Middle East leisure real estate market booming

Real Estate Boom

The real estate market has shown remarkable growth both globally and regionally in recent years, said Carlos Vogeler, Vice President of Industry Relations for Group RCI. It is the fastest growing world economic sector in terms of foreign exchange, earnings and job creation, and represents 12 percent of international consumer spending.

While it is true that the real estate market can be vulnerable to sudden downturns due to major events such as terrorism or political upheaval, it has always shown a resiliency to bounce back. "The world is increasingly accepting of uncertainty and turbulence. People are aware of the risks, but it does not keep them from travelling," Vogeler said.

Nowhere is this more evident than in the Middle East, where the travel market is especially strong due to the region's sunny climate, strong infrastructure, sophisticated tourist attractions and world-class shopping.

The estimated growth rate for travel in the region is projected to be 6.7 percent per year until 2020, compared to 4.1 percent worldwide. Much of the growth will come from the new emerging middle class and an aging population that will have more disposable income, Vogeler said.

Construction in the region is also growing at an astounding rate. Current projects exceed $1 trillion, and in Saudi Arabia alone the value of new projects has doubled to more than $200bn over the next 12 months.

With travel booming in the region and major development projects underway, shared ownership of real estate - where multiple individuals own the right to use a common piece of real-estate for an agreed upon amount of time - offers enormous potential for developers, operators, and financial institutions in the Middle East, said Peter Giamalva, president and managing director of North Course Advisory Services.

A recent study found that 68 per cent of nationals in the region were keen to buy into shared ownership, both in terms of conventional timeshare and fractional ownership, which applies to buying fractions of interest in a property, ranging from one month to three months, Giamalva said. Overall, Gulf nationals will spend $1.bn annually on shared ownership leisure real estate within the next 12 years.

The mixed-use real estate market is much more segmented now than before, with options including timeshare, fractional ownership, private residence clubs, condo-hotels, cottages and vacation rentals, and destination clubs, said John Paul Nichols, President and Managing Director of Group RCI Europe, Middle East and Africa. Each offers different advantages and risks.

In general, timeshare is the most profitable product, but it also offers the greatest risk due to complex sales and marketing processes. It received a poor image in the 1980s and 90s in Europe due to false advertising and lack of regulation.

Legal Issues Raise Concerns

While freehold ownership issues were widely addressed in the Middle East a few years ago, the legal issues relating to shared ownership, particularly timeshares, are in their early stages and currently remain largely unregulated in the region.

Dubai is currently drafting regulations that would regulate timeshares in the emirate, said Peter Shaw, a consultant with Key & Dixon Legal Consultants. He said it is critical that the new regulations ensure that the definition of timeshare ownership is as wide as possible. "In Europe, as soon as 'timeshare' was defined in law it was a simple task for those keen to avoid the legislation that protected consumers to offer services that step outside the timeshare definition and thus outside state legislation," he said.

Dubai does not want to attract a bad press for malpractice in the timeshare sector, Shaw warned. "Whatever the State does there is also the need for self regulation and it is hoped that all timeshare operators in Dubai will adhere to a Code of Standards and Ethics."

Marwan Ahmed bin Ghalita, head of the newly-created Real Estate Regulatory Authority in Dubai, said the emirate's new timeshare law will be published in the next few months. It will focus on ensuring that there is no false advertising, that each project is clearly designated as a timeshare, and that timeshares are run by licensed operators.

Also, when customers purchase a timeshare, they should receive a title document that clearly states all of the conditions that apply to the agreement, he added. The new law would only apply to Dubai, but it is hoped that it would be used as a model for the other emirates.

See also:
A short history of Abu Dhabi real estate
The A-Z of Dubai Property
New escrow account law likely to dampen property launches