While the Middle East real estate market is in varying states of flux, local investors have been keeping an eye on the international property pie.
And, according to recent data, they’ve taken a sizeable slice. Jones Lang LaSalle found they purchased almost $4.9bn in commercial real estate in international markets in the first half of 2013, an increase of 6.5 percent year on year.
Regional investors are also estimated to be responsible for purchasing around 15 percent of all residential real estate sold in Central London this year, while real estate consultant Knight Frank found the region’s buyers made up 7.5 percent of all £1m-plus residential sales in the English capital in 2012.
While London and the UK overall remain the favourite international markets, JLL found in its latest sentiment survey of 300 high-level real estate investors that they were diversifying elsewhere in the world and into different asset types.
Buoyed by tight investment yields in Europe and improving economic data, some more risk-inclined investors were diving back into the US property jungle, while France was piquing interest, and “developing” locations such as Hong Kong and Singapore were also on the radar.
With this mind, it’s little wonder real estate agents the world over have been making big plays for the lucrative Gulf investment dollar.
An indicator was this month’s Cityscape Global in Dubai, where 17 countries outside of the Middle East, including Monaco, Italy, India, Switzerland, Cyprus, the Philippines, the US, China and the UK, were represented at the prestigious trade event.
The biggest contingent came from Turkey, where 34 property and development companies were making their pitch — something which did not go unnoticed by the local real estate fraternity.
Tolga Han, the international vice president of Turkish-based Projebeyaz International, says there is about $3bn of official investment in Turkey’s property market coming from the Gulf, with recent changes in Turkish regulations making it easier for foreigners to buy. However, the bullish Han wants this more than tripled to up to $10bn within the next five years.
About 15 percent of total sales at Projebeyaz, which has Istanbul projects such as the $450m Trump Tower and $190m Kempinski Residences Astoria on its books, came from the Middle East, with the company hoping to increase this to 50 percent over the next three years.
Julian Walker, a director of UK-based Spot Blue International Property, which specialises in Turkish real estate, says about 50 percent of sales were outside of the UK, of which the Middle East made up three-quarters of this.
The GCC interest in Turkey, he says, came from the UAE, Saudi Arabia, Libya, Jordan, Bahrain and Qatar. He believes the interest was attributable to a combination of its climate, which is cooler than Gulf countries in summer, its proximity to the region and Turkey’s growing cultural presence in countries such as Saudi Arabia where Turkish TV shows had become popular.
Other reasons included the country’s falling interest rates, stabilising currency, young demographic and a market which was “cash-rich rather than financed”.
Walker says on average, Middle East investors were spending $80,000 per property in Istanbul, with capital appreciation in Turkey’s commercial capital at around 10 percent a year.
“It’s certainly an upwards curve, without a doubt,” he says of the region’s interest in Turkey.
“They’re comfortable buying there.”
According to the JLL survey, what Middle East real estate investors wanted, or at least 75.6 percent of those surveyed wanted, was income-producing real estate assets. Only 43.6 percent favoured a valued-added strategy, while 42.3 percent preferred development potential.
Location was the most significant factor, followed by the asset type, local economy, exit options and security of rental income.
Han says the Istanbul property market is tight, with price growth of about 12 to 15 percent annually.
While it is a popular city, more importantly, for investors, it is also cheap, he says. The average price is $2,500/sq m, which compares favourably to prices of $4,800/sq m in Downtown Dubai.
Han says the returns on off-plan projects could be double in two years in the right deal. However, in most cases the minimum gain was 15-20 percent over the same timeframe for established projects.
Rental returns averaged about seven to 8 percent annually.
“But all the GCC investors are looking for ten, 12, 13 percent. It’s not possible in Turkey right now,” Han says.
Andrew Guido, executive vice president corporate development at Canadian company Empire Communities, which is also targeting local investors, says the Canadian market is also one of the “safest markets in the world”, as demonstrated by its resilience during the 2008 recession.
The country has recorded average annual property price growth of 6 percent over the past ten years and with a rental vacancy rate of less than 1 percent in downtown Toronto it is an ideal rental market, he says.
