based Surveys Semi Structure Interviews
Tested Barriers
Barrier Analysis
Result

5.2 Pilot study

To validate the content of the survey, a pilot survey for the questionnaires was sent to
two professionals, related to the construction industry with the research data to get
their opinions and comments on threats/barriers discovered in literature review for the
UAE construction industry. The survey questionnaires have been amended as per their
comments; feedback and suggestions which are relevant to the objectives of research
to be achieved.

The instrument as well as the methodology with survey questionnaire was sent to the
dissertation supervisor for his suggestions and approval. Once approval was granted
and target professionals was identified the survey questionnaires was sent to the
professionals for their opinion and suggestions through web designed survey on web
site; www. Free online.com as well few of them were contacted personally with a
hardcopy of questionnaire for interview.

Scales and Measurement

This research was designed based on assumed barriers to web based survey was done.
Assumed barriers to the UAE construction industry was tested using likert-scale
questions (Wilkson & Birmingham 2003).

5.3 Research instruments

There are two kind of research instruments namely qualitative research instrument.
This research initialized both methods for the sole purpose of testing the assumed
barriers and collecting possible solutions to overcome those barriers.


Figure 5.2: Research instruments

5.4 Data collection

According to Wilkson & Birminghom (2003) electronic, self administered surveys
give good and better response. Hence survey was done using internet survey
questionnaire and were sent to the target interviewers through email with a web based
link was provided.

Once participants were finished survey, they were asked to click finish button and
their responses were automatically transferred to the researcher on his survey account.
All survey data were collected & entered into a spread sheet for analysis as discussed
and attached in part of analysis.

Qualitative survey was done by contacting individual professionals for mini
interview. Interviews were recorded for the analysis.

Instruments
Quantitative Qualitative
Trend of Population Possible Solution
Analyze
Result


Figure 5.3: Data collection procedure

5.5 Survey design and conducting survey

The type of data needed were derived by identifying the most common barriers to
UAE and particularly for Dubai construction industry by using a wide range of
journals, magazines, articles from daily news papers on current topics related to
Develop Interview Protocol and Procedure
Develop Interview Criteria
Develop & document of Interview
questions
Identify Interviewees
Select Interviewees
Document Interview Protocol
Conduct Interviews
Create Data Base
Create Fuzzy Logic Structure
Proceed with Test of Program
Work

construction industry, review of previous & current case studies on construction
industry literature and research data.

Questionnaire was design to test those assumed barriers through web based
questionnaire was based on principles out linked by Wilkson & Birmingham (2003).

The first section of questionnaire was designed for general information such as type
of organization, position, experience in UAE and in general to the construction
industry etc..

Second parts of questionnaires were based and designed for tested to awareness of
construction industry and for the testing of assumed barriers, opportunities and
opinions to the industrys health in present situation and their impact on industry.

And lastly an open ended question was designed so that respondent could give their
suggestions beyond the box. It was assumed that open ended question would give an
opportunity to respondent to put forward their innovative ideas and opinions for the
industry.

5.6 Ethics and confidentiality

All participant correspondence and research tools were assumed to be reviewed by
dissertation supervisor. All survey respondents were notified that their input would be
kept confidential and it will be used only for dissertation purpose, their identification
would remain anonymous, their participles would be voluntary and optional.

Interviewer was informed that their name would be disassociated from the records and
hand written notes.

All responses have been treated in the strictest confidence. There is no reference in
any summary data or the body of the dissertation to any particular project, individual
or company. All respondents will therefore remain anonymous.

Any personal details will remain private and will not be used for marketing or
released to the third parties. All data was kept at secure place.

5.7 Analysis and result

At this stage all the datas and informations collected from literature review, pilot
study, survey and interview etc. are to be analyzed. These datas and informations
will be evaluated with their pros and cons in systematic way to conclude a better and
comprehensive recommendation for the industry in present crisis. And this would help
in understanding, how U.A.E. Construction & Engineering industry sustain in present
situation.

5.8 Conclusion

This chapter describes the framework and methodologies were adopted to carry out
the research and how to collect the research and relevant data related to the objectives
of the dissertation. Quantitative and Qualitative research methodologies and their
logic of selections were discussed how it has been implemented for the data
collection. Identification of interviewers and professionals for the answering to the
survey questionnaires were established. Ethics and confidentiality was discussed and
upheld.

