Gulf investors are snapping up distressed real estate assets in the US in a bid to diversify European-led property portfolios, real estate experts have said.
Arab investors that have historically favoured UK real estate are now looking to America, lured by tax cuts and low property prices, said Philip Blumberg, chairman of US-based investment management company Blumberg Capital Partners.
Property acquired by Middle East and African investors increased 140 percent between 2008/09 and 2009/10 from $1.1bn to $2.64bn, data from the National Association of Realtors showed.
“US tax policies are about tax cuts not tax increases so the US is emerging as a safe standard compared to Western Europe,” Blumberg told Arabian Business.
“The US has the best tax structure in the world for non-US investors; it’s geared towards institutional investors and high net worth investors.
“Middle East investors have had a certain portion of their investments in either Western Europe or in the US so, when you compare that allocation, it’s now generally going to the US.”
The oil-rich Gulf is home to a significant number of high net worth investors. The Middle East has more than 400,000 millionaires with a combined wealth of $1.5 trillion in 2009, up 7.1 percent from the previous year, according to a report by Cap Gemini and Bank of America’s Merrill Lynch unit.
Residential property prices in the US are showing little signs of recovery due to oversupply and increased at one of the slowest rates in a decade between May and June. Some analysts are predicting a double dip.
“It is an incredible market to invest in right now,” said Omer Ghani, CEO of Dubai-based Fine & Country, which targets Gulf investors eyeing discounted property in Florida and the surrounding areas.
“Over the last four to five years the US market on a medium nationwide level has depreciated about 15 percent from the peak. However there are certain states that lead the boom who are also leading the bust. Florida prices have depreciated much more, around 20-30 percent,” he said.
Commercial property in America, which has suffered from a lack of capital flows since the onset of the economic downturn, dropped to its lowest in the first quarter of 2009 and is now in its third quarter of steady growth, according to the National Council of Real Estate Investment Fiduciaries.
“The US is probably the best emerging market in commercial real estate in the world today. Prices are roughly speaking 35 percent below replacement costs and that drives high returns,” said Blumberg.
Blumberg said Gulf investors are typically looking at majority cities such as New York, Washington and San Francisco but said he sees better returns in the likes of Dallas, Houston and Texas.
“The likes of New York and Washington are gateway cities that people have heard about and feel comfortable [investing in],” he said.
“I think the highest returns can be achieved in other cities in the US. Markets in Texas are generating very high returns. I also see opportunities in Boston and Denver.”
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