E-mail Article
Printer Friendly
Share Article
'There will be winners - and losers' - Jones Lang LeSalle
Blair Hagkull, general manager of Jones Lang Lasalle for the Middle East and North Africa, speaks to ArabianBusiness.com about the results of our latest survey.
Almost four-fifths (79.55%) of real estate owners in the region said they plan to purchase another property in the GCC according to our survey. What is present demand like in the region?
Blair Hagkull (H): We certainly identify that 2008 is an important year for continued growth in the real estate market. The fact that over the last five years properties have doubled or more than tripled in value has certainly given greater confidence to those in the market.
If you’re in the market and have done well, there is a strong likelihood that you will continue in that practice. In the future, however, it will be increasingly important to have an informed decision-making process. Opportunistic investments, in other words, may not provide the same returns as in the past.
Investors need to exercise appropriate due diligence before making new investments.
Cost and fears of a market correction were by far the biggest deterrents for those not wishing to enter or re-enter the market at this time. Do you feel the market is due for a price correction?
H: We believe fundamentally that in 2008 and beyond there will be winners and losers in the market and that it is essential to make informed decisions on investment. We expect that with the latest returns in the market we are really seeing a two-tear market…not all property is equal in terms of return on investment and we expect and see a flight to quality.
Real estate can be a complicated asset and it is our view that a more simplistic approach that has been successful in the past may not be so successful in the future.
With regards to financing this success, 78.1% of our survey respondents said they will take out a mortgage for their property purchase. Around a quarter (27.3%) said they were seeking financing of 90% or more, whilst nearly a half (48.6%) are seeking finance of between 71-90%. Does this look like an over-leveraged market to you?
H: Above 90% is very high-ratio financing and certainly it is beyond international norms. We expect the rate of escalation in pricing will slow…it has to. Our sense is that high-ratio financing has its risks. Investors should know that while putting 5% down can give you tremendous returns, with it comes risk.
At the same time, can you still get fantastic returns here that are better than most markets in the world? Absolutely. It is important that people take a more informed, perhaps even cautious approach.
The market here is becoming much more complex. There is far greater offering in much greater projects and in many more markets. It is virtually impossible that we will see the rate of increase in the last five years, continue in the next five. But there are still tremendous opportunities for the informed investor.
Compiling the data, it was interesting to learn that around half (45.74%) of our readers cited investment as their primary motivation for purchasing property here. Does this reflect your experience?
H: My sense is that the other 50% of the people are lying to you (laughs)…Real estate in the gulf is almost without exception about investment. A home you purchase here is an investment. If it didn’t make sense to buy here people would continue to rent and invest elsewhere. Many people have done very well with rather simple investments, which we expect to change.
There’s a famous saying that sometimes it is more important to know when to leave rather that when to arrive. The trillion-dollar question is not necessarily when to buy, but when to sell. It is of paramount importance that people buy well and understand what their exit strategy is. Buy and hold is great, as long as you buy well in the beginning.
Many people are looking at investment here by putting a small amount down and over time reap the gain before they have paid for the project. We expect that trend to continue. The investor plays an exceptionally important role in this market in that they are in early, they probably take on more risk and they are the catalyst for the real estate market here.
We read and hear a lot of news about the competitiveness of the regional market. As the Gulf emerges onto the world stage, how do you se it stacking up against global competition?
H: At the end of the day, particularly the UAE, the market is increasingly being seen as a long-term investment opportunity.
Certainly one of the big factors is the growing credibility of the regional market with regards to international investors. Now, we’re making a distinction between an institutional investor and a private investor…but ultimately, around the world, when global institutional investors start to get into local or regional markets, it firstly lends tremendous credibility to the market itself and secondly it creates an important new channel of investment that tends to be international.
All the development here is primarily being funded by regional money, which is so atypical from everywhere else in the world. In London or New York, a large percentage of investment is international. As the local market here becomes international, it speaks volumes of the success that has taken place here in the last ten years.
Nearly three out of four investors Gulf property owners told us they believe that the UAE is the best market in terms of returns on investment over the next two years. Would you agree?
H: The bottom line? That absolutely correlates with what we know in the market. The UAE is the clear regional leader…it’s ultimately the founder when it comes to freehold selling.
Certainly with respect to niche investments in Oman and Qatar there are significant opportunities, but the combination of the track record of Dubai, the growing prominence of Abu Dhabi and the value opportunities that exist in the Northern emirates currently provide the widest spectrum of opportunity for investors.
Dubai, and now Abu Dhabi, is becoming increasingly transparent in terms of business practices and the gains that the Gulf has made in terms of creating an environment for attractive open investment is something that really contributes to its success.
The message we hear consistently, whether it is in Turkey or Morocco or Pakistan, is that they’re looking to emulate the UAE and specifically the Dubai model. So the success that is taking place here is not simply a Gulf story, it is truly a pan-MENA and South Asia story. That’s why we are strongly of the opinion that Gulf investors constitute the most important, on a per capita basis, investors globally in real estate.
Blair Hagkull, Jones Lang LaSalle General Manager for Middle East and North Africa.
Quick Links(Residental)
Filter by address:
No Comments