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Liquidity of real estate plus laws and regulations are behind the success of the region’s markets

General investment sentiment, together with government initiatives, to boost liquidity of regional real estate market

In spite of the accelerated changes and developments being witnessed by global real estate markets, this region is demonstrating an ability to withstand pressures and challenges – despite supply and demand fluctuations favouring either investors or end users.

That said, the market still reflects equitable and real value in many markets, especially after the slight corrective declines witnessed by the more active markets during 2015 and in the first quarter of 2016.

Clearly, the traded liquidity levels in terms of overall values of daily and monthly real estate transactions and trades – in addition to the rates of traded real estate products, the instructions of control authorities concerned with the values of funding real estate products, and the marketing mechanisms and tools employed by real estate development companies – all determine a value which is required to evaluate the ability of the market to maintain its pace of activity.

Al Mazaya Holding Company’s Weekly Real Estate Report states that the general investment sentiment of the real estate market, together with government initiatives, will boost the liquidity of real estate in all areas. This is without prejudice to laws and regulations, which constitute the minimum levels of control on the real estate market’s movements, in order to protect it from setbacks and unjustifiable price bubbles.

It should be highlighted that the liquidity of GCC real estate is capable of attracting liquidity by providing innovative real estate projects or products that fit all categories. In contrast, various government initiatives – mostly managed through their respective central banks – will amend real estate funding percentages from time to time, reflecting the flexibility and adaptability of these laws to the conditions of the market.

Central Bank regulations tend to support the market in case of decline and help control it in case of recovery. In addition, these laws are important for enabling additional segments of the domestic community to own properties and houses, especially the lower income groups. This increases the liquidity of the real estate sector while ensuring the continuity of real estate projects.

It should be further noted that amendments to certain laws will reduce investment risk in the real estate market and cause financing channels to keep funding plans and expand their activities.

Saudi Arabia

Al Mazaya’s Report asserts that the recent Saudi Arabian Monetary Agency’s (SAMA) decision to raise the borrowing levels for mortgages for citizens to 85 instead of 70 per cent, is expected to boost demand for residential properties. This will boost liquidity in the Saudi real estate market, which is currently suffering from a state of recession due to the government’s decision regarding the taxation of undeveloped land. Moreover, current rates exceed the capacity of middle and low-income citizens to provide the first down payment of 30 percent.

Al Mazaya’s Report also says that while on the surface the decision is classified as positive, the complexities within the Saudi real estate market may deprive this decision of its positive intent. The main problem lies in the high prices of residential units, which currently exceed low to middle income budgetary capabilities. This decision is likely to further increase the prices of residential units, since it will increase short-term demand.

Al Mazaya’s Report emphasises that the Saudi real estate market needs more real estate projects, including ready-to-move-in residential units, as well as the creation of a competitive investment environment to encourage investors to contribute to urban development and diversified products.In this context, Al Mazaya’s Report points to the Egyptian Central Bank’s amendment of mortgage rates for low and middle-income citizens, with the aim of encouraging real estate financing and raising the value of the sector’s liquidity.

All of this can be carried out through the provision of long-term funding with low diminishing returns of five per cent, instead of seven per cent. This should help provide support for the less well off categories. Any government decision like those described above will certainly help to alleviate the burden of low-income citizens, by motivating banks to finance these income segments, with credit risk coverage handled through collective insurance policies.

Al Mazaya’s Report also considers such decisions important for the encouragement of real estate developers to build medium residential units and offer more real estate projects consistent with such trends. That said, these developments will play a role in activating lending from middle-income brackets with banks that could not provide the necessary financing due to the shortage of the supply of residential units. Therefore, the initiatives as a whole will encourage construction for middle-income categories. It is noteworthy that the Egyptian real estate market needs yet more laws in place so as to be able to cope with its longer-term challenges.

Qatar

Al Mazaya’s Report highlights the fact that, at the present time, the Qatari real estate market is enjoying liquidity. It is currently constructing many real estate and infrastructure projects and has financial and banking regulations and laws that are encouraging investments. The government of Qatar clearly recognises the importance of liquidity for the completion of all its projects on time. It is also worth mentioning that the development of the Qatari economy leads to the rapid expansion of its economic base and so growth within the real estate sector remains strong for the foreseeable future.

Al Mazaya’s Report says that the continuity of government projects will increase demand in the leasing market, whether that is for flats, villas or office spaces. All market indicators show that the current liquidity levels in the Qatari real estate market are still good, the banking sector has not been saturated, and that – if needed – it can activate the market by injecting more liquidity. Moreover, certain types of projects, particularly luxury residences at reasonable prices, will give an extra boost to the demand, taking into account the imperatives for continuing to construct appropriate housing projects for all income levels – so as to ensure better buying and selling operations, during the current year.

Liquidity indicators in the most active markets in the region – represented by real estate transactions completed, during 2015 – show that liquidity values are still high and that they continue to realise increases year on year. These values are supported by attracting investment activity and the continuity of good opportunities in the market, in terms of local demand and foreign investment. Added to this are the indicators of domestic investment demand, which can look forward to the attainment of further returns, via the exploitation of investment opportunities at current prices and selling them at higher prices later.

UAE

In the same context, the Dubai real estate market achieved growth at three per cent by the end of last year, at a total value of AED225 billion. This was boosted considerably by the off-plan market, which witnessed a remarkable improvement during the same period.

 

Bahrain

The Bahraini market recorded exceptional deals last year, for a second year in a row, with a total value of BD1.21 billion of closed business recorded. These levels represent indicators of stabilised trading values and the growth of its real estate market.

Conclusion

Referring to the Real Estate Trading Index in the Qatari real estate market, Al Mazaya’s Report noted a total value amounting to QR56.1 billion – a growth rate of 10 per cent. It is worth mentioning here that the high current prices in the Qatari real estate market prevent the achievement of a greater number of higher value transactions in the territory.

Al Mazaya’s Report concludes that real estate market liquidity in the GCC countries is still good and that the laws and regulations applicable at present are suitable for protecting the interests and rights of all parties.

The initiatives of the government and private sector are expected to continue to play a major role in the revitalisation of the real estate market. They will move the market out of recession and into a situation where indicators began to affect the market, despite the start of the decline in oil markets, which will influence the liquidity values relating to long-term investments.

Al Mazaya’s Report stressed the need for a renewed focus on all the projects that will cause other categories to invest and take advantage of opportunities in real estate, since this leads to sustainable activity in sector, as well as other related production and service sectors.