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Banking Sector’s Plans and Trends are the Most Influential Factors on the Real Estate Sector’s Liquidity Volume

Real Estate Markets of the Region are in need of innovative marketing plans and strategies to improve liquidity indicators

Liquidity volume affects real estate market indicators, expansion plans of the banking sector as well as trends of both individual and corporate investors under all circumstances. The positive and negative impacts of the amount of investment liquidity available extend to all sectors, first of which is the real estate sector. Regardless of the pace of activity and supply and demand status, real estate is in need of specific liquidity rates to maintain the pace of its activity and the continuation of projects. Liquidity is also important when it comes to maintaining balanced price levels without going back to limits that cause many companies to exit the market.

 

High liquidity values would support the speculation trend, and, consequently, raise real estate product values. This is obvious when the speculation trend coincides with a cutback in supply level. Also, the drop in liquidity values would lead to soaring prices of real estate products, thus making it difficult to provide real estate units for the end user. It is without doubt that the plans and trends of the banking sector are considered one of the most important influential factors in the liquidity level of the real estate sector, and other sectors as well. Therefore, the liquidity levels and finance strategies help determine the volume and number of projects as well as the costs and final price of the product.

In this context, Al Mazaya Holding’s Weekly Real Estate Report points out that there are indicators for decline in liquidity values in the British real estate sector, which is a direct result of the Brexit decision. Therefore, investment in real estate has been slowing down.

The first adverse impact resulting from the Brexit decision was that several real estate funds have suspended their investment activities in London. Meanwhile, the majority of real estate funds are experiencing an increasing demand from investors to withdraw their funds, a matter which maximises the possibility of these funds and their investment being exposed to considerable losses. Moreover, these developments would directly and indirectly impact the British real estate market, while the adverse impacts will increase in case the impact extends to the banking sector through re-evaluation of real estate finance plans at the individual and organisational levels. The unclear image dominating the markets following the announcement of results of the referendum is driving the trend towards further pressures on the liquidity of the real estate sector as a whole, particularly if the relevant authorities will not take the appropriate measures to minimise the severe impact of Brexit on the British economy as a whole.

Al Mazaya’s Report points out that the Saudi real estate market isn’t much better nowadays, as the available data reflects a 20% decline in the values and numbers of real estate transactions during the first half of the current year. The residential sector declined by 25% while, on the other hand, the real estate market is also facing up to 1% decline in mortgage loans offered by commercial banks.

This decline comes as a result of cutback in corporate loans, which went down by 4%, while retail real estate loans marked an inconsiderable rise at the end of the second quarter to reach to SAR 108 billion. It is worth mentioning here that the share of retail real estate loans has surpassed corporate loans. The aggregate retail and corporate real estate loans during the first half of the current year marked an increase of up to 12% as compared to the corresponding period of the past year. On the other hand, real estate investment ratios have also marked a decrease of up to 15%, due to recent inflation factors in the Saudi real estate market. This is in addition to investors’ abstention from developing the housing sector due to financial difficulties and the impact of imposing fees on vacant lands and on investment moves. It is noteworthy that the latest market developments push investors towards attractive sectors outside real estate development, with the aim of maximising cash flows.

Al Mazaya’s report reveals that the Qatari real estate market is affected by the developments in the local, regional and global markets. Qatari real estate market is currently ranked among the world’s most dynamic markets, with a huge number of real estate and development projects underway. It has become clear that the available liquidity is affected by the marked increase of real estate products, and, thus, the returns expected from these investments are much less than the returns expected in similar investments abroad, especially when compared to the investment values that went up during the first half of current year to over QAR 34 billion. Investments were divided to a number of global cities and metropolises, as well as major sectors, first of which is the British market, followed by the USA market, while the French market came third in rank and focused mainly on the real estate sector, in addition to investment in fashion, transport, tourism resorts, and energy.

The rise in the value of Qatari investments abroad affects the value of investment available in the local market. The activity pace as well as values of deals in the Qatari real estate market declined by 56% in the first quarter, as compared to the same period of 2015. It is worth mentioning here that real estate prices marked declines of up to 7.8%, according on the statistics issued by the Central Bank of Qatar. This could represent good indicators for rising values of deals and liquidity.

We cannot look into real estate market liquidity at the level of sale and purchase deals and the values of finance provided to real estate development companies without considering the plans and strategies of the banking sector and levels of liquidity available in it for investment. Most remarkably, the aggregate liquidity of local economies at the regional level is facing further decline, a matter which could impact the values of deposits and available liquidity that might have an adverse impact on the aggregate economic activity pace, thus affecting the real estate market. Moreover, market indicators reveal that several banks are turning towards maximising their liquidity ratios through resorting to the lending market in order to avoid any declines in the values of cash flows, mainly due to the drop in oil revenues and oil deposits. It is worth mentioning here that sources of cheap liquidity coming from government deposits are experiencing continuing decline, a matter which could affect lending prices and costs at the individual and organisational. Besides, this would affect the lending of real estate projects, which take the form of intermediate to long-term finance, due to the nature of these projects and payment schedules.

Al Mazaya’s report also addressed the importance of the availability of investment and finance liquidity at the real estate market of the region’s countries on a permanent basis. This can be achieved by creating promotional and marketing programs by real estate developers, and advanced and innovative financing tools offered by financers from time to time. These programs and tools should keep apace with the current developments and changes in both the real estate market and the banking sector. It is worth mentioning here that the decline in liquidity levels in the real estate sector would bring about considerable, comprehensive and adverse impacts and consequences, which surpass the impact resulting from the decline in liquidity values in stock markets from one trading session to another. This is because the investment in the real estate market is considered a direct investment that serves all economic sectors, while investment in the stock market is considered an individual decision because the positive and negative impacts only affect the investor.

In this context, Al Mazaya’s report addressed the plans and strategies related to raising the values of foreign investment in major sectors, a part of which has failed thus far. This is due to the fact that the investment attractiveness and return stability of several sectors are going down at rates exceeding the risk rates of investments in other destinations and sectors around the globe. Thus, there is a considerable responsibility on all stakeholders to reevaluate the investment climate and look for investment tools that can attract investment liquidity needed by the economies of the region’s countries. It is worth mentioning here that these economies are in need of direct investments far more than indirect investments, which proved a failure in the first financial challenge their economies faced.