Details

The drop in oil revenues has restructured and reclassified real estate sectors and their proportionate Real Estate Sector promotes its competitiveness and maximizes its contribution to region countries’ GDP

 

Outside of the oil and gas sectors, real estate activity makes up the strongest component of the economic system for the region’s countries. It also constitutes one of the most influential and overlapping sectors among more than one hundred economic sectors and activities. Moreover, the developments in activity for the real estate sector over the past few years (up to the end of 2014) have played an important role in revitalizing many development and promotion plans for both market and sector. Through this, many economies were able to maintain their economic growth and development – including infrastructure development – as well as being able to compete for large real estate and non-real estate projects.

In addition, the financial pressures caused by the drop in oil revenues for the region’s countries have lead to restructuring and reclassification of the economic sectors with regards to their ability to contribute to the GDP, as well as their ability to make up for the decline in revenues generated from major productive and service sectors. This has been done to ensure the drop in revenue from oil doesn’t adversely affect the pace of financial and economic activity and the activities of retail sectors and other service sectors, etc. The importance of developing the productive and then the financial abilities of real estate activities have become clear, as an elevated real estate activity pace is required to increase the contribution of major sectors to the GDP.

Al Mazaya Holding’s Weekly Real Estate Report pointed to that reliance on the real estate sector and its associated activities to maximize the sectors’ contribution to GDP in the region’s countries. It is important to note at this point that there have already been successes at this level and, in spite of challenges and constraints that may impede some economies from achieving tangible successes as expected and planned, further successes are expected. It is worth mentioning that the existing economic sectors’ infrastructures are important for the success in developing operational capabilities and revenues, and thus underlie the variations in success rates. Economies with a developed infrastructure as well as a diversified, developed real estate sector with continuous and increasing demand rates will need to overcome the pressures of varying and distinguished supply rates to achieve target growth rates at the level of both the sectors and the local economy. Countries with less developed infrastructures will have to work hard to keep pace with the recent financial and economic aspirations – there will need to be a process of restructuring and redirecting of the productive sectors to reach target levels.

It is noteworthy here that there is an increasing reliance on vibrant economic sectors to maintain economic capabilities and bridge deficits. Al Mazaya’s report also reveals that the activation plans of the industrial, tourist and real estate sectors will have great significance over the coming years. This comes at a time when the real estate sector is ranked second in the list of top dynamic and active sectors, contributing 20% to the UAE’s GDP. The construction and building sector came in third place, followed by the manufacturing industries sector in fourth. It is worth mentioning here that the economic and financial sectors have contributed to the growth of the state’s GDP by 44% over the past five years.

The economic plan to achieve the UAE’s vision 2030 depends heavily on developing private sector capabilities. The financial sector came on top of the highest growth rates achieved by sectors led by private sector. The telecommunication sector came second and real estate activities came third. On the level of added values reflected by private sectors’ activities, the construction sector topped contribution’s level of total production and added values for private sectors. It is noteworthy that the UAE’s private sector activities, led by the real estate sector, contribute with progressive rates to the added value of many sectors.

In addition, Al Mazaya’s report touched on the growth rate of the Bahrain real estate market, which reflected its capacity to achieve additional growth rates of 3.9% by the end of 2015. The construction sector reached an economic growth rate of 6.4% and the hotels and restaurants sector a 7.3% growth rate, while the private sector played a leading role in Bahrain’s 3% economic growth rate in the same period of time. The productive sectors were able to raise their contribution to the GDP, with the construction sector accounting for 7%, while the real estate and commercial activities accounted for 6% overall, which brought many positive indicators. Investment in infrastructure projects is still strong, bringing the total values of projects in the first quarter of this year to USD3.8-billion. These projects are focused mainly on residential development and public services, with the industrial sector witnessing an increase in the number of factories being constructed. Moreover, the liquidity indicators of the kingdom’s financial system are very important to the growth of credit injected into the Bahrain’s economy. This constituted an additional incentive for further activity in both commercial and real estate sectors.

Al Mazaya’s report also highlighted the focus of Saudi Arabia’s National Transformation Plan  to raise the real estate contribution to 10% of GDP – this is a positive outcome for real estate development companies, real estate market, and the end user for the sector’s outputs. It is worthwhile noting here that the challenges faced by the real estate sector, especially the housing sector, are at the heart of the focus of the National Transformation Plan (NTP). The private sector will play a pivotal role in the NTP, as the plan aims to raise the ownership ratio of national citizens to 52% by 2020, compared to its current of 47%. This will be done by overcoming the challenges facing the appropriate housing finance for national citizens, creating appropriate solutions for the use of unused lands, and involving major landlords in the housing development.

The NTP aims to encourage the work of the housing cooperative societies, which will build houses at lower costs compared to market prices, motivate the work of real estate developers and provide finance with the aim of developing housing projects at affordable prices for all groups of the Saudi society. This will be motivated by the fact that the Ministry of Housing’s foremost strategic objective at present is to enable national citizens to get a decent house and create an investor-friendly environment to attract local and foreign investment. Al Mazaya’s report points out that the reported and planned move would maximize the real estate sector’s contribution to the GDP over the coming few years.

It is worth mentioning that the region’s countries have spent substantial amounts of capital developing the real estate sector as well as its outputs and products. The tourism sector has emerged as being one of the most important outputs of the real estate sector, relied upon by the region’s countries for diversifying the income sources and maximizing the contribution rates of real estate, tourism, housing and commercial sectors to the GDP. The rising importance of housing activities are attributed to a fact that their positive effects are long-term, with widespread effects  All indicators confirm that an increase of investments in infrastructure development, establishment of hotels and entertainment facilities for the tourism sector have had a positive outcome, with the industry emerging as one of the most important sources of national income. According to current data, the tourist sector comprises 5 -15% of the GDP, and that total gulf investments allocated to developing the sector would exceed USD 380-billion by 2018.

Al Mazaya’s report reveals that the UAE is planning to become one of the world’s major tourist centers, supported by continued infrastructure development and the launch of more large-scale tourist projects – Saudi Arabia is currently carrying out projects at a cost of up to USD 11.6-billion, in addition to focusing on the development of the railway. It is of relevance here to point out that tourist investment in the Kingdom rose by more than 300% over the past few years.

The Qatari real estate market is following in the same direction – Qatar is planning to spend USD 45-billion developing tourist products and services, while the State of Kuwait is aspiring to develop the business tourism over the coming ten years. This development is dependent on the high rates of internal tourist expenditure, which would contribute to maximizing the sector’s contribution to GDP by more than 6% by 2025.

Al Mazaya’s report asserts that the region’s countries have the fundamentals in place to ensure success, with many opportunities available to maximize the contribution of the private sector’s activities to the GDP. In addition, relying on the real estate sector’s activities, which target investors as well as local, regional and external investments, would have positive effects with regards to improving their rates of contribution to the GDP.