With real estate providing a more attractive risk/return ratio than alternative investment options, there is an emerging trend of regional investors disposing their non-core assets as they look for income-producing assets offering stable long term returns.
Gaurav Shivpuri, Head of MENA Capital Markets at Jones Lang LaSalle, said: "It is noteworthy to see this increasingly strategic route being taken by MENA investors as this is a shift from 'high capital growth focused land ownership approach' that has historically prevailed. The survey also indicates that investors are willing to pay more for well-located assets with good security of income, as compared to last year. We estimate that this 'compression of yields' should help in reducing the bid-ask spreads, promulgating more transactions in the market place."
The report also indicates that Dubai is perceived as the most preferred investment market in the region as it features the greatest number of investment friendly demand drivers. Along with Dubai's improving economic fundamentals and property prices/rental values, the Emirate has the highest number of investment grade properties in the region. Dubai is also competitive regionally in terms of stable political situation, developed infrastructure and market transparency.
Other key findings:
• Land bank holdings remain important but focus switches to income-producing products that offer long-term stable revenue streams.
• The MENA real estate market continues to be dominated by private individuals and family groups rather than the large 'institutional' investors that dominate more mature western markets. This trend is expected to continue over coming years.
• Residential assets are considered the most attractive, with interest in this segment particularly strong among private investors.
• As uncertainty remains in the market, investors are reluctant to invest large amounts of equity in single deals and are also wary of incurring excessive debt. This is resulting in a preference for relatively small lot sizes, with fewer investors chasing large deals.
• As the markets are becoming increasingly polarised, location emerges as the most influential factor for investors. Risk-related factors such as security of income and political stability also remain at the forefront of investment decisions.
• Sustainability remains a very new concept for Middle Eastern investors, with most not willing to pay more for sustainable buildings.
Craig Plumb, Head of MENA Research for Jones Lang LaSalle, concluded: "At a macro level the MENA real estate market is more optimistic this year, buoyed by continued high oil prices, improving economic performance and greater stability. However little money is flowing into real estate from players outside the region and the investment market continues to be dominated by locally based players. Middle Eastern investors remain major players on the global real estate stage, accounting for a total of $5.3bn of real estate transactions outside of the region during the first 9 months of 2012."