Local and international building companies are heavily exposed to spending cuts by Middle East nations ©Reuters Buses in Mecca that eyewitnesses said were burnt by workers from Saudi Binladin group Protests descended into violence in the holy city of Mecca at the weekend after it emerged more than 50,000 jobs have been cut by Saudi Binladin Group, Saudi Arabia’s largest construction company. The protests, which took place more peacefully in Jeddah, where Saudi Binladin has its headquarters, may also have been prompted by the fact that some workers claim to have not been paid for months. More On this topic IN Construction The job cuts were outlined by two people familiar with the situation, although the company, which employs 200,000 people, declined to confirm the figure. “We do understand that manpower reductions are never easy for all involved,” said Saudi Binladin. “However, the group is honouring its commitments and the affected employees have already received their full compensations and any other entitlements.” Saudi Binladin’s decision to lay off tens of thousands of workers highlights how construction groups are heavily exposed to spending cuts by Gulf countries that have been hit hard by the collapse in oil prices since mid-2014. Some nations have had their finances further stretched by the cost of wars — Saudi has been leading a campaign to root out rebels in Yemen, for example. Against this backdrop, governments in the region are delaying or cancelling plans to improve their infrastructure, and slowing payments to contractors on existing projects. As well as local construction groups, this is affecting international companies that were counting on growth in the Middle East to offset sluggish conditions in markets closer to home. “A combination of low oil prices, regional security issues and wider economic uncertainty has caused some client decision-making to slow [in the Middle East], with more projects being phased over longer timescales,” said Atkins, the UK engineering and project management consultancy, which generated 17 per cent of its 2014-15 operating profit in the Middle East. Several projects have already been put on hold, including a long distance rail network that is meant to run between Oman, the United Arab Emirates, Saudi and Bahrain, as well as plans to improve the roads around Doha. Other projects are proceeding more slowly as governments cut capital spending. Atkins, which has been designing the new Doha metro, has warned its revenue could fall 10-15 per cent this year as a result of the slowdown in new work coming to market in the Gulf. It has announced plans to cut 100 of its property and infrastructure staff in the Middle East — about 5 per cent of the total workforce. Analysts say other international companies involved in Gulf construction are likely to be affected. Sam Cullen, analyst at Jefferies, says: “Even if the others aren’t seeing the slowdown immediately, the risk that they will do in future has clearly increased. If projects are not currently in the design phase then the start date is clearly going to be pushed back.” ©AP Construction in Mecca He warns that Carillion and Interserve, two UK construction companies with significant operations in the Middle East, could be affected by these problems. Craig Beeson of Arcadis, the Dutch engineering company, says that essential infrastructure projects for upcoming events such as the Dubai World Expo in 2020 and the Qatar World Cup in 2022 will be given priority but the “nice to have [projects] are being shelved or seeing their implementation delayed”. Meanwhile, payments due to contractors have been stretched from the usual six months to more than a year, building companies say. Even in Dubai, the Gulf’s diversified economic hub that produces little oil, contractors are complaining about a slowdown in payments as the spillover effect of low crude prices combines with the strong dollar to make the tourism and services-oriented emirate less competitive. This is reviving memories of how Dubai’s construction boom of the previous decade — which created a dramatic skyline of towers including the Burj Khalifa — came to an abrupt end with its property crash of 2008-09. ©AFP Dubai’s skyline, including the Burj Khalifa Steve Morris, president and chief executive at Aecom, the US construction design consultancy, says late payments to contractors have long been a feature in the Middle East because of “excessive bureaucracy”. “In places such as Saudi Arabia, contractors used to be able to get 20 or 30 per cent of the payment up front, but that is absolutely off the cards [now],” he adds. Late payments to contractors have been a particular issue in Saudi since the fourth quarter of last year, when government departments began to squeeze suppliers. Simon Palmer of DLA Piper, the law firm, says it has seen an increase in contract disputes involving construction companies in the Middle East in the past six months. Mr Cullen says: “It’s always been more difficult getting paid in that region. It’s often required the top brass to fly out and . . .  point out that they are owed some money. It’s our feeling that the situation is getting worse not better in that regard.” Copyright The Financial Times Limited 2016. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web. Source link

