The Construction Boom in the UAE - Assignment Example

Student’s Name Your Instructor’s name The Course Date Construction and Real-Estate Part A Discuss the construction boom in the UAE Today, there is a boom in the construction industry in the United Arab Emirates (UAE) and Saudi Arabia. In the Middle East, most of the countries have large oil reserves; hence a boost in their economy (Badouri 80). For the UAE, it has little oil reserves compared to the other countries in the region, but it known as one of the world’s most developing countries. In order to reduce its dependence on oil, the country has developed in a tourist destination and trading platform. Lately, there has been an uprising in the construction of shopping malls, hospitals, banks and buildings in the UAE. This boom in the country’s construction industry is believed to be driven by certain factors (Badouri 80). What drives construction sector in UAE? Firstly, this construction boom in the country is largely influenced by the fact that the country is one of the Middle East countries that have oil reserves (Badouri 81). Despite the fact its reserves are fewer than other countries; the country has managed to utilize this resource well so as to develop its infrastructure. Taking advantage of the rising the oil prices in the world, the country’s income is used in the development of the construction sector; hence, improved economic status. Consequently, the improvement in the country’s economic performance has increased the demand for residential facilities and infrastructure. There is also a need for shopping malls, health facilities, banking halls, and many other buildings in the country. Therefore, this is one of the major factors that contribute to the construction boom in UAE (Badouri 83). Secondly, the construction boom in the UAE is driven by the prevailing positive demographic fundamentals. UAE is one of the countries in the world that have the fastest growing populations. Studies indicate that population growth in the country is expected to rise by 2% annually through 2025. Its population is also expected to rise to 6.9 million by 2025 in comparison to the 4.5 million in 2006 (Badouri 83). This rapid growth in population increases demand for infrastructure, commercial, residential, academic institutions and financial institutions in the country so as to meet the populace’s needs. The improving economy in the country is also propelling the population to have enhanced and bigger accommodation facilities in the country. Moreover, there are many young people who want to start and develop their own families; hence, a high demand for housing and infrastructure in UAE. The country is also enjoying an increase in commercial activities and a high influx of emigrants (Badouri 84). As a result, this causes a high demand for residential and commercial facilities in the country; hence a boom in the construction sector. Thirdly, a boom in construction in UAE is brought about by a boom in tourism industry. The country has realized that tourism industry in one of the economic boosters, and so it has decided to develop the sector as the top priority (Badouri 85). Consequently, there is a massive construction in shopping malls and hotels. The country has amazing tourist sites, such as Dubai Ski and the world’s largest hotel; Burj Al Arab. The country’s tourism sector is also in the process of constructing and developing many sites, such as beaches and hotels, so as to become the global most preferred destination (Oxford Business Group 138). Discuss what impact it had on the UAE in general The boom in the construction sector in the UAE has a great impact in the country. To start with, the country’s GDP is bound to rise as well as its economy following the development of efficient infrastructure, housing, commercial facilities, health facilities, tourist attraction sites, and academic institutions (Oxford Business Group 140). A lot of money is generated from housing, tourism and businesses in the country, and this is used in further development of the country. Nonetheless, this construction boom is has its share drawbacks in the country. One of these negative impacts is the depletion of resources, such as, sand, cement and steel in the country (Oxford Business Group 141). The region is also experiencing a weak currency due to the weakening US dollar. This has, in turn, affected the region’s accommodation costs and wages for the employees. Moreover, it has a negative impact on the environment, especially the marine environment due to use of chemicals and disturbance of the marine life (International Monetary Fund 41). Discuss real estate Real estate sector in the UAE is one of the world’s prosperous stories. There has been a freehold ownership of developments in the region since May 2002, and that it was opened to everyone (Badouri 83). As a result, the region has enjoyed a wide range of commercial and residential development projects from global class construction firms, and these have brought about great response from both expatriates and nationals. This real estate sector is also attracting a big share of foreign ownership because of the increased chances and fast returns on investments. These projects’ yields are expected to remain at the top level since the freehold properties provided are unique and will ever attract many local and foreign investors. Some of the real estate developments in the region are dominated by some of the main developers, such as, Nakheel and Emaar. Among their projects are Jebel and Ali and Deira, The Palm in Jumeirah, Dubai Marina, Golden Mile, Springs, Meadows, Emirates Hills, Greens, Burj Dubai, Jumeira Lake Towers, Jumeirah Beach Residence, Jumeirah Islands, and Arabian Ranches. Some of the real estate developers include Aldar Properties PJSC, Nakheel PJSC, and Emaar Properties PJSC. Some of their areas of expertise include industrial