The Seismic Change in Saudi’s Equity Markets
1 September, 2014Emaar Malls shows Return of Confidence in Gulf Markets
1 September, 2014Euromoney, September 2014
The good times are back in Gulf real estate – to an almost worrying degree. The days when people were abandoning apartments and heading for Dubai airport as they plunged into unserviceable debt seem a long time ago now, as attention has turned instead to more familiar territory: working out how to calm down a vibrant market.
“Our research indicates that the measures introduced by the government at the start of this year have played a key role in curbing a rise in prices,” says John Davis, CEO for MENA at Colliers International, which has been named the best advisor and consultant, and the best investment manager, in the MENA region section of Euromoney’s real estate survey, as well as winning those categories for both the UAE and Saudi Arabia. “A strong GDP coupled with government spending in infrastructure, tourism and hospitality highlights that the Dubai market is maturing and is now being driven by sound economic and demographic fundamentals, in contrast to the market that we saw in 2008 which was considered to be a speculators market.”
Either way, it’s certainly on an upward trend. Colliers’ research showed a 19% year-on-year growth rate in its Dubai House Price Index in the first quarter of 2014, up 5% quarter-on-quarter. Retail and hospitality are projected to head the same way, boosted by the Expo 2020 initiative. And, while Abu Dhabi is known for a more cautious and stately nature than its free-wheeling neighbour, its real estate patterns look similar: Colliers’ second-quarter numbers showed a 12% year-on-year increase in rentals and 9% in sales prices in residential property. Davis says Abu Dhabi is set to see a shortage of 51,000 residential units during 2014 “as demand outstrips supply in the UAE capital.”
As always, there are some concerns about the nature of UAE property development, even if there is a sense of renewed maturity about it now. Of Abu Dhabi, Jones Lang LaSalle notes: “New supply is needed, particularly of quality residential product. But supply controls are required to ensure the right product is prioritized in locations with existing infrastructure.”
Still, it is little surprise, in this environment, to see an Emirati crowned as the best developer: Emaar Properties from Dubai topped our survey. Alongside the developer’s ever-voluminous pipeline of new projects, perhaps the clearest indication of Dubai’s revived health is the news that Emaar will launch an IPO of its malls business in Dubai in October, in what is expected to be the biggest share sales in the UAE since the financial crisis. It expects to list 15% of the malls business, a property portfolio that includes Dubai Mall – the world’s largest. Mohamed Alabbar, chairman, calls the planned IPO “a milestone for the development of the UAE capital markets as, for the first time, it combines institutional and retail shareholders in the same offering.”
These days, of course, Emaar is by no means a purely UAE developer; its most recent landmark announcement was for Emaar Square in Jeddah, Saudi Arabia, a mixed-use commercial project that mirrors similar office developments the company has built in Dubai, Istanbul and Cairo. Emaar itself noted, in announcing the development: “The launch draws on Saudi Arabia’s international reputation as a fast-growing business destination. With the economy set to grow at 4.4% this year, the massive investment in infrastructure development by the government is further boosting the business sector.” There is a feeling that Saudi Arabia, as it opens modestly to international capital, is a hot spot for real estate development now.
Indeed, in banking, it’s a Saudi Arabian name that leads the field: SAMBA, followed by fellow Saudi Al Rajhi. Other Saudi-based institutions follow, illustrating the financing needs in the Kingdom. To take industrial property as an example, several large master plans are due to be delivered between 2014 and 2018, including three new industrial cities in south Riyadh. According to Colliers, Riyadh’s supply of industrial land will grow from 25.3 million square metres to 35.4 million over that time.
Two other advisory groups stand out in other markets. Jones Lang LaSalle leads in Egypt, a market upon which it is optimistic. “Improved political and economic stability has resulted in restored confidence in the Cairo real estate market,” says JLL’s latest Cairo research, “which has led to the resumption of a number of projects previously placed on hold.” It cites the approval for Palm Hills Development Company to develop two land plots of 57 acres in east Cairo in an integrated residential project as an example.
CBRE leads in Bahrain, a market it covers with its office and residential MarketView reports.
Generally speaking, though, the advisors and bankers seeking to service Middle Eastern wealth in real estate may well find themselves pursuing it out of the region. According to Colliers’ most recent report on global cross-border flows, in the first half of 2014, Eu300 million in investment went from Asia into the Middle East – but dramatically more, Eu5.9 billion, went from the Middle East in to Europe.
