Why real estate is still the answer to all GCC investors

Sector to be a primary benefactor of improving macroeconomic
dynamics across region
Ten years ago, real estate was considered a key barometer of GCC's
economic affluence as rapid rise in per capita income, influx of expatriate
population, and changing demographics fueled demand for both
commercial and residential properties in the region. However, the 2008
financial crisis followed by the dip in oil prices in 2014 cultivated several
challenges for the sector with property prices and rentals plummeting by as
much as 40 per cent across the region. The slump in oil prices, fiscal
consolidation measures, oversupply of housing units, introduction of
mortgage cap, and geopolitical tensions have significantly weighed down
on property demand in the GCC.
As a result, GCC investors, who traditionally preferred real estate as an
asset class, have maintained a cautious stance despite positive initiatives
taken by the government and developers. Going forward, the GCC real
estate market is expected to post recovery in 2020-21, and it is important to
understand why real estate is still the answer to all GCC investors.
Firstly, real estate has long been the cornerstone of GCC economies and
will be a primary benefactor of improving macroeconomic dynamics across
the region. The real estate sector - which accounted for about 6 per cent of
GDP in the UAE and 7 per cent of GDP in Saudi Arabia in 2018 - makes up
for a significant portion of the consumer price inflation baskets, and also
accounts for a large share of the region's FDI inflows. Consequently, the
sector shares a symbiotic relationship with overall economic activity
wherein an upswing in one will benefit the other and vice-versa.
After the oil price crash in 2014, regional governments undertook on a
reformist agenda focusing on economic diversification, opening of new
sectors for FDI, relaxation in visa requirements and easing of business
regulations to provide a conducive environment for already established
businesses while attracting new investment and human capital.
Additionally, regional governments also implemented targeted initiatives to
support the growth and stability in the real estate sector. These measures,
along with stabilising oil prices and higher budgetary spending in priority
sectors such as public infrastructure, healthcare, education and many
others, are expected to pay dividends in the long-run. Needless to say, the
real estate sector will emerge as the primary benefactor as upcoming mega
events such as Expo 2020 Dubai will further drive demand for real estate in
the region, thereby presenting significant growth and income opportunities
for the investors.
Secondly, real estate remains one of the most popular asset classes
across the region. According to Select Property Group's 2018 GCC
Investor Survey, 75 per cent of investors in the GCC have invested in local
property at some stage, while in terms of frequency, 71 per cent of GCC
investors look to make a new investment every six months or less, and 32
per cent look to make one at least every quarter.
The investor allure of real estate is enhanced by its financing structure,
which allows investment into the asset class with about 20-25 per cent in
down payment in equity, while the remaining can be financed through
debt/borrowing, as compared to other asset classes that require 100 per
cent equity financing and are often volatile to global economic environment.
Thirdly, the GCC real estate sector still offers a high return profile for
investors. While rents and property prices have softened in the last five
years, the rental yield across GCC remained strong as compared to global
peers. Property Finder research indicates that Dubai properties have
consistently offered rental yields of more than 7 per cent on average,
largely outperforming average rental yields offered in other major cities
such as New York (2.9 per cent), London (2.7 per cent), Singapore (2.5 per
cent) and Hong Kong (2.4 per cent).
Moreover, the correction in property prices presents a unique opportunity
for investors to reap dual benefits of high rental dividend yields and capital
appreciation.
Finally, real estate investors will benefit from improved regulatory
environment and competitive offerings by the developers. Since 2014, GCC
states have been working towards a robust framework for the smooth
functioning of the real estate market. For instance, Bahrain, wherein the
real estate sector is one of the major non-oil contributors, witnessed its first
comprehensive real estate law under the Real Estate Regulatory Authority
in March 2018. Meanwhile, Saudi Arabia is also working on solidifying its
regulatory framework for the real estate sector, which has plenty of room to
develop through regulatory reform given its relative nascency.
With diversification plans taking shape, 10-year visas on the horizon and oil
prices holding firm, it is only a matter of time before the GCC real estate
sector embarks on the path to recovery. Market segments such as
affordable housing is already witnessing robust demand, thanks to
government incentives and initiatives, and greater creativity from industry
stakeholders and developers. GCC investors should rethink investment
strategies and reallocate capital to the real estate sector to benefit from
increased investment opportunities, high returns and growing demand.
Ahmed Shaikhani Group Managing Director of Shaikhani Group says it will
be another good step of UAE government to allow the expatriates to stay in
the country after they got retirement on a condition of owning a property
valued at about $545,000.
This way customers and companies become more align to their path and
try to finish off their work otherwise they know they will face a lot of
problems. Thanks Dubai government to keep everyone equal and updated