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After splurging in the last three years, Gulf investors might just have to start going light on overseas real estate asset purchases given the parlous state of oil prices. In the year to September, regional investors pumped in $8 billion (Dh29.38 billion) on such overseas purchases, according to projections by the consultancy JLL.
Some of the review on spending could even impact on infrastructure related activity within the individual Gulf states.
“The level of this spending will inevitably be curtailed over the medium term as spending needs are realigned with the reality of lower oil revenues,” said Craig Plumb, Head of Research at JLL Middle East and North Africa. “There is little doubt that the rebalancing of the fiscal position will result in headwinds and challenges over the next 12 months.”
But, as of now, the region’s sovereign wealth funds (SWFs) and high networth private investors have not reduced their buying activity. That might have to wait past the New Year as they “adjust to a prolonged period of lower oil prices”.
“While total investment levels may fall in 2016, ME investors will continue to look for opportunities in safe overseas markets given continued instability within their home region,” the JLL report adds.
Within the region, “opportunities are currently being constrained by the lack of suitable product being offered to the market. 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.”
For the Gulf’s real estate markets, this raises the uncertainty levels. If cash-ready investors are likely to sit on the sidelines or commit their funds to other asset classes, it will make matters more difficult for the real estate sector to plot a revival plan. It would mean that any progress will have to be driven by overseas buyers or by end-users finally starting to commit to home purchases in a big way.
A possible respite could come from SWFs diverting some of the funds back into their home territory.
“We expect more funds will be diverted into local real estate (through direct purchases and via funds and external managers),” Plumb said. “This will provide an important source of additional capital for real estate markets across the Middle East.
“Some funds will continue to focus on trophy hotel and commercial buildings but more attention is likely to be focused upon emerging locations and alternative sectors of the real estate market in future years.”
In the year to September, Middle East SWFs were engaged in 38 overseas deals valued at $6.5 billion, but down from 2013’s 74 deals.
“The value of investment has remained high and likely to exceed that experienced in 2014,” Plumb said. “The volume of investment is expected to decline in 2016 as we enter a prolonged period of lower oil prices that will cause sovereigns to reconsider their objectives and strategies.”
• Since 2007, Gulf based investors have snapped up $45 billion plus worth of real estate overseas. These numbers relate to direct commercial property deals and excludes residential projects as well as those done via ‘company acquisitions’, according to JLL.
• Some of the decline in SWF-driven offshore investment could be offset by private investors from the Middle East becoming more active purchasers of overseas property. North America and the UK remain the ‘largest recipients of Middle East private capital, with Germany also becoming a preferred location’.
Source: Manoj Nair, Associate Editor, gulfnews.com