6.0 Chapter 6: Analysis of survey and results findings

6.1 Introduction

Within this chapter the collected data from survey and other resources during
literature review will be presented and in depth analysis with interpretation will be
done. The assumed barriers such as social, economical and market environment will
be clubbed together for the ease of reference and similar tested solutions will be
discussed. The collected data will be analyzed, based on hypothesis and objectives of
the study and the results obtained from questionnaires will be discussed in detail.

Further, this chapter will also discuss the findings of topics related to aim and
objective of the research and conclude the results with their findings. Any gap and
constraint related to the construction industry will be highlighted.

6.2 Analysis of individual answers

The survey questionnaire has been prepared by short listing sixteen (16) questions.
The first section (Section A) of questionnaires comprising four (4) questions was
designed for general information such as type of organization, position, experience in
UAE and in general to the construction industry etc.

The second part (Section B) of questionnaires were based and designed for tested to
awareness of construction industry and for the testing of assumed barriers,
opportunities and opinions to the industrys health in present situation and their
impact on industry.

And lastly an open ended question (Section C) was designed so that respondent could
give their suggestions beyond the box. It was assumed that open ended question
would give an opportunity to respondent to put forward their innovative ideas and
opinions for the industry.

The survey questionnaires have been sent to approximately 120 target professionals
from various disciplines within the construction & engineering industry for their

opinion and suggestions through web designed survey on web site; www.
Freeonline.com. In addition to above a request has been posted on
qs_dubai@yahoogroups.com a Dubai based Indian Quantity Surveyors Forum, an
organization of professionals of Indian sub-continent working in UAE construction &
engineering industry organization for their opinion and suggestions through web
designed survey on web site; www. Freeonline.com. Out of above professionals, only
55 participants have responded to date of analysis of the survey and some of them
indicated their unwillingness to respond due to their own busy schedule or citing other
reasons.

Further, few of key professionals representing from various disciplines of the industry
were contacted personally with a hardcopy of questionnaire for the interview. Details
of answers are presented against the individual questions are as follows:

6.3 Awareness of UAE construction industry

Based on responses to the survey questionnaire and personnel interview with the
construction professionals working in the UAE construction industry, we conclude
that majority (above 60%) of them are aware the construction process. However, in
terms of health of the market and strategies relating matters to check the likely effect
due to present crisis falls below average (approx. 50%).

The response to the question related to the awareness of present financial crisis and its
likely effect on construction industry, proved interesting. The majority of respondents
approximately 73% are aware about the effect of financial crisis to the industry, which
is evident in the construction sector due to projects are on hold and job cuts. However,
awareness of 27% (approx.) respondents is average, which indicates may be they were
not very much affected. The reason may be they comes from other indirect
construction industry like suppliers of material and or may be they belongs from less
effected emirates of UAE as compare to Dubai.

Further, if we talk about the technological advancement and its application to the
industry off course the response is not very exciting. The main reason, firms and their
higher management realizes the importance of application of technologies and
required to be prepared, but very few of them spending on technological advancement
and R&D. On other hand majority of the firms, involved in UAE construction are
small to medium level and they were developed during the past 5-6 years. However,
they made good profit during the construction boom in the region but lacking far
behind with proper strategy and long term targets and goals.

6.4 Global crisis and its effect on UAE construction industry

The financial crisis in the worlds has left the construction industry facing its toughest
challenges and the impact of this crisis, is already enter into recession. As per survey
about two third (above 66%) professionals working in UAE construction industry
have agreed with the opinion that the crisis will get worse in future.

The current global crisis and recent developments in the MENA region have not made
for good reading. Financial and credit crisis which began to start from western
markets, the Arab world is also being increasingly dragged into the worldwide
economic downturn and slumping demand for its most valuable export of oil. Even
buoyant construction markets of Middle-East such as the UAE are also affected; with
construction growth has been slowdown.

We conclude that on the basis of research and opinions of professionals of UAE
construction industry, these are serious times and the industry needs to be prepared to
contribute to the recovery by retraining workers, maintaining the highest quality and
supporting innovation. Companies seeking to find an extra edge in an increasingly
competitive market are likely to change their strategy towards their future business
plans and techniques as they look to become more efficient.


over-priced construction, demand and supply theory is about to play - demand side are
at the top!!

