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AL MAZAYA HOLDING’S WEEKLY REPORT

 

 

GCC Governments Focus on Profitable Projects to Offset Accumulated Deficits

 

Investment and development plans are still reliant on oil prices

GCC States have shown far greater efficiency in managing the impact of falling oil prices, according to current data and economic indicators gathered by Al Mazaya Holding’s latest weekly report. The Gulf region has reconsidered development priorities in a way that corresponds to generated returns, optimising government expenses and incentivising the private sector to take up additional roles in the development process.

The region’s countries have proved hitherto successful in their economic investment options despite market pressures, which are, however, strong enough to endanger gains of strategic developmental plans and long-term investments.

The economies of oil exporting countries have for a long time been largely dependent on oil market performance with weaker crude oil prices creating a new reality that augments pressures on oil economies. As a result, this has developed new policies to avoid enormous budget deficits that could jeopardise their investment gains, including increasing oil production levels or maintaining them at their current rates.

The report mentioned that global oil prices declined by 6% during Q1 2017 amidst fears of increasing shale oil reserves after OPEC’s deal with non-members to cut oil output. This has pushed oil rates over the $50 mark, a level that encourages American shale oil producers, who are not part of the deal, to resume production.

Oil prices declined by 2% in April, standing at an average of $51.7 per barrel, with light crude rates continuing their plunge during the first week of May through electronic transactions in Asia. Brent crude dropped to $47.1, with current data projecting no potential stability or improvement at the $70 mark.

Government expenditures remain unchanged, running at safety net spending levels, with private sectors being empowered to chip in and make up for weaning government spending. The first quarter of 2017 recorded a 16% enterprise growth as compared to the same period last year, with the UAE economy coming on top in terms of the number of projects being launched while the Saudi market is down 29% as compared to the same period last year.

Energy sector enterprises have increased by 18% comparatively with Q1 in 2016 amidst persistent fears of further declines across the sector. This has triggered a reconsideration of several mega project-related tenders, as prices are not encouraging a resumption of development plans and property, industrial and service projects.

The report shed light on the UAE’s real estate market which has witnessed new property projects worth AED 16 billion, in addition to investment enterprises in areas of hospitality, marketing and leisure launched by semi-government and private companies as well as luxury property projects initiated as part of plush and integrated model urban communities. Economic diversification and the varying effects of oil prices from one emirate to another are supporting factors that has kept momentum running in the real estate sector during the first quarter of the year.

Data released by the Real Estate Registration Department in Dubai showed consistently increasing foreign demand for Dubai property, with non-Arabs claiming 51.6% of property purchases, followed by Gulf investors at 35.5% and Arab investors at 12.9%.

In Saudi Arabia, pressures are more likely to continue at key economic platforms during the rest of 2017, according to the report, as transformation plans underway need longer time to bear fruit. The Saudi property market is, therefore, not likely to witness growth at the current stage and will wait for deliverables of the transformation drive.

Data released by the Saudi Ministry of Justice indicated a decline of 9.5% for property transactions in the housing sector, 11.7% for the commercial sector and 1.3% for the agricultural sector. The report referred to 10 ambitious enterprises underway worth $92 billion, including religious, entertainment and new housing projects. Urban and transportation projects account for 68% of KSA’s total projects, estimated at A$ 700 billion.

In Oman, Vision 2040 is set to give the property market more momentum over the coming few years, with the exceptional nature of the Omani realty market auguring well in a way that exceeds expectations and outpaces the performance recorded in neighbouring countries.

In conclusion, the report stated that government spending is now mainly focused on never-failing profitable enterprises in order to offset accumulated budget deficits. In addition, the relative rise in oil prices compared to the previous years has reflected positively on the real estate sector’s performance. However, with oil prices remaining below the $50 mark, despite the consensus on extending crude oversupply limits, pressures are expected to persist at vital sectors of primary importance to GDP.