Details

US Elections, BREXIT and Fluctuating Exchange Rates Reshape World Realty Investment Map

Regional real estate markets face unanticipated risks due to unstable world landscape

The global real estate market has witnessed myriad challenges at different levels over the past period. As a result, the region’s countries are seeking to solidify their realty sectors by launching more feasible investments.

In its real estate weekly report, Al Mazaya Holding said a large number of these challenges are inevitable as they are associated with the waves of recession and regressions typically witnessed by countries from time to time and which have their own bearing on property prices and transactions.

The report noted that each realty market has its own respective peculiarities and advantages that provide it with a certain competitive edge. Accordingly, each country devises its own way of shielding foreign and local investments against direct and indirect risks so as to ensure an investment-friendly and secure environment. However, the fast-paced and multi-faceted developments taking place worldwide at present have created an unprecedented wave of risks that are difficult to control in the Gulf real estate markets.

The report noted that the fluctuating exchange rates worldwide play a major role in increasing the level of unanticipated risks that real estate and other types of investments face. The fall and rise in exchange rates have their own pros and cons, with Gulf investments in Turkey, for example, having decreased by 8% following the drop in the Turkish Lira since the failed coup attempt. The currency devaluation of the Lira is attributed to a number of reasons, including the results of the US presidential elections and Moody’s downgrade of Turkey’s long-term issuer and senior unsecured bond ratings.

The currency rates in emerging markets are likewise witnessing further slides, fluctuations and losses due to the growing speculations about a potential interest rate rise on the US markets, with quantitative easing likely to be abandoned. Egypt’s decision to float its currency has had its own direct impact on real estate markets as well.

The report highlighted some of the negative practices that have had their own bearing on world and Gulf real estate markets, explaining that they have resulted in considerable losses and fluctuations, adversely affecting the value of supply and demand and increasing the number of speculators who seek only short-term investments with high returns. On this issue, the report warned against unlicensed real estate brokers, underlining the importance of combating unlicensed brokerage activities due to the negative impact on the market. The necessity of auditing new real estate projects has also been underscored by the report to ensure they get the required licenses from the official authorities in order to avoid fraudulent real estate transactions.

On bogus and fake transactions, the report said the discrepancy in legislations and restrictions from one country to another adversely impacts real estate markets. Investors – for example, during real estate exhibitions – may fall victim to crimes associated with fake off-plan sales of property and plots of lands, paying big down payments to own a property that is basically non-existent. The report attributed this to the investors’ failure to verify the existence of such property ahead of the purchase process.

The report highlighted the recent rise in investment risk levels regionally and internationally following Moody’s rating downgrade, and said the downgrade should necessitate the launch of feasible investments in the market. The global economy growth rate is expected to stabilise at around 3%, with no leaps in oil prices. No positive signs have been noted, either in credit markets or major economic platforms and sectors – a state that, according to the report, would expose the region to growing risks and regressions.

The report shed light on the recent US Presidential Elections and the obstacles to be faced by US real estate and other types of investments over the coming period as a result of the election of Donald Trump. Britain’s exit from the EU has not affected the value of British real estate assets and investments. The report added that these two major developments in the US and the UK raise questions about the level of potential consequent losses expected in the future and how to find suitable investment alternatives to the US and UK markets.

Among the investment opportunities available in the region’s markets, Gulf investments are almost confined to real estate and equity sectors, as all the region’s countries are currently suffering from unstable demand and liquidity rates, a situation which would attract more foreign investments over the coming period and bring new domestic investments to a halt.

Conclusion

Such economic and financial pressures have their own bearing on the region’s realty markets, exacerbating a decline in property rental prices as supply outstrips demand in a typical response to the fall in real estate returns. Thus, the report underlined the importance of developing sound financial and economic approaches, and taking positive decisions to sidestep the risks the economic sectors – especially the real estate platforms – could be exposed to in the future.