6.5 UAE construction industrys barriers and threats

Weaknesses
The UAE currency is pegged to the US $ which is reducing its control over
monitory policy and further reducing its ability to tackle inflationary pressure.
According to survey results approximately 60% peoples are agreed with the
opinion that the UAE construction market affected due to the declining value
of US $ in international market.
The states location is strategically very important for countries like US and
other western countries, their concern about regional militant group and Iran
nuclear programme could affect investors.

Threats
Decline in demand level because of oversupply in the UAE, particularly in
Dubai. According to survey results approximately 65% professionals are
agreed with this opinion that the UAE construction market, particularly Dubai
is on the verge of maturing. Further approximately 74% peoples are agreed
with the opinion that the declination in demand level because of oversupply.
Legal framework which must provide clarity and enforceability; According to
survey, the majority of respondents approximately 82% are agreed with this
opinion and as per interviews with the professionals, they said, clarity and
enforceability is important for the investors.
Speculative market fuelled by short term investment must adjusted; According
to survey, the majority of respondents approximately 70% are agreed with this
opinion and as per interviews with the professionals, they said that this is one
of the reason of failure in the real estate and it must be corrected.
Product specifications must be prepared as per end users requirement not to be
dictated by the developers in order to satisfy their requirement and to make the
Quality and Valued products in the market.
Heavy subsidies on utilities, agriculture and an old taxation system have
contributed to persistent fiscal deficits in the past which was covered by rising
oil revenue in the recent years (prior to crisis).

6.6 UAE construction industrys opportunities

Based on literature review, researches, survey and reports published on various
journals, we present following are the opportunities available for the UAE
construction industry:

Strong economy: UAE has been considered as fastest growing economy
globally and particularly in the middle-east region supported by following
factors;
- Growth rate of GDP per capita

- Human Development Index (HDI) ranking: According to the researches,
UAEs HDI world ranking in 2005 was 41, this ranking indicates UAE is
in the list of high human development countries
- Energy consumption per capita
Further, as per results of survey questionnaires approximately two third
majorities of respondents are agreed with this opportunity for the UAE

Free Hold Property Law: Supported by RERA Regulation.

Governments reforms to attract foreign investments: According to survey
results approximately 77% professionals are agreed with this opinion for the
UAE construction market.

Consumer spending power and socio economic stability: According to
survey results approximately 77% professionals are agreed with this opinion
for the UAE construction market.

High rental yield; ranging 7 to 10 % - higher than other regions,
approximately 70% peoples are agreed with this opinion

Construction cost: UAE construction cost is low as compare to developed
countries e.g. US, UK, Japan and other western countries. However,
professionals of UAE do not agreed with this opinion. It is evident that
majority of respondents are belongs from South East Asian countries like
India, Pakistan, Sri Lanka etc. and comparatively the construction cost is much
cheaper than UAE to their own country.

- Financial institutions: UAE Central Bank regulation allows banks to
finance the real estate project and reality development of infrastructure
through financing to JVs. However, due to present crisis the banks are
vigilant to support those organizations that are already in debts.

Strengths

Furthermore, in addition to above investors can consider additional advantages and
strengths and few of them are described as under:

o Rulers of UAE are very keen to improve the eco-credentials of the cities
o Investors remain bullish towards UAE, which is expected to show best
performance over the short to medium term
o The governments efforts to diversify oil based economy to gas, tourism
services and high-tech industry which offers some protection against volatile
oil prices.
o Oil prices are expected to stay high which would further boost the UAEs
economy.
o Oil-based income to other industries will drive the changes in the economy of
the country in coming years
o The construction, tourism and financial sectors have grown rapidly which is
driven by domestic and foreign investment.
o The UAE is a member of Gulf Cooperation Council and being a common
market targeting a common currency in the future.
o The UAE has one of the most liberal trade regimes in the gulf and attracts
strong capital flows from across the region.

