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Monday, September 28, 2009

Dubai best positioned for long term investment

Monday, Sep 28, 2009
Gulf News
Dubai: Abu Dhabi, Dubai, Cairo and Casablanca are the best positioned within the MENA region to attract long-term capital over the next few years, says a recent industry report.
The ability to attract long-term investors and investments will be key to market success, said a recent report by Jones Lang LaSalle.
In more mature economies, long-term investors account for 80 per cent of large real estate investment transactions.
"This transition will require a paradigm shift from the previous reliance on short-term strategies and rapid implementation to an increased focus on the creation of quality real estate assets that will be attractive to both occupiers and long-term real estate investors," noted the report.
Many long-term investors have put off investing in Dubai, especially in the past due to the frantic activity of short-term speculators and developers that buoyed the market for so long.
This essentially led to the current sluggish market activity and reduced sales.
"In the rush to build and sell real estate assets, markets across the MENA region have largely overlooked the requirement to attract more stable, long term investors and end users over the last decade," said the report.
When many investors left the marketplace and took their money with them, this contributed to the decline in property prices and rents which fell 25 to 50 per cent in some markets across the region.
While 2009 has been a year of correction, in the eyes of many industry experts, markets in the region are expected to stabilise in 2010 and finally recover in 2011, according to Jones Lang LaSalle.
And signs of a more stable property market are already becoming visible in Dubai with developers and investors having learned harsh lessons from past experiences.
"There has been some long-term investment from local and GCC family groups. What has been missing is investment from western style institutional investors - this will come but has not been much in evidence to date," Craig Plumb, head of research, MENA, Jones Lang LaSalle, told Gulf News.
Dubai, the hardest hit real estate market, Abu Dhabi, Cairo and Casablanca topped the table in the region as being best positioned to attract long term capital due to three major elements - investment environment competitiveness such as infrastructure and ease of investment, real estate market conditions, including stability of pricing, transparency and liquidity and finally, the availability of investable products like stable rental income and potential for capital growth.
"The key markets for investments are Dubai and Abu Dhabi with a caveat on Abu Dhabi that there is a change in the investment area. The types of occupiers [in Dubai and Abu Dhabi] are the ones international investors are looking for," said Nicholas Maclean, managing director of CB Richard Ellis Middle East region.
Maclean said while Dubai and Abu Dhabi are definitely key areas for long term investors, Cairo and Casablanca are "not in the same league" as the UAE, although Cairo is likely to offer more opportunities as it develops further.
A possible vehicle to stimulate investment in the sector might be Real Estate Investment Trusts (REITs) and Dubai is poised to see strengthened activity in this area in the future.
"REITs would indeed be a good vehicle and we expect to see more products being structured in this manner in the future," Plumb added. REITs have not been so widely used in this region historically due to legislation and restrictive regulations.
Another way to encourage long term investment is to federalise the current laws so that all the emirates can operate under one set of regulations and not have to make retrospective changes, Maclean added.
The most significant challenge right now, however, is the issue of potential oversupply. Vacancies in the office market are around 25 per cent and the average hotel occupancy rate is around 65 per cent, said the report. The oversupply situation creates additional downward pressure on prices and rental levels in the short term.
By Suzanne Fenton, Staff Reporter
© Gulf News 2009. All rights reserved.

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