Dubai downturn hurts Asia workers, business
Updated
Once known as the fastest growing city on earth, the fortunes of Dubai are reversing rapidly. Tens of thousands of migrant workers from Asia work in Dubai's once-booming construction industry, and its abrupt turnaround is taking its toll on the huge companies that employ them.
Large Australian construction firm Leighton Holdings announcing last week that it is pulling out of a $US1.4 billion airport project. And it may not be the last.
Presenter: Lexi Metherell
Speaker: Craig Plumb, head of Middle East research for Jones Lang La Salle; Alistair Reid, analyst for JP Morgan; Wal King, chief executive of Australian construction firm, Leighton Holdings
- Listen:
- Windows Media
LEXI METHERELL: In recent years, Dubai earnt a reputation as the fastest-growing city on earth, as skyscrapers materialised on its skyline. At one stage, it was said to have one-fifth of the world's cranes.
CRAIG PLUMB: I guess you'd have to say it was frenetic, and the pace of both development and sales activity over the last year has been quite unsustainable and I think a lot of people were recognising that the pace of development and of sales just couldn't keep going at that rate.
LEXI METHERELL: Jones Lang La Salle estimates 50 per cent of the residential or office projects scheduled for completion over the next three years have now been delayed or cancelled.
Craig Plumb is the consulting firm's head of Middle East research.
CRAIG PLUMB: What I think everybody has been surprised about is how quickly the taps have turned off and how quickly the market did turn around in the final quarter of last year.
LEXI METHERELL: And the fortunes Australian companies sought in Dubai are evaporating.
Analyst Alistair Reid, from JP Morgan.
ALISTAIR REID: You can't underestimate the impact of the credit market situation and the fact that a lot of Dubai's real estate development was built on an era of cheap debt and easy credit and a lot of that's unwound now.
LEXI METHERELL: Construction firm, Leighton, announced it's pulling out of Dubai airport's two billion dollar concourse three project.
Leighton says the move will cost it around $340 million in revenue - but it says it doesn't consider that a material impact.
It's the latest in a series of contract cancellations for Leighton in the Gulf region.
The company's Chief Executive Wal King describes it as a short-term disappointment.
WAL KING: Like the rest of the world reality has either caught up or catching up, a number of projects being deferred in the Middle East.
LEXI METHERELL: Leighton and its Dubai-based Al Habtoor arm have six billion US dollars worth of projects in hand in the Middle East.
WAL KING: It represents about 20 per cent of our overall workload so it's significant but it's not the end of the world, the Middle East will go through an adjustment and Dubai is just not the Middle East I mean Abu Dhabi is well funded they have an array of big projects in Abu Dhabi, Qatar will continue on with its projects, Dubai is somewhat over built and there'll be a period of adjustment and there's no doubt some tail feathers will be burnt by various people in Dubai.
LEXI METHERELL: Alistair Reid finds it hard to believe it'll be Leighton's last project in Dubai to be canned. . with developers struggling to access finance, and demand dropping off.
ALISTAIR REID: I think what you're going to see is a complete unwinding of the foreign entries into construction markets like Dubai when everything's said and done after this slowdown I think you'll be left with a core group of probably largely domestic Muslim construction companies in the Gulf.
WAL KING: Well we're just watching it and no one can predict accurately when this downturn is going to moderate, and I think most of us are of a view that later this year or next year it will be stabilised at a bottom and there'll be a slow recovery out the other side so that's not to say that there'll be more projects cancelled, but it's an environment up there where there's projects going ahead, new projects being awarded and some cancellations it's really a period of adjustment we're travelling through.
