Real estate still key source of Mideast wealth - report

Despite the slump in real estate prices, a high proportion of wealth in the Middle East still comes from the real estate sector, according to the latest Annual World Wealth Report released in Dubai on Tuesday by Merrill Lynch Wealth Management.

The report found that the majority, or 25 percent, of high net worth individuals (HNWIs) in the Middle East sourced their wealth from fixed income, while 23 percent came from equities. This compares to a global average of 31 percent and 29 percent, respectively.

While wealth originating from real estate dropped from 25 percent in 2008 to 23 percent in 2009, it is still higher than the global average of eighteen percent. This is despite prices in the real estate sector in Dubai plunging by up to 60 percent from their peak in 2008, according to investment bank UBS.

Yaser Yilmaz, head of regional sales for the Middle East at Capgemini, who collaborated in the Merrill Lynch report, said that the higher proportion of wealth coming from real estate can be attributed to the fact that Middle East buyers were still involved in real estate investment but were increasing looking outside the region.

“The trend began changing at the end of 2008 and first half 2009 when investors became a lot less risk adverse so levels of speculation decreased substantially,” Yilmaz added.

“Our clients are diversifying out of the local markets and going into more international mature markets where the levels of growth and transparency are higher. The two major asset classes we are seeing money flow into is real estate, primarily in the UK and US.”

This was echoed by Edward Mermelstein, co-founder of Manhattan-based real estate lawyer firm Rheem Bell and Mermelstein, who told Arabian Business earlier this week that Gulf sovereign wealth funds are seeking to invest heavily in the New York property market.

“There’s definitely been a renewed interest from Middle Eastern governmental funds coming back into the market,” he said.

In the same vein, Liam Bailey, head of residential research at the London-based Knight Frank real estate agency also told Arabian Business last week that one in ten foreign buyers of second hand properties in central London are now from the Middle East.