The Dubai Government’s decision to put future projects on hold is unsurprising as COVID-19 weighs down on global economies.
While the government will consider reining in spending a necessary step, the move will deepen the cracks in the local construction sector, which has been operating in a low-margin and high-risk environment for several years, said GlobalData, a leading data and analytics company.
Neha Bhatia, construction and infrastructure editor, GlobalData, commented; “A large number of projects in Dubai, as well as the wider Middle East, typically exceed the original awarded contract value for reasons such as design changes and contractual disputes. With a zero-tolerance approach to cost overruns, local contractors now face the prospect of making a loss on their ongoing projects.”
Bhatia added, “While construction is one of the sectors exempted from the emirate’s 24-hour restrictions on outdoor movement, contractors are concerned that onsite works will slow down as the pandemic continues to spread regionally. Precautionary measures such as those imposed on worker transportation are already reducing onsite productivity.”
The COVID-19 pandemic has accelerated the downward trends that were expected in Dubai’s post-Expo 2020 real estate market. Local development giant Emaar Properties has suspended work on projects in Downtown Dubai, Dubai South and Dubai Creek Harbour, as well as enforced salary cuts at all levels to mitigate the financial risks brought on by the virus.