Middle East investors are buying real estate again but they are looking at affordable housing projects in Saudi Arabia and hotel developments in Egypt, rather than Dubai.
Indeed, Dubai is still struggling to attract both domestic and overseas property buyers as confidence in the emirate’s real estate market remains low.
International property consultants Colliers International says that investors plan to put a larger proportion of their funds into real estate assets in the coming 12 months, with low cost housing in Saudi Arabia among the top picks.
Some 70% of investors polled by the brokerage said they were likely to increase their real estate holdings, with two thirds reporting target returns in the region of 15 to 20%.
Midmarket developments in Saudi Arabia and hotel properties in Egypt were ranked among the most attractive investment opportunities, the report said.
‘With government plans to spend nearly $70 billion on low income housing the market outlook for Saudi looks particularly strong,’ said John Davis, chief executive officer of f Colliers International, MENA.
In Egypt we are seeing a lot of cautious prospecting with an intention to buy despite the Arab state’s rocky political situation. Conviction in the country’s long term fundamentals, especially in the tourism sector, will likely drive opportunistic acquisitions of hotel assets,’ he added.
Some 70% of those polled said the relative value of real estate in the Middle East had improved strongly, compared to 10 years ago. Despite this, nearly half of investors said they remained wary of taking on any further risk in their real estate portfolios.
Affordable property has been marked as the next battleground for Middle East developers, as Arab states struggle to close a chronic housing shortfall for their populations.
The market is seen as highly lucrative, with governments across the region ring fencing billions of dollars in funding to provide homes for their citizens.
The Middle East and North Africa has an estimated affordable housing shortfall of 3.5 million homes with nearly half in Egypt, according to Jones Lang LaSalle.
Investors polled in the Colliers report said the cost of finance for real estate investment had shown no signs of improvement, despite a comparative upturn in the regional economy.
More than half, 60%, said financing costs had shown no change since early 2011 and said banks remained nervous of lending, even for full-occupied office buildings on long leases.
Respondents also said the fallout from the Arab Spring uprising would affect their ability to expand their property portfolios, as the shape of local governments remains unclear.
Egypt, post revolution, has brought a flurry of lawsuits against foreign buyers over land and property deals concluded with the previous government, shaking investor confidence.