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Wed 13 Apr 2011 04:36 PM

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Social unrest creates ripples in MENA real estate markets, says S&P

Negative impact to property sector will be most seen in Arabic-speaking MENA countries, ratings agency says

Social unrest creates ripples in MENA real estate markets, says S&P
GCC construction, GCC real estate, Middle East construction, Middle East real estate
Social unrest creates ripples in MENA real estate markets, says S&P
Protester generic
Social unrest creates ripples in MENA real estate markets, says S&P
GCC construction, Middle East construction
Social unrest creates ripples in MENA real estate markets, says S&P

Leisure and high-end residential property market segments are expected to be the hardest hit following popular unrest and political upheaval in the Middle East, a new Standard & Poor's report said on Wednesday.

The unrest has seen tourist inflows in some countries drop and triggered sharp falls in hotel occupancy rates, the report said.

This was especially the case in Egypt and Tunisia, whose foreign currency rating was dropped to BB/Negative/B and BBB-/Stable/A-3, respectively.

The local currency rating for Egypt was also downgraded to BB+/Negative/B, while Tunisia was reduced to BBB/Stable/A-3, S&P said.

“In our view, property investors will likely be wary of uncertainties linked to political transition or political regime changes. Specifically, we see disputes about property titles as a mounting risk,” Tommy Trask, credit analyst for Standard & Poor's, said.

It added that a number of real estate projects that were planned or in progress in the troubled countries were being subject to delays or being cancelled.

In addition, real estate companies have been obligated to address expensive repairs to buildings damaged in the looting and violent demonstrations.

The negative impact to the real estate sector is expected to be most seen in the Arabic-speaking MENA countries that are already undergoing political transition and civil unrest, such as Bahrain and Libya.

Bahrain was rated by S&P as BBB/Watch Neg/A-3, while Libya had its ratings suspended. Syria and Yemen were not rated.

“As they face the impact of popular protests and political transition, real estate companies in the region are also confronting other risk factors, such as supply/demand imbalances, affordability of property and lack of mortgage financing,” Trask said in the report.

“In our view, much work also remains to be done in shaping legal and regulatory frameworks for real estate activity in the region,” he added.

In addition, the likely increase in government spending in these countries could have a weakening effect on government finances, the report said, with the potential higher cost of debt likely to bear down on their economies.

In March of 2011, the GCC announced a $20bn economic aid support package, spread over the next ten years, which would be shared equally between the governments of Bahrain and Oman. The aid package is an attempt by the GCC to help boost long term growth in the two countries.

At the time, Standard & Poor's expressed reservations about the package, as it was meant to increase infrastructure spending and implicitly address youth unemployment.

However, the ratings agency said that there was no guarantee that local youths would take up new employment opportunities, and that foreign, contracted labour may be brought in to fill up the gap, as had happened in the past.

Alx 8 years ago

The MENA region is in turmoil but there is one country within the region which is an exeption and will stay stable: The Kingdom of Morocco.
Media like to cover unrest and turmoil but once again forget to underline the better exemple.
It is a surprising country that started its evolution in the modern era 10 years ago. Social programs as well as developping infrastructures got most attention of the government.
Come and enjoy or invest under the sun and discover a rich culture and history.
Best regards to all