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High margin of investment competition in region’s housing and hotel real estate projects

 

Increasing importance of real estate investment noted – compared to other sectors

Real estate projects of all types and sizes are continuing to be developed in both regional and world markets, with real estate developers and retail project owners revealing that decisions involving investment in housing are driven by demand estimates, population, and return on investment (ROI). Investments in tourism-related projects, however, are dependent on an expected rate of return and recovery periods, taking into consideration local government expenditure plans on infrastructure and overall economic forecasts.

In the main, housing markets are being positively affected by a boom in both indigenous population growth and economic migrants continuing to head into the region. Housing projects are, therefore, proving to be the region’s most stable investment vehicle – in terms of the long-term demand indicators. Overall, fluctuating ROI indicators are generally equal between housing and investment real estate (at the level of ratio and value difference), although there is currently a slightly more favourable leaning towards investment real estate.

In this respect, Al Mazaya Holding’s Weekly Real Estate Report emphasises the importance of activity in hotel and investment real estate – across all world regions. The report suggests that investment real estate is considered favourable for global investors. This mostly takes the form of cross-border investments from investors seeking long-term opportunities, with hotels considered among the sectors most attractive, especially in the UAE and Qatar. The hotel real estate sector in Dubai and Abu Dhabi is among the most efficient and attractive, with the UAE’s two largest emirates currently accounting for the largest portion of total tourists coming to the region.

Premium projects within the hotel and investment sectors play an important part in achieving the best international ratings, which have a knock-on impact for attracting investors and, thus, maximising investment returns. It is worth mentioning at this point that markets that have the most premium hotel projects tend to attract the best investments and investors, due to consistently providing the highest long-term returns. Taxation and exemption ratios also have an influencing role in guaranteeing the continuation of investment flows and ensuring that investors reap large returns.

Al Mazaya’s report also notes that investment movement and the endeavours of stakeholders in the region’s hotel real estate market are contributing to the development of further real estate products and promotional programmes. The aim being: to attract further foreign investments, and thus enhancing the attraction of other investments. This, in turn, maximises investment values and maintains the value of real estate assets, in the long run. As is commonly known, the hotel real estate sector in the region’s countries is considered one of the best economic sectors and often produces further investment opportunities for Gulf-based and international investors to capitalise on.

Investment competition is increasing among housing and hotel real estate projects, specifically at the regional level. Currently, the market data indicates that investing in the hotel sector is a better option than investing in housing real estate. The average ROI for housing real estate ranges between 10 and 12 per cent, per annum, while ROI in the hospitality sector ranges between 15 and 25 per cent, over a 12-month period. Furthermore, circumstances of an economic boom and recovery will contribute to the maximisation of returns, due to the nature of world-class events coming to the region. These include Expo 2020, Dubai, and the 2022 FIFA World Cup, in Qatar. This is in addition to ongoing tourism projects being carried out by the governments of all GCC countries.

Al Mazaya’s report affirms that housing real estate in the region has brought substantial revenues for its owners over the last quarter and has proved to offer better returns than other investments. Since there has been high demand from the end user, in the years following the aftermath of the global financial crisis, there has also been a direct impact on retaining asset as well as sale values – irrespective of market conditions. On the other hand, the reported increase in the number of foreign visitors to the region’s countries, in addition to the increase in the number of tourists from the region to foreign countries, has already contributed – and will continue to contribute – to the evolution of the hotel, tourism and housing real estate sectors around the globe.

Available data indicates that the rise in the number of tourists coming to the region over the past few years is reflected in the volume of investment seen in the hospitality sector. The figures also bear witness to the level of feasibility and attraction for investors. Ultimately, the housing sector, as well as projects relating to commercial activities, will also benefit.

Al Mazaya’s report also maintains that the attractiveness of housing real estate has expanded – moving from the local to regional level, and more recently to global markets. It is now ranked first among the objectives of individual and corporate investors from the region’s countries, following on from trends in the British and Turkish real estate markets. It is, therefore, clearly evident that investors will also turn their attention towards other promising markets, with the Polish market constituting one of the best real estate markets for regional investors. This is due to the North-Eastern European country’s booming economy, easy businesses practices, a real estate market boom, and the execution of supporting infrastructure projects, across its major cities.

Foreign investor ownership and the purchase of real estate, in Poland, are also being welcomed and there is also a market for luxury housing units. A luxury real estate investment constitutes a rewarding opportunity, promising high returns and short-term rather than long-term gains. It is also worth mentioning that the attractiveness of housing in the Polish real estate market is on the increase, in comparison to the established luxury markets in major cities like London, Berlin and Paris.

One of the most enduring facts, during a period of development and change, is that the region’s countries are among those continuing to invest abroad. They spend substantial amounts on the execution and development of infrastructure projects, which helps maximise the contribution of non-oil sectors to their annual GDP. As a consequence, it also raises their countries’ competitiveness at the global level.

Projects which are expected to contribute to promoting investment in the region’s financial, real estate and commercial sectors include: the Riyadh Metro project, at a cost of up to USD 40 billion, is considered to be one of the world’s largest projects currently underway; the Doha Metro project, at a total cost of QAR 130 billion; and Dubai’s Mall of the World, which is expected to be the world’s largest mall, at a total cost of USD 6.8 billion.

Al Mazaya’s report asserts that the success of the housing real estate sector is largely dependent upon the success of the investment, tourism and commercial sectors; however, at this time there appears to be no particular sector leading the movement of real estate activity. On the flip side, any decline in the pace of activity will equally affect all real estate products – without exception; so, if other sectors lose, there will be no winner. On the other hand, the success of the tourism and hotel sectors will rely on the movement of the housing sector and its sales, leasing and investment activity. They are also dependent on the pace of financial and economic activity in each GCC country. Therefore, it is seen as a must to attract more money into furthering housing and investment real estate projects of high economic feasibility. The success of which will depend on performance indicators of other sectors and economic activities at the local, regional and global level.