Strategy& Middle East says that a buy-and-hold mindset no longer works in the region
Large pieces of unused land should be exploited by their owners, whether they be governments or from the private sector, according to management consultancy Strategy&.
According to Strategy&, land can serve to generate income and plus budget deficits by governments, as well as meet the changing needs of their citizens.
In Saudi Arabia, for example, Strategy& notes that the government is currently consolidating its land holdings to be used in government-led development projects.
For the private sector, dormant land can be commercially exploited and developed, which has the added benefits of avoiding idle land taxes, hedging against slower growth of their core businesses, and diversifying their portfolio.
“The region has been hit by lower oil prices, political uncertainty has also risen – we are now in a situation where we need to generate value through all means available, which includes these dormant land banks,” said Ramy Sfeir, leader of Strategy& Middle East’s family, investments, real estate and deals platform.
Strategy& has identified five distinct approaches to extracting value from unused land, including mortgaging property or selling and then leasing back, leasing the property under a long-term arrangement, selling the property outright, contributing land to a development project with a partner, and contributing land and equity to a development project.
“Unlocking value from dormant land is not easy; there are four key success factors that landowners should consider,” said Strategy& Middle East partner Karim Abdallah.
“They should firstly be proactive and think strategically, they should seek the right deal and partner for them, they should structure the agreement to align with their incentives and retain control, and finally, they should consider all viable financing mechanisms and vehicles.”
Bruno Wehbe, principal with Strategy& Middle East, said that “long gone are the days when governments and private-sector entities could apply a buy-and hold mindset to purchasing land.”
“Economic pressures, new taxes on undeveloped land, and other challenges are pushing these owners to exploit their land banks as best they can, both for their sake and for the rest of the country’s economy,” he added.
“Rather than sitting back and waiting for offers from investors, landowners are encouraged to be far more proactive and strategic in seeking their partners, and should follow one of the five approaches outlined above.”