UAE construction sector’s problems are mainly about ‘under-valuation’ and not payments: BBG poll

Stock construction crane Dubai
If project values get back to more realistic levels, that by itself would be a big positive for the UAE construction sector. Image Credit: Antonin Kélian Kallouche/Gulf News

Dubai: Undervaluation of project work – and not delayed payments – is the UAE construction sector’s biggest challenge.

To resolve this, projects will need to be valued “more accurately” for the health of the construction sector – that’s according to a poll conducted among industry leaders by the British Business Group.

For some time now, there has been talk in the local construction sector that projects were won because of “unrealistic” valuations and bids. The problem has always been there, but in the last two years as the number of projects reduced, under-valuation has taken on a significant size.

This has, in turn, pushed many businesses, mainly subcontractors, into bankruptcy. Some industry analysts also say the same about the crisis at Arabtec, the UAE contractor which is now in liquidation, being set off by under-valuations.

Industry-wide crisis

In the poll, 69 per cent believe there is a “short-term approach and a lack of consideration of the whole project life cycle” during the construction phase.

“A clear focus on the whole life costs of a capital asset is critical to ensure assets are delivered within budget, on time, fit for purpose and fulfil the planned return on investment for stakeholders, be that a strategic RoI (return on investment) or a measured financial RoI,” said Cynthia Corby, Middle East construction lead for Deloitte.

“This ensures assets can be capitalised on the owner’s balance-sheet with confidence it will deliver the business plan with robust cashflows to support its capitalised cost and the potential to monetise the assets if and when required, be that through a sale or securitisation of the asset.”