manufacturing, financial services, healthcare services, construction and design, real estate management, leisure and tourism, education and retailers (Badouri 88). Investing in real estates in the UAE is advantageous because of the tax efficiencies, location, quality of life, leisure, vision and leadership (Oxford Business Group 139). In Dubai, one of the emirates, there is a large growth rate that supersedes other countries in the region and various parts of Europe. There are numerous multi-million dollar projects that are coming up almost every day in the region. One of the major attractions for the buyers of these freehold properties in the region is residence visa provisions to both foreign investors and their family. Notably, the region has benefited a great deal from the real estate projects in a variety of ways. The country’s GDP is steadily growing due to a lot of foreign and local investment. The tourism industry is also expanding by the day; hence increased GDP and economy of the country (Gorgenländer 11). Additionally, the projects have created employment opportunities for the nationalities and expatriates; hence, improved living standards. The country’s international relations and trade has been tremendously improved (Gorgenländer 14). What drives real estate growth in UAE? Some of the factors that stimulate the tremendous growth of the real estate sector in the region include high expatriate population growth, increased tourism, favorable regulatory environment, and ample liquidity (International Monetary Fund 38). Additionally, the fact that the region is the hub for investments in Middle East attracts many global companies to open their offices there. The region’s growth in the real estate sector is also motivated by the liberalization of the real estate and property (Badouri 90). What is more, the region attracts foreign investment through the creation of free zones that offer 100% expatriate ownership, exemption from taxes and import duties, one-stop locations for procedures and paperwork, subsidized energy and water prices, and absolute repatriation of profits and capital. The fact that the country is well positioned for tourism also calls for the increased infrastructure investment; hence, enhancing the development of real estate sector (Badouri 98). Risks in real estate sector in UEA In spite of the numerous benefits of the sector in the UAE, there are some risks involved, such as, the increased accommodation charges, shortage of building resources, and environmental effects like interference with marine wildlife (Gorgenländer 18). There is also a risk of competition from foreign countries, which also export certain main construction machinery to the country. In addition, there is a risk of regulations and laws that are bound to change from time to time. For instance, foreigners are not absolutely permitted to own freehold property in any part of the country, but in specific areas of the region (Gorgenländer 19). Cultural differences are also likely to cause problems in the country, as in cultural degradation due to influx of foreigners. Climatic differences also pose a great challenge and risk to foreign investors and workers since the region is a hot desert. Part B Real estate GDP: How much does your topic contribute to the GDP? The real estate sector in the region has tremendously since its development. This follows the large foreign and local investments that the country continues to attract each day. As per the Kuwait bank’s studies, GDP is expected to increase by approximately 4.2 % by 2012 (International Monetary Fund 39). The sector has made the country the second largest economy in the Arab World. Additionally, the continued expansion of the country’s tourism industry, by the sector, facilitates the fast growth of the GDP. In terms of the aggregate supply of technology in the region, the real estate sector has played a great role. The development of the man-made islands, such as, The Palm in Jumeirah and Jebel Palm indicate excellent technological innovations in the region (Gorgenländer 41). Explicitly, the country is enjoying massive technological resources that are demonstrated by great researchers and innovators, like Nakheel (Davidson 86). There are excellent technological skills employed in the construction of these freehold properties. This is also seen in the architectural designs employed in the sector. This has also led to the establishment of a number of science and technological colleges that specializes in research and training of individuals in technology. Information technology is also used in the real estate development, marketing and operation. In terms of the labor, the country has increased the number of skilled and unskilled laborers in the region from within and without the region. Some of the labor employed in the country includes those from Lebanon, Jordan, china and India. With respect to the human capital, there is inadequate supply of physical and human capital (Davidson 88). This implies a shortage in the labor force, which has forced the country to outsource. The foreign investors in the country also bring workforce form their countries. What is more, the real estate sector in the region has also caused depletion of the natural resources, such as, steel, sand and cement (Badouri 80). Unemployment: How much does your topic impact on employment in the UAE for all UAE residents and nationals in specific? Real estate sector in the region has positive impact on employment in the country. Many nationals and residents have secured job opportunities in both local and foreign investment companies (Badouri 85). Any UAE nationals are employed in various companies in the country, and their financial status has been considerably improved. In fact, real estate developers are the top employers of large numbers of both skilled and unskilled labor in the region (Oxford Business Group142). Although