Naseba survey reveals challenges in Middle East real estate

The survey focuses on several major issues including the current challenges in the real estate sector in the Middle East, the emerging markets in the region and financing options for future real estate projects.

The global turmoil, unstable oil prices and the plunging stock markets have created a fresh challenge in terms of real estate business growth, profitability, liquidity and lack of investor's confidence. The majority of the survey respondents announced that the current financial slowdown, liquidity issues and lack of investor's confidence (respectively 88, 5%, 80, 7% and 46%), are the current key challenges faced by the real estate sector. 92% of surveyed professionals alleged that the current financial slowdown will influence their upcoming projects, while only 8% of respondents stated that it would not affect their projects. However, they predict the growth in the sector will continue.

"The sentiment and the fear are not there. In one day we've seen the whole stock market around the world in RED which is an extraordinary event. It is reality yet we are committed to the real estate sector. We'll continue to be strong and support the developers." shared Khaled Al Khamda, Dubai Islamic Bank.

The respondents showed keen interest in exploring Islamic products for investment. However, the regulation, standardization, project financing and refinancing, investor confidence will shape the future of Islamic finance. The Islamic finance is expected to work better in 2009. The real estate transparency is also a key concern for most respondents. The turmoil stress is becoming more manageable with the government being more transparent about their plans and actions.

Overall, the Middle East real estate market is predicted to outperform all the other regions. Currently, the Kingdom of Saudi Arabia is adjudged as the largest construction market in the Middle East. Utmost number of survey respondents stated that Saudi Arabia is the best emerging market in the region they are targeting for future expansion, followed by Dubai, Abu Dhabi, Qatar, Egypt, other MENA countries and Asian countries.

"There are 70 emerging markets in the world. Since 2006, Saudi Arabia is the greatest improver in terms of transparency, research shows. The key thing is that they start from lower base so in terms of improvement it is very good. Of course it is still low compared to other countries."

commented Blair Hagkull from Jones Land Lasalle.

According to the Naseba survey, confirming this statement, Saudi Arabia is increasingly attracting investment and the market is therefore growing significantly. Saudi Arabia's economy and real estate market is by far the largest in the region and is well positioned to outperform others in the face of the current global economic downturn. This has already attracted massive number of investors from Asia, North America, China, India and Singapore who have a keen interest in Saudi's real estate business.

Saudi Arabia hopes to get up to $900nn in foreign direct investment over the next ten years. It is ranked as the 16th most business-friendly country by the World Bank. According to the new laws by the Capital Market Authority and the Ministry of Commerce and Industry, Saudi Arabia has enhanced the protection of public company investors. The investments in Saudi are now valued at $24bn and are expected to jump to $1 trillion by 2018. The Kingdom is on the roll to achieve its 10x10 program goal to become the most competitive nation by 2010.

Abraaj Capital Ltd. recently announced in a release that it aims to acquire publicly traded companies in countries from Saudi Arabia to Turkey as it was confirmed by the official statement of Arif Naqvi, the group's Chief Executive Officer, during an interview at the beginning of January.

Apart from the real estate sector the survey participants have the majority of their funds and projects in the Industrial, Hospitality and the Healthcare sectors. 53% of survey participants conveyed that the average value of their projects is less than $75 million and between $75 million to $150 million. On the other hand, the banking and real estate finance sector specific respondents mentioned that the average investment for their funds is from $20 million to $75 million. The figures show that the financial sector is not targeting larger projects, which was also commented by Khaled Al Khamda of the Dubai Islamic Bank:

"Developers will be careful what projects to fund, what projects to plan and launch. The banks will be selective in a way whom to fund and what kind of projects to fund.

In response to the current worldwide situation, the second edition of the Real Estate Investment World Summit, organized by Naseba, will focus on the foreign direct investment in the Middle East, Islamic opportunities and private equity. Experts will also give recommendations on and address the present challenges of the real estate investment market. The Real Estate Investment World Summit, a leading platform of Naseba Investment Series, is taking place on May 24th - 26th, 2008 in Riyadh, Kingdom of Saudi Arabia.