Oil crash impact to hit real estate investments

|By Arabian Post Staff| The fiscal restructuring across GCC, including the introduction of additional taxation, will have serious implications for real estate investments in these countries, according to real estate investment and advisory firm JLL.

Fiscal restructuring is already evident in the form of budgetary cuts among GCC countries including the UAE. As governments become more cautious about their finances, there is a likelihood of cuts in infrastructure spending.. While many of the already announced projects are likely to proceed, they may be scaled back or rescheduled over an extended timeframe, with future projects being curtailed, JLL said in a report.

This will inevitably have a knock on effect on local real estate markets. On the other side of the fiscal balance, GCC governments are also seeking to raise additional revenue through sales tax, land/housing tax and reduction/removal of subsidies. Such developments could also have implications for various real estate stakeholders.

“While we remain positive on the long term outlook for real estate markets across the region, there is little doubt that the rebalancing of the fiscal position will result in headwinds and challenges over the next 12 months. While governments continue to spend on development and infrastructure projects, the level of this spending will inevitably be curtailed over the medium term as spending needs are realigned with the reality of lower oil revenues,” said Craig Plumb, Head of Research, JLL MENA.

GCC investors have been active on the global real estate stage for many years. Since 2007, GCC investors have purchased a total of over $45 billion of real estate globally. In reality this figure under estimates their exposure to real estate, as it only includes direct commercial real estate purchases and excludes both residential projects and also company acquisitions. While many of the high profile purchases have been made by government controlled Sovereign Wealth Funds, there has been growing interest from private investors over the past 2 years and this trend is expected to continue further.

Despite lower oil prices, JLL’s data shows that Middle East SWF’s remained active purchasers of global real estate during 2015. A total of 38 deals worth $6.5 billion were transacted over the 9 months to September 2015. While the number of overseas transactions has declined from the 74 deals seen in 2013, the value of investment has remained high and is likely to exceed that experienced in 2014. The volume of investment is expected to decline in 2016 as we enter a prolonged period of lower oil prices that will cause sovereigns to reconsider their objectives and strategies.

Within the Middle East, levels of real estate investment have declined in 2015.  Data from the Dubai Land Department (DLD) shows the number of real estate sales has declined by around 26% in the year to September 2015 compared to the same period last year.  . The pattern of investment has also changed, with the fall in the number of residential sales being partly offset by an increase in the value of land sales. Lower oil prices and the stronger US dollar have combined to reduce the inflow of capital into Dubai’s real estate market over the past 18 months.