Performance of the Middle East Property Markets Data Analysis Chapter

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Performance of the Middle East Property Markets

Over the last several years, the real estate market in the Middle East has been through a tremendous amount of challenges. Part of the reason for this, is because the different oil exporting countries experienced a boom in prices until 2008. This is when the price of West Texas Light Sweet Crude would reach $140 per barrel. Once this occurred, it meant that consumers and business cut back on their spending dramatically. This was the equivalent of a tax increase that was placed upon them, which was had an impact on spending. As a result, the price of oil declined to $35.00 per barrel in January 2009. This had a negative impact upon the economies throughout the region, as the global financial crisis and high energy prices were affecting demand. At which point, most counties in the Middle East and North Africa began to feel these overall effects. (Exiting the Great Recession 2009)

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For the real estate market, this meant that prices suddenly began to shift. As buyers became: scarce and the total number of available properties on the market skyrocketed. This caused prices and available financing for a variety of projects to come to a sudden halt. A good example of this can be seen in Abu Dhabi, as the price of real estate was hitting an all time high in late 2007 to early 2008. Then, once the recession began to effect the market is when the decline had an impact. as, prices would fall between: 15% to 20% by the end of 2008 and the beginning of 2009. At which point, a shift began to occur in real estate values. What was happening is: the recession was running its courses and price of crude oil began to stabilize. This would have an impact upon financing as well as demand, with investors and buyers suddenly returning to a number of different countries throughout the region. This is significant, because it is showing how the Middle East real estate market, has the potential to provide above average returns, in comparison with the rest of the world. (Abu Dhabi Real Estate Gain Momentum 2010)

Data Analysis Chapter on Performance of the Middle East Property Markets Assignment

As travel into the area, is expected to continue to remain well above the worldwide average. Evidence of this is can be seen by looking no further than a study that was conducted by Group RCI. They found that air passenger traffic into the Middle Eastern countries will continue to grow at a rate of 6.7% every year until 2020. This is above the average rate for of growth for the rest of the world of 4.1%. (Middle East Leisure Real Estate 2008) as result, this is fueling demand for real estate in a number of different countries throughout the region. This is important, because it highlighting how investors are seeing the potential to: achieve above average returns in a variety of markets. To fully understand the overall scope of the changes that are taking place requires comparing the performance of the real estate market in a number of countries to include: Egypt, Israel, Kuwait, Saudi Arabia, the United Arab Emirates, Jordan and Qatar. This will be accomplished by: conducting a general analysis of these markets; comparing them with select developed nations (most notably the UK, the U.S.A. along with Australia); conducting a risk return analysis and examining the impact of various global events on them. Together, these different elements will provide the greatest insights as to: the overall profit potential and risks of investing in these markets.

An Analysis for the Real Estate Markets throughout the Middle East

Egypt

Egypt has become one of the most sought after destinations pertaining to: the real estate property markets. It is second only to Saudi Arabia in the region, by enthusiastically promoting international investment. As this interest, is expected to continue over the next several years.

In order to improve trust / transparency in the international community, the Egyptian government and real estate industry are: working to create a strong image globally. as, investors are continuously moving away from: Dubai and Jordan due to the competitive prices offered by Egypt. A good example of this can be seen with the country's performance in the sector during the first half of 2010. As prices began to quickly recover, doubling the return that they are offering to investors. This is important, because it shows how Egypt's real estate market is becoming one of the most sought after asset classes in the region. (Egypt Real Estate Attracts Interest from Foreign Investors 2010)

However, there are still those in international circles who are still not optimistic and have doubts about the long-term growth in the country's real estate market. As many investors, have been avoiding the sector by focusing their interests on: Europe and the ability earn higher yields. The main reason why this is occurring; is because, there are a number of different internal challenges inside the industry to include: a lack of transparency and recording keeping. This has caused some Egyptians to lose hope and demand more radical changes in the government. As they want to see some kind of effective reforms to tackle the growing shortages

This is because of: the increasing population and lack of affordable housing, have been leading to pressures on the government to address this situation. Evidence of this can be seen with over 600,000 marriages per year in Egypt, where this is fueling the strong demand for properties. As young Egyptian couples, are purchasing a house just before or at the time of an expected marriage (Egypt Property 2010). This is having an impact upon the underlying profits for a number of real estate developers.

A good example of this can be seen by looking no further than, the performance of the real estate firm the Six of October Development and Investments. The below table illustrates the overall strength of the company from: 2000 to 2010 (by highlighting the performance of the common stock).

The Performance of Six of October Development and Investments 2000 to 2010

Year

52-Week Low

52-Week High

2000

13.65

17.65

2001

9.16

18.75

2002

8.87

15.52

2003

9.68

14.02

2004

8.94

17.73

2005

10.74

2006

2007

2008

2009

2010

(Six of October Development and Investments 2010)

What this shows, is how the company has seen a dramatic appreciation in the price of their stock. This is because the shortages in the real estate market are creating an atmosphere, where prices are continuing to increase despite: changes in the economic cycle and other factors.

At the same time, the booming tourism market has meant that many: luxury commercial properties and resorts have been constructed. This has been causing the price of residential and commercial housing to skyrocket. as, foreign direct investors are lured by: the enticing returns that the markets are providing. This is adding to the overall demand and causing the market to experience even more price increases (despite the recession).Because of the economic boom that is taking place, the country has become one of the most sought after real estate destinations in the Middle East. This is outperforming: Jordan, Dubai and Kuwait; while lagging behind Saudi Arabia.

Saudi Arabia

Saudi Arabia is one the strongest performing markets in the region. The reason why is because, it has not been exposed to the large speculative bubbles that many of the other countries have experienced. This is due to the fact that they have seen large increases in the population since the 1980's. As it is projected that the total population in the Kingdom will be 36.5 million people (a 40% increase from 2010 levels). This is fueling a housing shortage in the country, with the government reporting that there is currently a deficiency of 400 thousand homes. As the: growing population and increases in land prices are causing costs to skyrocket. (Sambridge 2011) (Kawach 2010)

This has been protecting the real estate market from: the devastating effects of the recession. A good example of this can be seen by looking no further than, the real estate firm Jabal Omar Development Corporation. The below chart illustrate the underlying performance of the stock from 2007 to 2010.

Performance Jabal Omar Development 2007 to 2010

What this shows, is that the stock has been through a tremendous amount of highs and lows. As it rose to 27.00 in 2008, then when the recession began to impact oil price is when shares would decline to 15.00. At which point, they would from a bottom and begin a gradual increase. This is important, because it is highlighting the overall strength of the real estate market in the country. As it would see a tremendous amount of demand prior to: the recession. Then, during the downturn the market would remain fairly stable. In this aspect, the up and down movements that were taking place in the stock; meant that the profits of the company, were reflecting the changes that were occurring in the price of real estate. As the… [END OF PREVIEW] . . . READ MORE

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