Construction and real estate are lagging behind other sectors in the adoption of digitalisation and technology.
With the dawn of connectivity, artificial intelligence (AI), and the Internet-of-Things (IoT)-based building solutions, the sector is beginning to sense the tangible impact of digitalisation and the potential it holds for developers, contractors, occupiers, and other real estate stakeholders.
In an exclusive conversation with Construction Week, the chief executive officer of the Middle East and Africa division at real estate and advisory firm JLL, Thierry Delvaux, says: “Digitalisation is a slow process, but it’s definitely happening. I know for a fact that a lot of the big developers in the market are very interested to include digital solutions in the way that they manage their real estate portfolios.
“However, I think it’s going to take much longer than 2020 for digitalisation to reshape the real estate industry in the Middle East region.”
In an era where information is getting digitised, analysed, and decisions are based on data rather than gut instinct, the construction sector in the Middle East still seems to be dependent on paper-and-ink.
Delvaux adds: “The way developers and other real estate stakeholders are managing their data is pretty archaic. So, there’s definitely a demand for digital technologies to change that. Yet, the reason it’s taking so long for digitalisation to set in is because even outside of this region, the digital transformation of the real estate market is still an emerging trend.”
The industry – globally and in the Middle East region – is reaching a point where neither developers nor occupiers can ignore the need for digitalisation much longer.
For instance, the use of digital solutions to boost energy efficiency and energy optimisation can move the needle considerably in terms of both savings as well as operational expenses.
Delvaux explains: “There are solutions coming to the market where one can install a little piece of hardware, link it to one’s BMS, and suddenly, one has continuous optimisation of the energy consumption, which is even benchmarked – through Wi-Fi and IoT – to the other buildings. This can tell you if your building is consuming too much power compared to other buildings.”
Regulation first, retrofitting next
Energy efficiency has come to the forefront in the UAE with the nation’s Energy Strategy 2050, which aims to double the contribution of clean energy in the total energy mix from 25% to 50% by 2050.
The strategy also aims to reduce the carbon footprint of power generation by 70%, thus saving approximately $190.6bn (AED700bn) by 2050.
With existing building stock dwarfing the amount of new stock, the spotlight is turning to retrofitting to truly drive change within the buildings sector.
“Retrofitting is an extremely important part of a real estate market becoming more mature,” Delvaux says.
Yet, the UAE, still seems to have a long way to go before it reaches that stage of market maturity.
Delvaux explains: “There are two key reasons why retrofitting has not become a market in itself – geographical terrain and regulation.”
“If you have a city surrounded by mountains, and you can’t grow the city any further, you start retrofitting your buildings because you don’t have any other choice. However, in places like Dubai, where you can expand the city outwards, you get into a situation where it’s always more interesting and more financially rewarding to develop a new building rather than taking care of an existing 15-to-20-year-old asset.
“The other thing we need more of is regulation. I’m very hopeful that the new Higher Committee for Real Estate will bring some new regulations to limit the amount of supply that comes into the market, which will then automatically push the retrofitting market.
“In addition, instead of pushing the geographical boundaries of the Dubai city, there are still a lot of empty pockets within Dubai that are not sufficiently developed. There’s a need to further urbanise the city before we expand it.”
“Relatively out of control” supply
When the real estate market is distressed, it tends to affect the whole economy. Usually, this happens when demand is low and individuals, investors, and businesses cannot afford to buy or rent out residential and commercial spaces.
Delvaux says: “The demand in the UAE real estate market is actually pretty robust. If you look at the residential market, it’s pretty healthy. There’s a lot of Chinese and African interest in the market – albeit more from an investment perspective than occupying properties. The demand in the office market is pretty good as well.”
“Overall, demand for a market like Dubai is quite strong, but the issue that we have is that the supply is so huge. It is relatively out of control, and therefore, we need regulation to bring back the balance between the demand and the supply.”
The UAE government has introduced a number of measures to regulate the real estate supply and spur the market, including the Abu Dhabi freehold ownership law, the Golden Card permanent residency and extended UAE visas, interest rate cuts, and the formation of the Higher Committee for Real Estate.
In addition, the UAE Central Bank removed the 3% early settlement fee for mortgages; relaxed the maximum age requirement to repay mortgages; and lifted the 20% cap on real estate lending for banks to enhance confidence in the property market.
This has begun to reflect positively on the market.
Delvaux explains: “I think that people underestimate the positive impact of these measures. If you look at Q1 2019, the residential market prices were down 7%, but in the same quarter this year, the market prices are down 2%. So, the decline is actually slowing down considerably.
“Having said that, I don’t think the measures that we have, so far, are sufficient,” he adds.
The need to curb the supply pipeline is as important as the need to ensure that the existing stock of buildings is occupied, and used.
“Dubai is overbuilt for its population. I think that what we need is to attract more expatriates to relocate to Dubai. I’m not referring to tourism, because that is doing well, and will be further spurred by the Expo 2020. I’m talking about the need to create an environment that will bring a lot more white-collar workers to Dubai and get them to invest in Dubai. This is where we will need more stimulus from the government,” Delvaux adds.
However, in order to truly transform the Dubai real estate market, there is a secret ingredient that needs to be added.
Delvaux says in a word: “Walkability”
“Why is JBR so successful? It’s because it is a walkable environment and that’s what people want. They want to hang out; they want a multi-purpose environment where they can shop, where they can work, where they can have fun, and where they can walk around. This is something that is still missing and needs to be addressed. We will need massive infrastructure and development to get there. That’s my two cents,” Delvaux concludes.