Investor confidence returning to Middle East and North African real estate markets but not to Dubai, report shows

Written by Ray Clancy

Thursday, 15 April 2010 12:00

There are more potential buyers than sellers for suitable investment grade assets in most markets across the Middle East and North Africa region as confidence returns to the markets, according to a new report.

The lack of sales activity is therefore more a reflection of the shortage of such assets being offered to the market at attractive pricing levels rather than the absence of potential purchasers, says the 4th Real Estate Investor Sentiment Survey from consultants Jones Lang LaSalle.

It says that sentiment has remained broadly similar over the past six months, a sign that confidence may be returning as the MENA markets move to a more mature phase. Also yield expectations have increased by an average of 90 bps over the past six months and this has contributed to the lack of sales activity as it has increased the price gap between investors and owners;

Analysts say that two clear drivers of investors’ sentiment are emerging, namely local demand in markets with large local populations and a strong domestic demand base such as Egypt and Saudi Arabia, and secondly energy rich economies in countries with the capital to support large scale infrastructure investment such as Saudi Arabia, Abu Dhabi and Qatar.

Saudi Arabia emerges as the clear winner in the region, being the only MENA market offering both local demand and capital from its energy sector. Investors expect Saudi Arabia to experience the strongest real estate performance over the next 12 months, the report says.

There is likely to be a greater Focus on North Africa and Egypt is viewed as an increasingly attractive real estate market, and less on Dubai which is seen as being too reliant on the global economy. ‘Investors recognise that the Dubai market may be the last in the region to recover from the current downturn,’ it says.

The majority of investors expect real estate prices to increase over the next 12 months in most markets except Dubai which is not anticipated to see recovery for another 24 months.

‘Market regulation and risk remain the most important factors influencing investment decisions, suggesting most investors are more focussed on minimising downside risk factors than maximising upside returns. Though improved transparency remains important, the fragile economic environment has taken precedence for investors,’ the report concludes.