there is a shortage of skills in the region, the government, in conjunction with the developers, has plans of sourcing more skilled labor as well as creating favorable working conditions for them. Furthermore, it is working towards the provision of affordable accommodation facilities to the labor force by putting in place tight regulations to the respective employers (Davidson 89). Generally, there are considerably low unemployment rates in UAE since the real estate sector creates numerous job opportunities by day (International Monetary Fund 42). Monetary Policy: Does your topic impact on the money supply; does the UAE monetary policy impact on your topic? Real estate development in the UAE has serious effects on money supply and monetary policy. Despite a lot of investments taking place in the country, UAE was hit by the economic recession in the 2008 (Audi Saradar Group 7). This caused a high inflation in the country; hence negatively affecting the real estate sector in UAE. As a result, the country’s big financial companies stopped offering loans to investors. Some parts of the region like Dubai have large debts that have lowered the foreign investors’ confidence in the country. Its banks have also reduced their lending rates for fear of loses (Istaitieh 26). In 2011, despite the slight drop inflation, there was an increase in the supply of money in the country due to the increase in property transaction by 5%. There is a mixed forecast of the country’s monetary policy in relation to fluctuating property transaction prices (Badouri 86). While the government hopes that this will improve in the coming years, other agencies foresee a worst situation in the country’s monetary policy. In fact, there are many real estate projects that have been put on hold in the country because of poor market conditions caused by inflation (Audi Saradar Group 8). The developers have halted their projects as they await an improvement in the property prices. Moreover, the fact that the US currency is deteriorating has negative effects on UAE currency. Therefore, the country’s monetary supply affects the prosperity of the real-estate development projects in the country. Fiscal Policy: Does the UAE fiscal policy affect your topic The UAE fiscal policy greatly affects the country’s real estate sector. This implies that the fiscal balance determines the success of the real estate developments in the country. There was an expansionary fiscal policy in the UAE in 2010. This was termed as part of the government’s initiatives to improve the economic growth and diversification. Generally, the country’s fiscal stimulus that was adopted by the government in 2009 and 2010 has been beneficial (Gorgenländer 26). The country expanded the fiscal policy in reaction to the economic crisis that was felt. When the country experienced a total economic crisis in 2009, there was a sharp increase in expenditures and reduced revenues. In 2010, the country’s fiscal policy returned to its original level in the surplus Zone, despite the large expenditures that the government incurred in order to recover its economic from the recession. Therefore, this indicates that real estate development projects are slowed by the expansionary stance in the country’s fiscal policy (Audi Saradar Group 8). Trade: Does your topic influence the overall trade balance of the UAE The real estate sector in UAE has a great impact on the country’s trade balance. In the past two decades, the country has experienced a surplus in its trade balance (Istaitieh 25). This is because of the oil exports and tourism. Due to diversification of the country’s economy, UAE has registered a decrease in trade deficit; especially in the real estate sector (Gorgenländer 28). Despite the Dubai’s debts that at times, increase trade deficits in the emirates, the real estate sector is instrumental in creation of trade balance. Currently, there is a surplus in the balance of trade due to many investments, tourism industry expansion and foreign trade that is facilitated by the sector. Besides, the real estate sector affects the country’s trade balance because there real estate stocks are traded all-time lows. Even though the fundamentals are not tracked, the country’s weak real estate markets (Audi Saradar Group 6). Additionally, the country has a number has attracted many foreign investors, a fact that helps in the balancing of its trade. Explicitly, many expatriates are attracted to the real estate stocks. More so, the availability of large foreign stocks in the country is a significant indicator of the country’s surplus in trade balance (Istaitieh 26). This is motivated by the absence of tax and the liberalized investment in the country. Hence, real estate sector plays a significant role in the maintenance of the UAE’s trade balance. Works cited: Audi Saradar Group.UAE Economic Report. Audi Saradar Group, 2011. 4-7 http://www.menafn.com/updates/research_center/UAE/Economic/audi180111.pdf Badouri Said. Construction Boom in UAE & Saudi Arabia: Opportunities for Asian Companies. Global Investments Network, 2007. 80-100. http://www.mbam.org.my/mbam/images/@BOOM%20UAE%20(80-92).pdf Christensen, Shane. Frommer's Dubai. New York: Frommer's, 2011. 11-20. Davidson, Christopher. Abu Dhabi Oil and beyond. New York: Columbia University Press, 2009. 85-90. Gorgenländer, Viktor. A strategic analysis of the construction industry in the United Arab Emirates opportunities and threats in the construction business. Hamburg: Diplomic Verl, 2010. 10-50. International Monetary Fund. United Arab Emirates: Selected Issues and Statistical Appendix. International Monetary Fund, 2011. 33-40. Istaitieh Abdulaziz, Hugo Sarah and Husain Natasha .UAE Macroeconomic Report. Dubai. Data Management and Business Research Department, 2007. 25-30. Oxford Business Group. The Report: Dubai 2008. UK: Oxford Business Group, 2008. 138-143. Read More