6.7 Limitation of research analysis

The construction industry, particularly in UAE, is highly fragmented in nature with a
large number of small players. The investment in research and development (R&D)
and other activities is not very high. In context of UAE construction industry, only
few international and local companies have separate department for strategic
development. It indicates that higher management is not giving enough significance to
develop own data bank. And many strategic decisions are taken in contracting
companies by higher management based on experience and understanding within their
organization.

The resources of literature and availability of datas related to actual practices in the
industry are limited. We confined to rely on few journals, construction industry
related magazines. Therefore, we try to contact professionals working in the industry
with the pre-designed questionnaires, for their opinions on current market situation.
Most of the respondents were having limited knowledge of the recent development
and health of the market in present global crisis. Hence their perception or opinion
may not be true on some issues.

6.8 Conclusion

The barriers to the construction industry had been analyzed. Organizations, population
in terms of experience to the local UAE and over all to the industry based on survey
results had been correlated. Trends had been revealed and solutions to overcome those
identified barriers to the industry had been discussed.

Further, the results and findings related to aim and objective of the research had been
concluded. The results with their findings will be considered while making
recommendations to the industry in view of present crisis. The gaps and constraints
related to the construction industry have been highlighted for the preventive action to
be taken in future.

7.0 Chapter 7: Discussion and conclusion

7.1 Introduction and summary

According to finding of survey, investors sentiment towards the real estate market of
Middle East, in particular UAE will out-perform all other regions. As, the Gulfs
much-discussed sovereign wealth funds (SWFs) are now more likely to invest
domestically and keep local economies moving. This is not only for political and
strategic reasons, but also because many have lost heavily on international
investments. Sentiment is the critical factor when considering the health of any
market. Investors remain bullish towards UAE, which is expected to show best
performance over the short to medium term. Further, the governments efforts to
diversify from oil-based income to other industries and liberalization in policies will
bring further investments in the coming years. It is anticipated that the UAE will
continue to attract the bulk of investments and will emerge as the gateway to tap the
emerging gulf market.

However Middle East is not exiting in vacuum. It has also been affected by
international crisis. Despite the economic slowdown all over the world, the UAE
seems to be committed to develop several projects in housing, tourism, industrial and
commercial facilities, education and healthcare amenities, transportation, utilities,
communications, ports and airports which are poised to change the face of urban
landscape in the years.


The Dubais aspiration to bid Olympics Games will required to develop several other
facilities and infrastructure of the city, which will boost up the industry to a certain
extent but the cessation of development will depends on wining chances and support
of other nations in favour of Dubai to host Olympics.

The year 2009 will be critical for all countries in the MENA as well in GCC, with the
impact of the global economic downturn and low oil prices still being played out. All

markets will face both challenges and opportunities. However, government led funds
will boost the confidence in the market.

7.2 The way forward

There are already signs that the construction industry of UAE, particularly Abu Dhabi
and Dubai is moving in the right direction but more needs to be done.

Sustainable development, particularly construction is vital for continuity between
worlds resources and quality life for human beings as well as the entire earths
inhabitants. This study showed that there is strong case for the growth of construction
in UAE due to governments commitment and implementation of better regulations
for the investors. However for sustainable & robust case, a holistic longer term view
need to be applied in construction together with addressing existing and emerging
barriers of the industry can be strengthen further.

Having, identified a number of challenges and barriers to the mainstream uptake of
UAE construction & engineering industry. This section identifies a range of actions
which could provide a way forward in the growth of construction sector in UAE.
They could also be used as a basis for the development of a national roadmap for
sustainable construction in UAE.

In particular, there are significant opportunities for:

o The legal framework which must provide clarity and enforceability
o An increasingly outdated market model, which must be adjusted to reflect the
shift away from a speculative market fuelled by short term investment
o Product specifications, which must fit the needs of end users
o Governments support in terms leadership and partnership with the industry to
boost the morale of investors in present crisis
o Creating a range of incentives to increase the uptake of construction sector,
particularly in relation to financial institutions in view present crisis
o Further research into the costs and benefits of construction industry in UAE

7.3 Recommendation for UAE construction industry

This study provides a point of reference for the UAE construction industry in view of
present economic crisis. In view of above, we explore the potential improvement
which may require in facilitating the industry to upbeat the challenges driven by tough
economic times. Further, we also discussed in detail the health of UAE construction
industry and how it can be improve for the better future prospect of the industry. It
should be noted that all the recommendations shall be seen in context of literature
review in chapter 2 & 3 and based on analysis of survey results and finding in chapter
5 & 6.

