1. Overcoming Capacity Constraints & Inflation Property Development & Investment 2008 October 8 th 2008 Presented by : Shehab Elorabi, Senior Development Manager, Nakheel - Waterfront

2. Property Development & Investment 2008 Project Location Waterfront / Palm Jebel Ali

3. Property Development & Investment 2008 Agenda Shortage of Labor & Materials: –Reaction by Contractors –Reaction by Developers Mitigating Risk from the Developer’s Point of View: –Inflation & Escalation of Material Prices –Increase in Labor Wages

4. Property Development & Investment 2008 Shortage of Labor & Materials Contractors’ Reaction: –Pass on the cost to developers –Pass on the risk to developers Or –Absorb part of the risk to be more competitive

5. Property Development & Investment 2008 Shortage of Labor & Materials Developers’ Reaction: –Pass on the cost to customers /end users –Pass on the risk to end users Or –Absorb part of the risk to be more competitive in the Real Estate Sector

6. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View Strategies to tackle escalation in material prices: 1.Hedging against increase in price of commodities (steel, cement, concrete, diesel): Investing in Futures / Options Key alliances with suppliers / contractors

7. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View MOUs / LOI to suppliers: –Developer guarantees demand and supplier guarantees lower prices –Supplier is nominated under contract agreements with construction contractors. –Excess production beyond Developer requirements can be purchased by Developer and sold to outside market for a premium to fund part of Development Costs Avoid direct bulk purchases of materials, stocking them and free issue to Contractors (as this will increase the risk of damage, increase storage & insurance costs, double handling, quality assurance, claims by contractors)

8. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View 2. Sharing the risk through Contract Terms & Conditions: Avoid Escalation Caps / Contingency Caps in contract clauses Share the benefit / loss based on price fluctuations in the market Link Unit Prices to key market indices where available Add incentives in the contract to award contractors a percentage of achieved savings Improve Payment Terms – reduce payment cycle

9. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View 3. Benefit from the Scale of the Project (Mega Projects): –Aggregate demand on bulk commodities from various projects within a mega project –Place key orders for bulk quantities early on –Benefit from economies of scale with suppliers – back to MOU concept

10. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View 4. Pass on the benefits from Key Supplier Agreements to 3 rd Party Developers: –As a Master Developer you attract 3 rd Party Developers due to benefits derived from key supplier agreements

11. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View Strategies to tackle increase in Cost of Labor: 1.Designate Centralized Location for Accommodations on Larger Projects: –Reduce transport costs –Improve productivity

12. Property Development & Investment 2008 Mitigating Risk from the Developers’ Point of View 2. Direct Investment of Developer in Labor Accommodations: “The Omran Concept” –Contractors Price Cost of Wages only excluding accommodations –Cost of Accommodations fixed for all contractors on the Development thereby following the MOU concept

13. Thank You!