Weekly rents in capital cities in Australia fell by 0.4% in June and annually they are now 0.6% lower, the latest rented property index shows. However, while a majority of capitals saw a drop in rental rates over the month, on an annual basis, half of Australia’s capital cities actually recorded a rise in rents. These included Sydney up 0.4%, Melbourne up 1.7%, Hobart up 4.6% and Canberra up 1.9%. This takes the combined capital city rental rates to $487 a week for houses and $469 a week for units, the data from the CoreLogic June Rent Review report shows. According to CoreLogic research analyst Cameron Kusher, the large rental falls in Perth of 8.6% and Darwin at 16.2% have pulled the combined capital average lower, with rents also down by 0.3% in Brisbane and by 0.4% in Adelaide. ‘It is anticipated that the weakness in the rental market will persist and where on an annual basis, we will see rents fall even further over coming months,’ he said. At a combined capital city level, gross rental yields were recorded at 3.2% for houses in June 2016 and at 4.1% for units, each of which are sitting at record low levels. ‘A year ago, gross rental yields were recorded at 3.5% for houses and 4.4% for units across the combined capitals, indicating a fairly sharp compression of yields over the year,’ Kusher pointed out. ‘It’s also likely that we’ll see yields compress further over the coming months. However, this will be dependent on growth in home values as well as the direction of rental rates. As a result, capital growth, which has slowed from its peak, will continue to be a much more important factor for property investors than rental returns,’ he added. He explained that changes to rental market may have repercussions for older stock, particularly units as tenants look to move into newer dwellings and making it harder for owners of older units with fewer amenities to compete with better located and facilitated new unit stock, particularly if there is little pricing differential. The factors forcing rental rates lower include the lowest wages growth on record, relatively high levels of housing investment following record highs recently, historically high levels of new construction, most of which are units which are more than twice as likely to be rented, and the slowing of population growth which creates less overall demand for housing. ‘The combination of all these factors means that landlords have little scope to increase rents. There are reports that some landlords are having to reduce rents in certain areas in order to maintain their renters,’ Kusher added.   Source link

Residential property prices in the UK saw modest growth in May but central London experienced a fall in values, according to the latest market survey report. UK house prices are now expected to experience a short term drop for the first time since 2012, according to the monthly report from the Royal Institution of Chartered Surveyors (RICS). House prices in central London are already falling, according to the survey with 35% more property professionals reporting that prices had fallen rather than risen over the past month. While prices are continuing to climb modestly across the rest of the UK, this trend looks set to fade, with 10% more respondents predicting that prices would fall rather than rise over the coming three months. This is the first time that a fall in prices has been predicted since 2012. London and East Anglia are expected to be worst hit with 43% and 33% of respondents saying that prices will fall over the next quarter. ‘Sadly, for the many young people looking to enter the property market, it is unlikely that we are seeing the emergence of a more affordable market,’ said Simon Rubinsohn, RICS chief economist. ‘Instead, it appears to me that what we are looking at is a short term drop caused by the uncertainty resulting from the EU referendum coupled by a slowdown following the rush to get into the market ahead of the tax change on the purchase of investment properties,’ he explained. ‘Certainly, that’s the story we are hearing from our members. There is not at this point a sense that a fundamental shift is taking place in the market,’ he added. The market report also shows that buyer demand fell across the UK for the second consecutive month and at the fastest pace since 2008, with 33% more property professionals saying that demand decreased last month. The survey revealed that in the longer term, while house prices are thought likely to regain momentum, rents look set to outpace them, with UK rents predicted to increase by 4.7% year on year for the next five years, compared to house price increases of 4.1%. The number of agreed sales also fell for the second consecutive month with a net balance of 22% of respondents reporting a fall rather than a rise in activity. Source link