United Arab Emirates: 01/01/2006 Gulf News Newspaper

Real estate boom not a bubble

Dubai: The boom in the Gulf's construction sector is well cushioned from international oil price fluctuations predicted for the short to medium term. In fact, high oil prices will continue to fuel the sector's growth, say experts.

Incidentally, the value of the real estate projects in the GCC, Iran and Iraq has already crossed Dh2.75 trillion ($750 billion), with about a third concentrated in the UAE. This is higher than the region's combined gross domestic product (GDP), which is currently below $700 billion.

Experts say the trend will continue for some time despite a projected decline in oil prices in the short to medium term.

"Oil demand is projected to reach more than 92 million barrels per day (bpd) in 2009 from the current level of 84 million, which will continue to drive the oil price high despite sizeable investment by governments in lifting capacity," Edmund O'Sullivan, editorial director of Middle East Economic Digest (Meed), told delegates at a conference recently.

"Average crude price is forecast to decline from $50 per barrel to about $45 per barrel by 2008. However, increased supply, will offset any decline in revenues.

"As a result, investment in projects will continue in the short-to-medium term. The region is just half-way through its 10-year growth cycle, so the growth mode will continue for at least another half a decade," O'Sullivan said.

The UAE's growth curve has defied analysts' prediction, developers say. "For the last five years, almost every expert told us there would be a bubble in the property sector. However, the reality proved to be the opposite," said Robert Lee, development director of Nakheel, the Dubai-based real estate giant.

With 34 million people, including about 500,000 high-income professionals and $525 billion GDP, the GCC is the world's 17th largest economy. With exports at about $250 billion and imports crossing $200 billion annually, it produces 16 million bpd of oil and exports 13 million bpd.

O'Sullivan said the region's half- trillion dollar economy generates more than $500 billion in investible revenue, which will continue to boost the construction and real estate sector.

"The UAE's GDP, growing at 25 per cent annually, is expected to reach anywhere between Dh550 billion to Dh900 billion by 2010, the way boom is continuing," he said.

"The UAE has recently succeeded Egypt as the second largest Arab economy after Saudi Arabia, which reflects the explosive growth witnessed by the country."

Total value of projects in the UAE is Dh825.75 billion ($225 billion), of which Dubai accounts for Dh456.36 billion ($124.35 billion), according to the latest tabulation.

"Dubai's current population of 1.1 million will surge to four million by 2017 and five million by 2020," said Hussain Nasser Lootah, Assistant Director General of of building and planning for Dubai Municipality, adding "projects in Dubai are so fast-moving that the infrastructure, including the roads, public transport, and utilities cannot keep up."

The Dubai Government has spent $2.5 billion on the city's network of roads up to the end of 2004, covering 9,600 kilometres.