The financial crisis may be causing project delays and slower growth, but large, young populations and economic development goals mean that demand for real estate in the Middle East and North Africa region remains high, writes Nadine Marroushi...
It has long been a strategy for countries in the Middle East and North Africa (MENA) to develop their real estate sector as a way of diversifying the economy away from a reliance on hydrocarbons resources. In 2002, Dubai led the way by offering freehold ownership to offshore properties causing its real estate market to boom with the influx of foreign investors; others took note and also opened their markets to foreigners. Real estate prices rose and demand increased, paving the way for the development of hugely ambitious projects such as Dubai's Palm Islands, Kuwait's City of Silk and Qatar's Pearl Island.
But as the global financial crisis begins to bite with the shortage of available credit, slower economic growth and low oil prices, many countries are revisiting their plans. Some projects are being delayed and many companies are cutting jobs. However, the outlook for the sector is not all gloomy. Most real estate projects in the MENA region fit in with the governments' wider development goals of job creation and catering to the housing needs of large, young populations. In this context, the development of mortgage laws and financing remain vital to its growth. Confronting the crunch
Analysts remain bullish that Gulf countries will come out of the financial crisis unscathed, arguing that they have governments with deep pockets to help them. This is true, but does not get over the fact that countries with aggressive policies to attract foreign investment and develop projects using a high amount of leverage, such as the UAE, will face lower real estate prices as bank liquidity tightens, and investors cash in on their assets or default on off-plan real estate purchases.
Dubai's largest mortgage lenders, Amlak Finance, 45 per cent-owned by Emaar Properties, and Tamweel, 20 per cent-owned by Dubai Islamic Bank, were the first to suffer from declining real estate prices. Nearly all new projects in Dubai are facing delays and a large number of employees are being made redundant. It remains to be seen how far the federal capital, Abu Dhabi, which can rely on its petroleum wealth, will go to bail out its still more glamorous neighbour. Indeed, it is Abu Dhabi that many say will come out of the crisis on top as it looks to refashion itself as a post-modern urban centre.
There is a large demand for real estate in Saudi Arabia, where around 65 per cent of the population is under the age of 30 and requires housing. The $27 billion King Abdullah Economic City is the largest private-sector led project in the region and it is being developed with Emaar to create residential, commercial and industrial zones. A number of other, mainly Gulf investors, are developing mixed-use projects and issuing a mortgage law is seen as vital to the sector's development.
Office space is in great demand in Qatar, where major projects include Energy City, developments in the West Bay area and the offshore Pearl Island. In Kuwait, the City of Silk project, which is being developed by Tamdeen Real Estate Development Company, will re-establish it as a major centre for commerce and will also offer luxurious living quarters. Oman's real estate sector is being developed in tandem with the government's policy of developing tourism. Attracting oil wealth
North African countries have been particularly successful at attracting real estate investment from the Gulf, where Emaar has become a household name in most cities.
Egypt stands out, not only because of the level of investment, but also because of its overall achievements in economic reform. It has been proactive in improving its business environment and was named the World Bank's top reformer in the 2008 Ease of Doing Business report.
The appointment of a new, pro-business government in 2005 has brought significant changes to real estate regulations. In 2005, registration fees were reduced from 13 per cent of the property's price to 3 per cent and the maximum fee was capped at E£2,000 to help raise the level of properties registered - the current level is 9 per cent - and in turn encourage banks and finance companies to offer mortgages. Property tax has also been reduced and a new registration system is being designed.
The UAE is Egypt's third largest foreign investor and set up Emaar Misr in 2005 to develop property, including, most recently, a $100 million social housing project called Sheikh Khalifa Bin Zayed Residential City, supplying housing units to under-served low-to-middle income investors.
Those looking for luxury can turn to New Cairo where a number of high-end developments provide a peaceful retreat from the hustle and bustle of the main city. Despite these buoyant indicators, Egypt has not escaped the effects of the financial crisis. Property prices are over-inflated, and with liquidity in short supply a large number of units have not yet sold.
New cities are sprawling out of the desert elsewhere. Emaar is also working on projects in Morocco, Tunisia, Libya and Algeria. It is developing the Zowara-Abou Kemash area near Tripoli to create residential, commercial and leisure units. It is also building four $20 billion projects in and around the capital of Algiers. In Tunisia, it is developing the $1.8 billion Marina al-Qussor project on the eastern coast and in Morocco has three main projects in Rabat, Tangiers and the Atlas Mountains.Global Arab NetworkThis article was first published in Business Focus (Issue 2, 2009), a Middle East Association publication produced by Newsdesk Media Ltd.