Dubai developers suggest equity stake for contractors in project in tough times
Mena region's future projects pipeline exceeds $3.7 trillion while construction projects alone account for $2.4 trillion
Developers in Dubai have suggested that contractors can opt for barter deals by becoming equity partners in projects to ease impact of liquidity crunch and cash-flow issues being faced by the industry.
"In today's competitive market, the main challenge being faced by the developers is that the contractor, who can bear the pressure of liquidity, should assist in cash-flow," said Muhammad BinGhatti, CEO of BinGhatti Developers.
While speaking at the panel discussion at the Big 5 International Building and Construction exhibition, he said a contractor can alleviate pain for the developer on liquidity issue by providing flexible terms and conditions.
"When a developer receives a lot of quotations, it favours those sub-contractors who accept barter deals or partial cash payment and partial barter deals. A contractor, who is flexible in terms of payments, will get most of the jobs. By barter deals, I mean contractor takes equity in the project," BinGhatti said.
Sheikh Ahmed bin Saeed Al Maktoum, President of the Dubai Civil Aviation Authority, Chiarman of Emirates airline and Chief Executive of Emirates Group, inaugurated the 40th edition of The Big 5 at the Dubai World Trade Centre earlier on Monday.
According to a report by Meed Projects released at Big 5, Mena region's future projects pipeline exceeds $3.7 trillion while construction projects alone account for $2.4 trillion.
Rajesh Kumar Krishna, CEO of Beaver Gulf, said the market is going through a bit of recession as well as reduction in volume. But in a couple of years, he expects things will improve.
"New opportunities are limited but fortunately we have good clients. They have certain projects in the pipeline but market is stiff because volume is low and that is putting pressure on margins. Barring certain developers, most of the developers - including some of the big ones - in Dubai are shifting to affordable model to bring down ticket size and take advantage of the market," Krishna said.
Francis Alfred, managing director and CEO of Sobha Realty, said there is a cash issue in the market. "If developers are disciplined, the market can be much more stable in terms of cash-flow. Real estate has almost bottomed out and the prices are at 2010-11 level. But now most of the developers are seeing an increase in volume," Alfred said.
Ammar Al Assam, CEO of Dewan Architects and Engineers, also noted that this slowdown is an opportunity to right-size the company and make long-term strategic programme as well as explore new markets. "It is not all doom and gloom in the region. There are good opportunities in Saudi Arabia, Egypt and in the UAE post Expo 2020," Al Assam said.
Delay in payments causing negativity
Developers and contractors said at the Big 5 that margins are taking more pressure now than before and delay in payments is damaging the confidence of contractors.
"Margins are taking a little more pressure than before but if you are able to adopt market trend, the sales can continue to grow," said Muhammad BinGhatti, CEO of BinGhatti Developers.
Rajesh Kumar Krishna, CEO of Beaver Gulf, said delay in payments has a negative impact and badly hit confidence of contractors and sub-contractors. "A lot of negative energy is going around due to this. I think there is a need to strengthen rules and regulations for developers to ensure contractors are paid on time," said Krishna.
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