“We’re a safe place to invest, and so we would like to attract the right kind of investment capital to come back to invest in projects that would even allow us to expand even further with what we do in our own home base,” he says.
“Associating ourselves with the right type of investor, that comes in with the right expectations, would be of high interest to us.”
Guido says the company, which opened an office in Dubai in January to show they were serious about local investors, believes a reputable schooling system was also a key attraction as many Middle East families sent their children to study abroad and needed a local base.
The region is home to famous business schools such as Western University’s Ivey Business School, University of Toronto’s Rotmans school and York University’s Schulich School of Business.
While Gulf interest in its latest project, a “Dubai-like” two-tower development at Lake Ontario, in Toronto, called Eau du Soleil, is “not significant”, Guido says he expects it to grow.
“We haven’t really promoted it heavily, but we’re very pleased with where we are in terms of the acceptance from the Gulf. Many of the people we’re doing business with already know Canada, have come to Canada, trust Canada and so it’s a lot easier,” he says.
“Many of the people who we’ve talked to have kids that are schooling in Canada and they’re looking for a property for them and maybe four or five years from now they may eventually migrate or have a place, because of family.”
JLL's head of research for Middle East and North Africa Craig Plumb says more developers were linking into Middle Eastern investors to buy in overseas markets.
But he says regional investment in overseas property was not a new trend.
“Middle Eastern investors have been major players on international real estate markets for [the] past 30 years,” he says. “There are basically two parts to this market — commercial real estate and residential real estate — and Middle Eastern investors are major players in both of these areas.”
Earlier this year JLL teamed up with several British developers to offer new-build properties in London for investors in the UAE.
Opening a desk in Dubai, it offered real estate from developers including the Berkeley Group, Barratt Homes and British Land to tap into its growing demand for luxury property in London.
“The London market is very international and the Middle East is an important source of buyers,” regional CEO Alan Robertson said at the time.
“Last year our London colleagues sold more than £150m ($241.85m) of property into GCC countries.”
Alasdair Macdonald, of UK-headquartered Knight Knox International, says the Middle East market is becoming increasingly important.
As the senior director of exhibitions and marketing for KKI, Macdonald and his wife Alice travel the world trying to sell the company’s projects.
Among them are the All Saints development, which comprises fully-furnished studios near the University of Sunderland, and a buy-to-let residential project called The Quarter in inner city Liverpool.
As an incentive, KKI is offering 9 percent assured rental return for the first two years on the All Saints project, and 6-7 percent on The Quarter for five years.
“Over the last 12 to 18 months there has been a noticeable increase in the number of Middle Eastern investors enquiring about our developments, particularly our UK residential buy-to-let and student accommodation projects,” he says.
“They want to generate a regular income in pounds sterling, in addition to building up a property portfolio in prime areas in the UK other than London, due to the generally higher-than-average rental returns available in those regional towns and cities.”
However, he says there is also a confidence in the UK economy and a belief in the “security and potential of real estate in the country”.
“There is also a strong belief that the real estate industry provides good potential steady capital growth, [ie] no a boom-and-bust scenario, as certain markets have encountered, as well as assured high rental returns in the buy-to-let sector,” he says.
When asked about the attractions of London for Middle Eastern buyers, Walker says there was no doubt the world was competing for a share of the investment dollar.
But he argues: “There’s plenty of room for multi-agents in the market. We’re very busy at the moment, making lots of sales in Turkey, so I’m more than happy for London to have its place as well.”
Han acknowledges London remained the preferred investment choice, along with other cities such as Zurich in Switzerland and the US.
Han says feedback showed people are looking for their second home, but are being cautious until they better understand the Turkish market.
“They still give more money to London than Istanbul. They love London. They love Zurich, they love the United States,” he says.
However, once convinced, Middle East investors are likely to stay put.
The JLL sentiment survey found 49 percent of investors said they were “exclusive buyers” compared to 9 percent who were “exclusive sellers” and 42 percent who were both.
Long term, it predicts the real estate sector in the US will improve across all asset classes in the next 12 months, while Europe’s retail, hospitality, industrial and land sectors are expected to perform better and its office and residential sectors remain stable.
Just how that all plays out in the medium term, and how the pie continues to be carved up still remains to seen.For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.