Unrealistic prices deter MENA real estate buyers

MENA’s lack of prime commercial property and high prices deterring institutional investors, says JLL
Unrealistic prices deter MENA real estate buyers
Dubai office space, buildings
By Staff writer
Sun 05 Jun 2011 04:39 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.  

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