‘Overheating’ not likely in Qatar infrastructure boom

Qatar continues to attract major investment due to a wealth of opportunities ahead of the FIFA 2022 World Cup and several major infrastructure projects to be procured as part of the Qatar National Vision 2030, according to James Elwen, head of office at Pinsent Masons in Qatar.

By Santhosh V Perumal/Business ReporterQatar’s mammoth capital expenditure on infrastructure has offered immense potential, especially for construction in transport and realty segment, and may not “overheat” the construction industry, according to an international law firm Pinsent Masons.Qatar continues to attract major investment due to a wealth of opportunities ahead of the FIFA 2022 World Cup and several major infrastructure projects to be procured as part of the Qatar National Vision 2030, according to James Elwen, head of office at Pinsent Masons in Qatar.This gives rise to a continuing debate on whether the construction industry could ‘overheat’ as more projects gather momentum, making the cost of delivering Qatar’s vision increase as labour and materials become more expensive, he said.“However, the feedback from our survey suggests that industry players are not convinced this will be an issue,” he said, elaborating on its 6th Gulf Co-operation Council (GCC) Construction Survey.According to the survey, construction projects in the transport sector are expected to offer the greatest opportunities in 2014. However, real estate has quickly emerged as the second most promising sector in the eyes of the industry – with 50% of respondents expecting it will provide opportunities.The survey also said that the GCC construction segment exhibits growing optimism even as it is fraught with rising inflationary and margin pressures.It found that 90% of companies think there is greater optimism in the market with 77% reporting a “healthier” order book for the next 12 months, relative to the previous year.However, 96% of respondents - which included some of the region’s largest contractors, developers, consultants, and other stakeholders - claim that the cost of capital for projects was either as expensive (43%) or more expensive (53%) than it was in 2012. Just a 4% thought the cost of capital was getting less expensive. As such, the issue of access to finance to fund projects and growth was highlighted as one of the most “significant risks tempering” the sectors optimism for 2014.Cash flow was also cited as a concern, with 62% of companies complaining of longer payment periods, although this is a reduction from the 78% of companies who expressed concern over the issue in the previous year’s survey.“The GCC construction sector is clearly very positive about the outlook for the coming year. The broad-base recovery in the construction market sets a solid foundation for growth to continue in 2014, but it remains crucial we capitalise on the potential of this sector at this critical juncture,” Sachin Kerur, head of Gulf region at Pinsent Masons, said.A number of major projects on the immediate horizon, such as Expo 2020 and the Qatar World Cup, have added a real sense of momentum, according to him.However, he said, it is important to address the issues surrounding finance.“Companies are reporting that the cost of capital is more expensive, and that accessing finance for projects more generally is a concern,” Kerur said, adding companies also complain that margins are being squeezed due to rising production costs and inflationary pressures.With traditional forms of bank funding still less available compared to the past, it is likely that the trend of going straight to investors through bond issuance and other forms of financing will grow as various players position themselves for the significant projects likely to be procured, he said.“That presents a real opportunity for investors. In some senses the state has little room to influence that, but could consider adopting standard payment terms to improve cash flow and reduce delays in payment,” he added.