LONDON, (Reuters) – Western investors have cooled on Gulf property markets, leaving the scene for local oil billionaires at least until global credit conditions ease — or markets in the region become more open and predictable.
In cash-rich Dubai, Abu Dhabi and Kuwait it is domestic investors who are again calling the shots in real estate, now that debt-starved British and U.S. property buyers have refocused on other areas they see as cheaper and more competitive.
“Given current economic conditions, U.S and British institutions are taking a lot of convincing to splash out in the Gulf,” said Fadi Moussalli, a director in Jones Lang LaSalle’s Dubai-based International Capital Group.
“There is less enthusiasm for Gulf property because foreigners are busy dealing with crises elsewhere,” Moussalli said.
Before the credit crunch, Western property buyers were making good progress in opening up fledgling Gulf property markets. But the balance of power has shifted back to local oligarchs and their fabulous wealth.
Citing data from emerging markets researcher REIDIN, Jones Lang LaSalle said less than a fifth of real estate purchases in Dubai in 2008 so far were made by European or U.S investors.
“A lot of people are (still) looking in the Middle East but it tends to be dominated by local capital,” said Charles Graham, a principal at property fund manager Europa Capital.
“There is a lot of it (local investment cash) and the return requirements are for the most part less demanding than our own,” Graham said, adding he wasn’t tempted yet to break away from Europa’s core markets to gain a foothold in the Gulf.
Capital constraints and worries at home are not the only issues driving western investors away from the Gulf. Some believe prices in hotspots like Dubai are close to peaking after years of sky-high growth, while others feel precious capital can earn higher yields closer to home.
UNDULY RISKY
House prices in Dubai, which have surged almost 80 percent since the start of 2007, were likely to fall 15 percent after a 2009 peak as massive increase in supply overwhelms demand, a Reuters poll showed this week.
Others are concerned that a clutch of legislative measures to combat property price inflation, such as rental caps, trading restrictions and proposals for a property capital gains tax have made Gulf property investment unduly risky.
Kuwaiti real estate transaction volumes plummeted 65 percent in July, in a fourth consecutive month of decline, after authorities banned residential property trading in an effort to curb inflation, government data showed. Similar restrictions in Dubai were unveiled this week.
“There are international investors who say they won’t even consider Gulf property markets until market transparency, data and process becomes much more sophisticated,” said Rashad Yaqoob, director of Savills Capital Advisors. “But that’s no concern of the oil dynasties or ruling families. They want to invest in their own territories and … you’ll see very little impact from thinner investment flows from the U.S, Britain or anywhere else for that matter.”
Demand from regional neighbours is another factor offsetting a lack of major western investors.
“Four hundred thousand new people a year are coming into Dubai alone each year from nearby territories like Egypt, Syria and the Indian subcontinent. They need homes and they need commercial real estate,” said Christopher Steel, a director at property brokerage Hamptons International.
While U.S and UK investors have put their Gulf property investment plans on ice, Gulf ruling powers were more than happy to remain the biggest investors in the region, bankrolling the lion’s share of around $1.5 trillion of property and infrastructure projects across the Middle East.
“Local sovereigns will always take a dominant role in their own property markets because their liquidity gives them the power to do so,” Yaqoob said. “They have a personal and political interest in how these markets develop and they want them to grow as they see fit,” he said.