Greasing the wheels of real estate

Middle Eastern SWFs remained active purchasers of global real estate this yearImage Credit: Supplied

A new report by property consultancy JLL on the impact of lower oil prices on real estate capital flows released last month says that Middle Eastern investors remain major players on the global real estate stage, with total overseas investments reaching $8 billion (Dh29 billion) in the year-to-September 2015.

In an interview with Property Weekly, Colin Dyer, President and global CEO of JLL, said that the global real estate market has seen transactions surpass 2007 levels, with an estimated $875 billion-$900 billion transacted in 2015.

Citing data from JLL’s Global Capital Market’s team, the report says that the Middle Eastern Sovereign Wealth Funds (ME SWFs) remained active purchasers of global real estate during 2015. A total of 38  deals worth $6.5 billion were transacted over the nine months to September. Overseas transactions by these investors have, however, declined since 2013, when 74 deals worth $7 billion were transacted.

“While there are signs that both Sovereign Wealth Funds and private investors are adjusting their strategies in the light of lower oil prices, this has not resulted in any major decline in activity to date,” the report says, predicting a “reduction in buying activity from ME investors in 2016 as they adjust to a prolonged period of lower oil prices”.

Attracting investors

While total investment levels may fall this year, Middle East investors will continue to look for opportunities in safe overseas markets given continued instability within their home region.

“The availability of more completed, income-producing commercial properties and further opportunities to tap into growing alternative sectors such as education and health care will be key to attracting private wealth to remain within the region,” the report says.

SWFs remain the dominant players, but a continued shift in the structure of the market is expected, with increased investment in real
estate from private investors and family groups.

Investors continue to seek opportunities in the region and good, investable stock is picked up fast. Alan Robertson, CEO of JLL Middle
East and North Africa, says that good institutional-quality investment property for sale in any GCC country would see interest from not only funds from the UAE and Saudi Arabia among others, but also from high-net-worth individuals or family offices and banks who have syndicates of investors.

“Investors from the Middle East - Kuwait, Qatar, Saudi Arabia and the UAE principally - are investing in each other’s and their own countries,” he says.

Still, according to the report, opportunities in the Middle East are currently being constrained by the lack of suitable product in the market.

Real estate markets across the region continue to attract large amounts of investment, with most of this money coming from private rather than institutional investors. In the UAE, data from the Dubai Land Department (DLD) shows the real estate market continued to attract significant levels of investment last year. However, the report says that “the pattern of investment has changed over the past three years, with a fall in the value of residential sales being offset by an increase in the value of land sales”.

According to Real Capital Analytics, cited in the report, SWFs from the UAE control about 65 per cent of real estate assets owned by Middle
East SWFs in overseas real estate investments. Qatar commands 18 per cent of the total, followed by Oman at 10 per cent and Kuwait at
7 per cent. While the Saudi Arabian Monetary Agency acts as Saudi Arabia’s SWF, it invests in liquid assets such as equities and bonds, and not direct real estate assets.

Private investors from the UAE command the highest share of total overseas real estate investment at 41 per cent, followed by Saudi Arabia at 30 per cent, Qatar at 22 per cent and Bahrain and Kuwait at four and three per cent, respectively.

Outbound investment

Data shows that total outbound flows by high-networth individuals and family offices and groups reached about $1.5 billion in the year-to-September 2015 with Qatar emerging as the largest exporter of private capital.

North America has emerged as the preferred destination for Middle East private outflows, with a 37 per cent share in the year-to-
September 2015. The lack of currency risk in addition to the growth of the economy have added to the attractiveness of the US as a preferred real estate investment destination. The share of real estate investments in the UK grew to 37 per cent (up from 10 per cent in the yearto- September 2014) with London receiving the largest share of capital.

Conversely, slower economic growth in Europe (0.3 per cent in the third quarter of 2015) has resulted in a declining share of investment (down from more than 50 per cent of total in the year-to-September 2014 to just 25 per cent in the year-to-September 2015). Germany has emerged as another preferred real estate investment destination within Europe.

The report puts hospitality assets on top of ME investors’ wish-list. “While hospitality remains the preferred asset class among Middle East private investors (57 per cent), investments in the commercial sector (offices and retail) grew to 43 per cent compared with just 16 per cent in 2014. Given the low-risk profile of Middle Eastern private investors, investments in alternative sectors (such as education, health care, logistics, student housing, nursing homes and multifamily housing) remain absent from their overseas portfolios,” the report says.

Source: Shalini Seth, Special to PW


For Rent


View more properties

For Sale


View more properties