UAE construction industry including real estate companies, developers, contracting
companies, consultants, joint ventures (JVs) and other public sector organizations
should increase their visibility, transparency and increase networking among stake
holders to meet their requirements.

We list below following recommendation to be made for the UAE construction
industry for better practice and its bright and growing future prospects:

Outdated market model, which must be adjusted to reflect the shift away from
a speculative market fuelled by short term investment towards a long term
growth strategy.

Product specifications, which must meet the requirements of end users and to
provide them, the lists of material with full product information including
sustainability information.

The legal framework, which must provide clarity and enforceability in terms
ownership and title, and obligations of various stake holders.

Demands, which must be exists from tenants and investors point of view.

Property payment should be tied to construction milestones as a matter of
policy.

Clarity in terms of future outgoings and expenses: means reliable forecast
from master developers on service charges, facilities management and
maintenance.

Standardization in terms measurement of building areas, quality and handing
over of property within schedule and budget.

Transparency in terms of comparable evidence, benchmark and performance
of assets.

Evidences of assets management opportunities for value enhancement.

To simplify existing construction code and specification, and strike out the
over specification.

Foreign companies should examine their customers and supply claim in order
to ensure that they are supporting local companies.

7.4 Recommendation for market strategy

UAE construction industry requires strategies and its implementation to improve the
chances of success and competitiveness in future. Further, due to present economic
crisis left the industry to innovate and explore their business strategy for radical
changes.

It should be noted that the recommendations as listed below are to be seen in context
of literature review especially in chapter 4 and based on analysis of survey results and
finding in chapter 5 & 6.

Proper development and implementation of strategies by identifying their own
strengths and weaknesses prior to make a strategic decision. SWOT analysis is
to be used for this purpose.

Companies should work as per their future plans which find a match between
organizations capabilities and opportunities in the competitive landscape.

Companies require to carefully planned expansions.


The Sustainable construction to be approached.

To invest on people by educating and give training from top management
including professionals to sustain in the competitive market as company
strength is human asset.

Developer or Clients are to re-negotiate to all existing contracts due to
dramatic drop in costs of material, fuel and labor with the current market
value.

Design to budget by using value engineering and value management tools.

In context of present crisis, following factors are to be taken into account,
while establishing the procurement strategy;
- current market condition
- future market trends
- competitive procurement practice
- Proper market research for the project objectives and project external
environment

Understanding of Client's need/requirement to suit his business.

Contractors may focus on public sector projects especially in tough economic
times to pull through the downturn.

7.5 Recommendation for industrys stakeholders

Governments support in terms leadership and partnership with the industry to
boost the morale of investors in present crisis.

Creating a range of incentives to increase the uptake of construction sector,
particularly in relation to financial institutions in view present crisis

Apply incentive based policy this could be either relaxation in government fee
and / or fast track approval window, be this could be similar to green channel
provided at airport for certain privileged passengers.


Government reforms to attract foreign investments e.g. free hold property law
and RERA regulations.

To fix minimum attainable targets.

Apply unified rules and regulation for all free zones including Dubai
Municipality.

For Government sponsored project, government should show leadership by
introducing innovative procurement route like PFI rather than biding system.

Strike out disparity between building code / existing regulation and
sustainability.

Institute annual award & recognition prize for UAE construction industry,
similar to Sheikh Zayed Award.

7.6 Conclusion

The UAE construction sector is one of the largest and most valuable sectors in the
middle-east in particular to GCC countries requires standing firmly in view of present
crisis. However, the governments rescue measures and future plans have provided a
chance to make it recession proof. It is anticipated that the UAE will continue to
attract the bulk of investments and will emerge successfully with this crisis

Better regulation and other corrective measures need to be taken as discussed and
recommended as above. Furthermore, sustainable and a holistic longer term view
need to be applied in construction together with addressing existing and emerging
barriers of the industry..

This section identifies a range of actions which could provide a way forward in the
growth of construction sector in UAE. Further research is being recommended to
check the barriers, threats and policies to be implemented for the best interest of the
industry.

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