UAE Quarterly Update - July 2019

The latest projections from the IMF for the UAE GDP is revised to 2.8% compared to 3.7% initially forecasted for 2019. The IMF are predicting both domestic demand and tourism will be stronger for next year supported by Expo 2020. The roll out of the UAE’s Vision 2021 is set to enhance non-oil sector growth and should reach 1.8% for 2019, as predicted by the UAE’s Central Bank.

Within this quarter the UAE and other GCC countries have followed the US Federal Reserve’s move in cutting the interest rates on borrowing funds considering global developments for economic outlook. The UAE’s Central Bank stated that with the lower interest rates being passed onto consumers, the cost of borrowing will be reduced.

As a result this could potentially trigger further investment in the real estate sector for the GCC countries and beyond.

The UAE Tender Price Index is AECOM’s assessment of construction tender prices in the UAE. It is compiled by AECOM’s Middle East Business Intelligence team based on actual returns of projects. It is based on new build and refurbishment projects across a variety of construction sectors and covers all emirates of the UAE.

The Index is therefore a measure of average price increases across differing project types and locations. It should be regarded as a guide only when looking at any specific project, as the pricing of individual projects will vary depending on such factors as their complexity, location, timescale, etc.

The relative cost of construction in the Middle East is based on typical build costs in USD. High and low cost factors for each building type have been calculated relative to the UAE (Dubai), where average costs equal 100. The relative cost bars plotted in the chart represent the average high and low cost factor for each location, based on the costs of the buildings included in the sample (excluding commercial fit-outs).

AECOM’s TPI forecast for July 2019 remains static with an expected 0.1% increase in the tender price index for the full year. Noting that AECOM’s TPI increased 3.92% during 2017, and 0.94% during 2018, it appears to have captured the cost increases that have been evident during 2017-2018, as tenderers, suppliers and sub-contractors priced foreseeable material price increases in relation to Oil, Steel and VAT.