The value of all GCC real estate projects announced in the last year (2006-07) has leapt 59 per cent to USD143billion, reveals research by Trowers & Hamlins the international law firm.
It shows that the oil fuelled construction boom in the Gulf region has no signs of slowing down (Gulf Cooperation Council member states - Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and the Sultanate of Oman).
In the previous 12 months (2005-06) the total value of new commercial and residential real estate projects announced was still an impressive US $90billion.
Trowers & Hamlins explains that the Gulf regions real-estate mega-projects is only partly driven by a desire to diversify the regions' economies away from oil by creating regional financial services and tourism hubs.
According to the law firm there is also a need to provide additional housing to deal with the region's unique demographics. With 70% of its population under the age of 30 the demand for new residential property in Saudi Arabia is driving some of the region's biggest projects. For example Emaar Properties' Jeddah Hills development (valued at US$11.2billion) is expected to deliver nearly 20,000 new homes.
Trowers & Hamlins says that the Gulf real estate sector is continuing to attract huge investments as rents and capital values have defied sceptics with their strong growth.
Mega-projects currently underway include the leisure, retail and cultural centre Dubailand which plans to have 55 hotels and will cover 3 billion sqf. This will make it twice the size of all the Disneyland's and Disney Worlds combined.
Trowers & Hamlins says that the construction boom is causing problems over and above the well advertised shortages of steel and sand.
Nigel Truscott, Partner of Trowers & Hamlins explains: 'There is now a shortage of capacity amongst engineering firms, skilled contractors and subcontractors. That means that they are able to negotiate some contracts where far too much of the risk is left with the developer.' 'In some cases the contractors are forcing the developer to pay for their professional indemnity insurance. There are cases where a subcontractor has stopped work on one development so they can start on a bigger, more prestigious project.' 'This is creating the kind of contractual environment where corners get cut, projects overrun and the potential for legal disputes escalates. However, the underdevelopment of the commercial courts system in the region means that litigation is a very unattractive route to go down.' In Dubai, the negotiating power of contractors means the newly-announced Escrow Law is likely to present problems for developers who normally release staged payments from purchasers to pay contractors.
The new law requires developers to keep purchaser's deposits in escrow accounts rather than allowing them, without some form of independent certification permitting release of funds, to pay this money early to contractors as the project progresses.
This could lead to contractors refusing to continue work until the payments they were promised, but are now tied up in escrow accounts, are made to them.
Trowers & Hamlins, which is the biggest international law firm in the Gulf, is currently promoting the concept of 'project partnering' in the region.
Partnering is a contractual framework used to create long-term, non-adversarial relationships between the client and its chosen suppliers to improve the quality of work delivered and to generate cost savings. Trowers & Hamlins believes that project partnering is the key solution to the construction industry's tendency for cost overruns, poor delivery and a resulting spiral of litigation.
Industry research shows that partnered projects can achieve costs savings of up to 30%.
Such has been the success of Trowers & Hamlins and others in championing partnering in the UK that the London 2012 Olympic developments will be integrating a form of partnering in its construction contracts.
Trowers & Hamlins' partnering contract is currently used on 6% of all UK construction projects but only about 1% of all work within the Gulf.
Adds Nigel Truscott: 'Court proceedings in the region are not always that straightforward, and even when a judgment is finally obtained further steps will need to be taken to enforce it. Partnering ensures that such disputes do not occur in the first place and where they do they can be resolved through arbitration.' Source
It shows that the oil fuelled construction boom in the Gulf region has no signs of slowing down (Gulf Cooperation Council member states - Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and the Sultanate of Oman).
In the previous 12 months (2005-06) the total value of new commercial and residential real estate projects announced was still an impressive US $90billion.
Trowers & Hamlins explains that the Gulf regions real-estate mega-projects is only partly driven by a desire to diversify the regions' economies away from oil by creating regional financial services and tourism hubs.
According to the law firm there is also a need to provide additional housing to deal with the region's unique demographics. With 70% of its population under the age of 30 the demand for new residential property in Saudi Arabia is driving some of the region's biggest projects. For example Emaar Properties' Jeddah Hills development (valued at US$11.2billion) is expected to deliver nearly 20,000 new homes.
Trowers & Hamlins says that the Gulf real estate sector is continuing to attract huge investments as rents and capital values have defied sceptics with their strong growth.
Mega-projects currently underway include the leisure, retail and cultural centre Dubailand which plans to have 55 hotels and will cover 3 billion sqf. This will make it twice the size of all the Disneyland's and Disney Worlds combined.
Trowers & Hamlins says that the construction boom is causing problems over and above the well advertised shortages of steel and sand.
Nigel Truscott, Partner of Trowers & Hamlins explains: 'There is now a shortage of capacity amongst engineering firms, skilled contractors and subcontractors. That means that they are able to negotiate some contracts where far too much of the risk is left with the developer.' 'In some cases the contractors are forcing the developer to pay for their professional indemnity insurance. There are cases where a subcontractor has stopped work on one development so they can start on a bigger, more prestigious project.' 'This is creating the kind of contractual environment where corners get cut, projects overrun and the potential for legal disputes escalates. However, the underdevelopment of the commercial courts system in the region means that litigation is a very unattractive route to go down.' In Dubai, the negotiating power of contractors means the newly-announced Escrow Law is likely to present problems for developers who normally release staged payments from purchasers to pay contractors.
The new law requires developers to keep purchaser's deposits in escrow accounts rather than allowing them, without some form of independent certification permitting release of funds, to pay this money early to contractors as the project progresses.
This could lead to contractors refusing to continue work until the payments they were promised, but are now tied up in escrow accounts, are made to them.
Trowers & Hamlins, which is the biggest international law firm in the Gulf, is currently promoting the concept of 'project partnering' in the region.
Partnering is a contractual framework used to create long-term, non-adversarial relationships between the client and its chosen suppliers to improve the quality of work delivered and to generate cost savings. Trowers & Hamlins believes that project partnering is the key solution to the construction industry's tendency for cost overruns, poor delivery and a resulting spiral of litigation.
Industry research shows that partnered projects can achieve costs savings of up to 30%.
Such has been the success of Trowers & Hamlins and others in championing partnering in the UK that the London 2012 Olympic developments will be integrating a form of partnering in its construction contracts.
Trowers & Hamlins' partnering contract is currently used on 6% of all UK construction projects but only about 1% of all work within the Gulf.
Adds Nigel Truscott: 'Court proceedings in the region are not always that straightforward, and even when a judgment is finally obtained further steps will need to be taken to enforce it. Partnering ensures that such disputes do not occur in the first place and where they do they can be resolved through arbitration.' Source
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