The UAE construction market will face financial and material issues in 2022

In the first quarter of 2022, the construction market in the United Arab Emirates showed a strong growth in business activity. However, an increase in the costs of building materials and in financial expenses has made the picture less encouraging.

The information below is provided by the Royal Institution of Chartered Surveyors (RICS) and is based on the Global Construction Monitor (GCM) index.

Content:

• Workload of the construction sector
• Global supply chain disruption and its consequences
• Positive expectations for 2022
  • Indicators of the activity index in the construction sector (CAI)
  • Some general forecasts for 2022

Workload of the construction sector

The UAE was one of the few countries in the world to report a noticeable increase in the workload of the construction sector in the first quarter of 2022. The country also showed rising expectations for large profit margins in the upcoming year.

The main share of the workload is the development of private housing projects and infrastructure for the growth of agricultural businesses in the country. 28% and 29% of RICS respondents gave such an assessment in regard to the respective sectors.

Global supply chain disruption and its consequences

However, a sharp disruption in the global supply chains of materials is one of the difficulties for the market. It was first caused by the COVID-19 pandemic and was extremely exacerbated by the conflict between Ukraine and Russia.

Both countries were important elements in the global export of materials. Ukraine played a special role in the direct supply of materials to real estate developers in Dubai, the main engine for the construction sector’s development in the UAE. The fragile financial situation of the global economy also plays a big role.

In the first quarter of this year, in the UAE, about 79% of respondents pointed at the rising cost of building materials as the main obstacle for the construction sector’s development. On a global scale, 91% of respondents called the situation with building materials problematic, and 59% of respondents mentioned access to the purchase of these resources as a problem.

For comparison, in the first quarter of 2021, the main problem, as the main obstacle to the development of the sector, were only financial problems in the economy.

Positive expectations for 2022

However, up to one-third of respondents are quite optimistic about the growth of the sector and the possible profits from market activity. In the first quarter of 2022, 26% of respondents expressed this, compared with 21% of respondents in the fourth quarter of 2021.

As it was previously stated, about 54% expect the continuation of workload throughout the year, driven by the increase of private residential projects and infrastructure.

Indicators of the activity index in the construction sector (CAI)

RICS also cites CAI for the first quarter of this year. It indicates that the United Arab Emirates took fourth place in the growth of construction sector activity across the Middle East and African regions. Top-3 includes:

• Saudi Arabia;
• Bahrain;
• Oman.

Qatar, the neighbouring country, showed a noticeable decrease in the index.

Some general forecasts for 2022

Simon Rubinsohn, RICS Chief Economist, said that the latest industry reports had good news and left room for positive market expectations. It refers not only to areas in the residential sector and infrastructure, but also to commercial real estate.

The obvious lack of a work force is added to the problems with building materials and finances raised earlier. At the beginning of this year, there was a sharp surge in new vacancies for the construction sector in various areas with general specialization and high qualifications. Managers and surveyors were among the required specialists.

All of the above will lead to an increase in final prices for real estate in the UAE.