Unrealistic prices deter MENA real estate buyers

Sunday, 5 June 2011 4:39 PM

Landlords in the Middle East are failing to match their asking prices to new economy realities, deterring billions of dollars in institutional investment, Jones Lang LaSalle said Sunday.

Despite investor appetite, a lack of prime commercial properties in the MENA region is curbing real estate activity and pushing capital overseas, JLL’s Real Estate Investor Sentiment Survey found.

“There are areas within the region, particularly the GCC, where there remains a reasonable level of demand among local investors,” said Andrew Charlesworth, head of capital markets, MENA.

“The problem is one of finding and securing the right product at a price that makes sense.”

The poll of 30 financial institutions with stakes in local real estate found nearly 75 percent plan to increase their exposure to regional property in the next 12 months.

Respondents are actively seeking to invest up to $6bn in real estate over the next year, with deal sizes averaging $20m to $50m, JLL said. Most expect to target the office sector.

The majority – 74% - of investors said they had the finance to fund their acquisition plans, while the remainder expected to combine debt financing and syndicated equity to raise the capital.

Real estate activity, however, will be constrained by factors such as the lack of single owner buildings in prime locations offering stable revenue streams, JLL analysts said.

In a number of Gulf markets, strata title – which allowed multiple buyers to snap up slices of a building – has splintered the bulk commercial properties among tens of landlords.

Few investors are prepared to negotiate with multiple landlords, deterring buyers and sending capital flows abroad, JLL said.

“Potential buyers of real estate assets may outnumber sellers, but this alone will not induce transactions,” the report said. “Until more product is offered at realistic prices, the MENA region will forgo capital flows in 2011.”

Across the region, the UAE and Qatar were named as two of the most attractive markets, due to their political stability. When asked about real estate values in Abu Dhabi, Dubai and Saudi Arabia, investors said they anticipated further declines over the next 12 months, potentially widening the gap between buyers and sellers.

In Abu Dhabi, 53 percent of respondents believe capital values will continue to fall in 2011, while in Dubai 56 percent believed they will remain the same.

“Unless sellers significantly adjust their expectations, the price gap between buyers and sellers will linger and possibly grow, further restricting sale volumes,” JLL said.

The UAE market was one of the markets hit hardest by the global downturn, with prices dropping up to 60 percent from their peak and nearly half of all projects scrapped or delayed.

Widespread political turmoil in parts of the Middle East has helped to reposition the Gulf state as a safe haven for investors in recent months.

Real Estate

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Posted by: Red Snappa Tuesday, 7 June 2011 3:13 PM[UAE] - Ireland

Dear commentators, isn't this article primarily about commercial office properties, I must admit if I was a foreigner in a position to buy an office building in Dubai and not have the right to reside then I would be somewhat brassed off.

Large foreign companies prefer to rent large office space from single landlords anyway. Yes sale prices are still too high to attract real volume interest, 85 per cent off 2008 peak seems about right, which is a figure I read recently provided by professional investors. Reach that and you have a market with a decent transaction rate said he!

Posted by: JD Thursday, 9 June 2011 7:35 PM[UAE] - UAE

Red Snappa - read the article properly! it is talking of regional investors not being be able to secure deals in the region as a result they are choosing to export their capital oversees to UK, Europe etc.

As a regional investor there are no issues on ownership, residency etc.

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Posted by: British Expat Monday, 6 June 2011 2:24 PM[UAE] - UAE

Prices in Dubai are still high, and they are silly in Abu Dhabi. Unless UAE gov offers permanent stay or long term residency visa for genuine property purchasers ( not speculators) who will be living in those houses, I cant really see why would anyone want to invest millions of AED in purchasing property here.
For example, 200k GBP would buy you a 2 Bed town house in London near Heathrow, which could be rented out for 1000 GBP per month. Also as a purchaser your rights are protected and there is no risk of Very High Maintennace Fees. So there is much safety and security of investment in the UK than its in UAE. Significant changes need to take place in UAE to protect consumer rights, investments and investor's interests.
What i would like is to own a property where there is no interest by any developer and I only have to deal with Municipility, Bank and Utilities companies and assurance by the gov that I have residancy as long as i own the property

Posted by: ollitrade Tuesday, 7 June 2011 3:14 PM[UAE] - UAE

The authorities should start the same programme like in Malaysia. It is called Malaysia My Second Home (MM2H) programme and includes a long term visa for property owners.

Posted by: Telcoguy Monday, 6 June 2011 7:37 PM[UAE] - UAE

@Bugle you are right, but then one has to wonder why there was such effort to build property that has necessarily to be sold to foreigners.

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Posted by: Mustafa Johnson Monday, 6 June 2011 9:35 AM[UAE] - UAE

JLL should comment on markets it has experience in.

They should survey agents on the ground before they publish such comments

Posted by: JD Thursday, 9 June 2011 7:52 PM[UAE] - UAE

Mustafa - JLL has a lot of experience in these markets with five offices and more than 100 staff and is the leading real estate advisory firm in the region. You should check your own facts before making statements that are not true! While it is very easy to be cynical, may i know why you made the statement??

go to www.joneslanglasalle-mena.com and see how much JLL knows about the region.

Posted by: JD Thursday, 9 June 2011 7:44 PM[UAE] - UAE

Mustafa - JLL has a lot of experience in these markets with five offices and more than 100 staff and is the leading real estate advisory firm in the region. You should check your own facts before making statements that are not true! While it is very easy to be cynical, may i know why you made the statement??

go to www.joneslanglasalle-mena.com and see how much JLL knows about the region.