GCC region continues to enjoy premium on rental yields as compared to the mature markets of the US and Europe, which will keep the overseas investor's interest intact in the sector, Alpen Capital said in its latest GCC Construction Industry Report. Due to low number of transactions taking place in the marketplace, the determination of the price ranges is a challenging task, thereby making this a buyer's market, the report noted, forecasting a "continuation of this phase in near to mid term." "The GCC countries have sound economic fundamentals and healthy growth forecasts. The governments of these countries are increasingly looking at developing their non-oil sectors like construction and real estate. With oil prices expected to be stable any further increases in government spending will support investment and consumer spending, thereby having a positive effect on GDP growth, which will bode well for the overall economy in general and construction sector in particular," said Sanjay Bhatia, managing director of Alpen Capital. In Saudi Arabia and Bahrain, the focus of the residential construction sector has shifted to providing affordable homes to the low and middle income group population. Moreover, Jadwa Investment, in a separate report, forecast a strong growth in the Saudi construction sector as a result of the Kingdom's massive building plans. Paul Gamble, Jadwa's head of research said building and construction industrial investment and cement are areas that cannot fail to benefit from the huge government investment and spending program. Saudi Arabia has pledged to spend an estimated $130 billion on housing and other social measures. It is also spending $400 billion on infrastructure projects in the 5 years to 2013, making the construction and building sector among the most appealing in the Kingdom, he added. According to a report from Banque Saudi Fransi in March, with a growing population of 27 million people, the Kingdom is currently facing a shortage in housing and will need around 1.65 million new homes by 2015. That will be there not just through 2012 but go on for probably the next 5 to 6 years. UAE's reputation as a safe and stable country is likely to have a positive impact on the construction sector despite the current oversupply and cautious approach to new investments, the report added. The report said the UAE residential and commercial market was "still searching for equilibrium" as funding has been curtailed, projects scaled back and contractor resources downsized. "Developers in the UAE will continue to take a cautious approach in the short-term in view of existing oversupply," it said. "The residential construction market of the UAE is still struggling to reach its pre-debt crisis levels... The average prices and rentals of residential units have yet to reach their 2008 levels and continue to witness a fall in some areas," it added. Prospects in the Qatari construction market were "looking optimistic" on the back of strong GDP growth and the successful bid for the 2022 FIFA World Cup. However "the GCC construction sector saw a period of spectacular boom and was subsequently adversely affected by the global economic meltdown. Although the sector is showing signs of recovery, investors are still taking a cautious approach," Sameena Ahmad, managing director at Alpen Capital, said. Alpen said oversupply remains the biggest challenge for the construction and real estate sector across the GCC with the UAE worst affected. Alpen also said it anticipates "slower than expected recovery" to further lead to project cancellations across the GCC region. Numerous large projects were cancelled across the GCC in 2010 and 2011 due to weak investor sentiment and lack of funds. Alpen forecast that banks across the GCC region will continue to remain cautious in extending funds to the construction and real estate sector on the back of current uncertain economic conditions. Its report added that high attrition rates among expatriate labor workforces remained a major hurdle for the GCC construction sector.
