Middle East developers widen their nets

There are high hopes for tourism in Oman. 650,000 people visited in 2007, which is modest compared to a place like Egypt, but was still a 12% increase on the previous year; the country hopes to attract a million within a few years and 15 separate sites have been allocated for tourism development.

Consequently, some epic projects are underway here too. The biggest development by far is the $20 billion Al Madina A’Zarqa, also known as Blue City. As we explain in the profile elsewhere, this project has already suffered a debt rating downgrade warning from Fitch following concerns about sales meeting targets.

Another big development, a 4,000-home, three-hotel development called the Wave, is reported to have already exceeded $100 million in sales, which is promising, and its ownership structure – it’s a joint venture between National Investments Fund Company, the Omani pension fund; Waterfront Investments, which represents Oman’s government; and Majid Al Futtaim, from the UAE – suggests a political will behind it. But again, the list of developments from foreign property backers is long: the Salam Yiti residential resort, being built by Sama Dubai, part of the Dubai Holding group; the Murya resort, being built by a unit of Egypt’s Orascom Development Holding; and a two million square metre resort being developed by Qatari Diar called Ras Al-Hadd.

Global Investment House’s Hasan argues there’s more to Oman property than tourism. “If you look at office space, there is a central business district but the existing space there leaves much to be desired compared to international standards,” he says. “There is a very high occupancy level, and there are regulatory constraints about how high-rise a building can be in Muscat.  So there is limited space available.”

And in residential property, the dynamics are similarly promising for value growth. “The population growth is pretty high and young, with a lot to come into the workforce in the next five years,” he says. “When they get married and get jobs they will move into new apartments.”

That suggests a sound long-term economic case for construction, but these are difficult times to navigate and some developers have spread the net wide indeed. Take Qatari Diar. As an arm of the Qatar Investment Authority, it is hardly short of cash, but consider this list. It is investing US$230 million on Diar Damascus, a combination of residential hotel, office and retail developments in Syria, and US$600 million on the Al Houara resort 20 minutes southwest of Tangier, Morocco. It is one of the few big Gulf developers to see opportunity in troubled Yemen, where it is developing a US$600 million mixed use development in the capital, Sanaa. Possibly its most off-the-beaten-track development of all is its US$35.6 million investment into a development in Khartoum, Sudan, including a five star hotel, residential tower and offices.

Plenty of other developers are also staking out early claims in some unusual markets. Emaar, Sama Duba, Abu Dhabi’s Sorouh Real Estate and Bahrain’s Gulf Finance House are all developing projects in Morocco. Emaar is also in Syria, building a US$500 million project called The Eighth Gate in the Yafour suburb of Damascus, attracted by a new law allowing foreign investors to own or rent land, and to repatriate profits. And both Damac and the Al Sayer Group, one of Kuwait’s major trading companies, are building in Lebanon (in Al Sayer’s case through a subsidiary called Levant Holding).

Gulf Finance House is behind the US$3 billion Tunis Financial Harbour. “The country’s per capita GDP [is] amongst the highest in Africa, driven by foreign direct investment,” said GFH chairman Esam Janahi at the development’s announcement. (In fact, average GDP growth has been 5% since 1987.) “This growth along with progressive and proactive government has made Tunisia a very attractive investment destination.” Notably, Tunisia is the only North African country to have concluded a partnership and cooperation agreement with the European Union, including a free trade zone.

Those on the ground in these countries think that whatever the reason for the influx of interest, development is welcome. “We certainly believe this [high land prices and bubble fears in places like Dubai and Kuwait] could turn into an opportunity for the Levant region and especially for Jordan,” says Jamal Itani at the Abdali development in Amman, Jordan (see box). “Our market, unlike many GCC markets, is a sustainable one and not a speculative one and this could be a major factor in allowing investors to decide to move their investments into our market.” He highlights Jordan’s political stability and economic reforms, but adds: “operating costs in Amman are relatively less than that in Dubai and other capitals in the Gulf.”