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The International Real Estate Finance Summit '08 Building Bridges for Future GCC and UK Real Estate Relations The current turmoil in the global financial markets may have dented investor confidence and precipitated investor caution in the short-term, but for the discerning, specialised and bespoke investor there are some surprisingly good deals in the global real estate market. Despite the fact that global commercial property transaction volumes in First Half 2008, according to international property consultants, Jones Lang LaSalle, have fallen 41 per cent to US$236bn from the record level of First Half 2007, the good news is that the globalisation of real estate ownership especially by investors from China, Russia, India and the Middle East, is increasing. Cross-border activity in the global real estate market, for instance in First Half 2008, accounted for 45 per cent of all such transactions. In addition, the levels of real estate transparency in the emerging markets have improved significantly in 2008. Jones Lang LaSalle's Real Estate Transparency Index provides a rigorous framework for evaluating the level of real estate transparency in 82 countries worldwide. "Transparency levels globally are improving as governments seek to streamline regulatory and legal hurdles to aid cross-border movement of capital and corporate facilities," stresses Dr Lee Elliot, a Director of Research at Jones Lang Lasalle. Canada, Australia, the US, New Zealand and the UK are the most transparent real estate markets in the world, but Dubai, Russia, Romania, Egypt and Saudi Arabia showed the largest improvement in their real estate transparency in the 2006-2008 period. The current market conditions especially the fall in the volumes of real estate transactions, says Tony Horrell, CEO, European Capital Markets, is "driven by global credit conditions which made debt both less available and more expensive... It may well take another year before debt markets stabilize and in the meantime we are likely to see increased distress selling. High growth markets perceived as oversold are likely to attract the most attention from buyers. With the high velocity of pricing change come opportunities for buyers. The range of opportunity will increase for those able to commit equity in the next 12 months." This spells good news for Middle East investors flush with huge reservoirs of petrodollar liquidity. They are targeting real estate investments through equity ownership, joint ventures and mezzanine positions. However, some analysts warn that many GCC investors are 'ego buyers' looking for marquis assets that have "impressive curb appeal and locations that quite simply can't be replicated". The UK, a traditional real estate investment location for the GCC countries, remains an attractive hub especially for Islamic real estate financing and investments. The UK and GCC have a historical and long relationship in economic cooperation and investment. The UK is also the single largest provider of expertise in banking, legal, consultancy and accounting services to the GCC countries including in the specialised area of Islamic financing. A recent report from Moody's Investors Service confirmed that in the wake of the US subprime housing crisis, London offices have deteriorated faster than any other European property market. Banks in the City and West End have been hard hit by the turmoil in the financial markets with resultant job losses being incurred. Resultantly, office take-up levels are unlikely to reach forecasts. "Despite the financial turmoil, occupier demand remains relatively robust... however occupier demand could be negatively affected if the financial turmoil continues," said Rod Bowers, co-author of the report. Real estate market sentiments are echoed by other GCC institutions such as Kuwaiti investment bank, Global Investment House (GIH), in their homes markets as well. In August 2008, GIH launched a US$500m Islamic real estate fund, Global GCC Real Estate Fund II, aimed at providing opportunities for GCC, regional and international investors to tap into the flourishing GCC real estate sector. Real estate has always been a key component of the GCC and Middle East economies. While an endless stream of luxury leisure-cum-commercial developments and residential-cum-golf and leisure projects have proliferated over the last few years, the new trends suggest a move also to the housing sector to satisfy demand of a rising and young regional population; for the lower-end affordable housing sector; and for specialised industry-cum-infrastructure real estate. GFH, for instance is leading with its energy hub concept - it started the Qatar Energy City Project and exited at a good return; it has launched similar multi-billion dollar ventures - the India Energy City, Energy City Libya and the Caspian Energy Hub in Kazakhstan. More recently, it has expanded the concept to steel - launching the Hadeed Mena Project which would see steel plants in several MENA countries aimed at providing an anticipated growth in demand for steel and steel products die to increased project spend. Indeed, a recent GFH report projects oil revenues of the six Gulf Cooperation Council (GCC) countries to top US$600bn annually for 2008 and 2009 alone. Aggregate GCC expenditure is expected to reach US$300bn in 2008 and private sector projects currently underway and on the drawing board is valued at over US$2 trillion. Private liquidity in the GCC alone, according to several estimates, is put at US$1.2 trillion. However, the GCC market is not all about high liquidity and spend. The GCC states are not immune to the effects of the global financial markets turmoil. GCC markets are also feeling the effects of high food prices as import dependency and prices continue to rise. Residents of GCC cities complain about skyrocketing rents, food prices and transport costs. Speculators the world over are the same. The GCC is no exception. As such governments are intervening with new laws to curb speculation and excesses in a real estate market which analysts say is ripe for a correction. In June 2008, the Shura Council of Saudi Arabia approved a nrew mortgage law which should be adopted before the end of 2008. The mortgage law deals with commercial and residential property and should open the way for greater real estate financing flows in the country. In September, Dubai passed a Mortgage Law and Law No 13 of 2008, which regulates initial property registration and requires all off-plan sales contracts to be registered with the Dubai land Department and the Real Estate Regulatory Authority - aimed at curbing speculation in the market. Several factors influence the real estate sector in the GCC and MENA countries. These include:
With all these market dynamics, IREF 2008 could not have come at a more opportune time. Real estate will always remain an attractive investment asset class for Middle East investors both in the region and out of the region. As such IREF 2008 is the real estate event which anyone interested in the real estate market in the UK and GCC whether as a regulator, player, financier, structurer, investor, speculator, analyst or simply as an interested part, cannot afford to miss! |
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| Conference Secretariat - IREF '08 | ICG, First Floor Albion House, 470 Church Lane, Kingsbury, London NW9 8UA, UK |
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