The rent for construction equipment has fallen by about 30 per cent in the past two months as a slowdown in construction activities, coupled with tight liquidity, have created an oversupply of equipment in the market.
Leading construction machinery dealers and leasing companies told Emirates Business that the rate may come down further if the sector's revival is delayed.
Many in the industry view it as a positive sign because the rental rates had been going up steadily over the years because of huge demand and limited supply.
Smaller equipment leasing companies are under pressure because most of these assets purchased on mortgage finance may be taken over by banks, if they default in paying the monthly installments. While big players in the market such as Al Fares Equipment, Johnson Arabia and AAA Construction will be able to hold on until March when the market is expected to revive because of improved liquidity, it is feared that small companies may run out of business.
Nabil Saleem, sales manager, AAA Construction Equipment Establishment, said: "The rental fleet of construction equipment, such as cranes, bulldozers, earth-moving equipment and even trucks, have been off hired at many construction sites in Dubai and the Northern Emirates. The rent level has been falling and within the past two months, the rates have come down by 30 per cent. Now there is an oversupply of construction and heavy equipment and the demand is coming down."
The company is a major player in leasing hydraulic crawler cranes and has an excess stock of these equipment. There was a period when companies had to book the equipment in advance as the machinery was not available in stock.
Now most of the cranes and other equipment are available ex-stock. The situation has worsened after the credit crisis because banks completely stopped giving finance to such companies.
However, construction activities on the priority projects such as Dubai Metro, the Dubai Airport expansion projects and others are on.
"We believe things will improve after March because the projects in Dubai are based on the long-term vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai," Saleem added.
Ijad Sheikh, general manager, Pearl Emirates Automobiles and Marketing Company, said banks have completely stopped giving lease finance for construction equipment and trucks.
"A lot of construction equipment is lying idle at project sites. We are told that banks will resume lease finance after March when the liquidity situation improves.
When the market was booming, a leasing company could repay the entire loan amount within three years.
In the current situation, the market is flooded with equipment and the lease rate may come down further."
The market is already flooded with old equipment and the sale of new is at a record low. During the boom, about 30,000, cranes (24 per cent of the world's construction cranes), were operating in Dubai.