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-Al Mazaya Report: Growing investment cash flows, government support key factors behind upward mobility

The weekly report issued by Al Mazaya Holding said that the  GCC oil and non-oil sectors are set to gain greater momentum this year, with a growing  tendency towards more merger and acquisition (M&A) deals that are coupled with resilient efforts to attract more domestic and foreign investments.

Al Mazaya pointed out that the main economic commonality between the Middle East and the rest of the world at the moment is the ability of the region’s markets and their readiness to draw more local and foreign cash flows to ensure sustainable medium and long-term investments.

The region’s real estate market has demonstrated its ability to compete with other shared sectors in attracting liquidity both domestically and from abroad during the first quarter of this year despite the surrounding pressures on the overall economic performance. However, this performance is still below expectations and not up to the aspired level.

Al Mazaya noted that the real estate sector in various markets in the region is facing strong competition and challenges as interest rates continue to rise, trading markets continue to improve, and the stability of gold has deepened as a safe investment haven. This comes at a time when investment opportunities and risks have proved to be equal in all sectors and activities, and therefore the preference will be for the most stable and most profitable opportunities.

Within this context, Saudi Arabia seems to be on the right track by the end of the first quarter of this year, with performance indicators showing an improvement in the real estate market, which ended the first quarter with an increase of 28% in conducted transactions to SAR 49.7 billion as compared to the corresponding period last year, with the residential sector accounting for 34% of the value of these transactions, and the commercial sector for 15.9% during the same period.

Al Mazaya said that the improvement in total transaction values in Saudi Arabia was due to the increase in the volume of retail mortgages, which exceeded SAR 154 billion.

In addition, the predicted increase in the value of real estate loans augurs well for growing demand and activity in the real estate market driven by continual declines in land prices.

On the other hand, the economic sectors succeeded in maximising the benefit resulting from the increase in GDP at the end of 2018. In addition, the expansionary fiscal policy of the current year will be conducive to further stimulating the non-oil sectors, coupled with the recorded rise oil prices which improved in the fourth quarter of last year and stabilised during the first quarter of this year.

The UAE economy during the first quarter of this year continued the successes achieved at the end of 2018. The real Gross Domestic Product (GDP) grew by 1.73%,  hitting AED 1.442 trillion, driven by the improvement in international oil prices and non-oil sector growth, with retail and wholesome trade contributing 11.2% to GDP,  financial services by 9.2%, while manufacturing industries’ contribution stood at 8.9% and construction activities at 8.3%, indicating a positive real growth on non-oil activities.

The 4% increase in loans provided to the private sector by the end of February this year to AED1132.6 billion plays a key role in boosting the financial and economic performance of primary sectors, as high liquidity values are likely to reflect positively on the real estate and retail sectors and ultimately on other shared sectors. The value of sales and mortgage transactions recorded until the end of February reached AED 36.3 billion in Dubai, reflecting continued improvement in liquidity in the market.

Oman’s economic performance signs during the first quarter are mixed, with the domestic economy set to face many challenges until the end of this year, despite ongoing government efforts and expansion of economic projects to mitigate the impact of the growing public debt which exceed 50% of GDP and are expected to rise to 60% by 2021, compared to 40.5% in 2017.

The Al Mazaya report stated that Moody’s downgrade of the Omani economy will increase the cost of borrowing as well as hinder investment attraction strategies amid high unemployment rates and government plans to address the challenging problem.

The total value of loans granted to the private sector increased by 4.8% to OMR 22.1 billion at the end of January 2019. Retail sectors, valued at OMR10.3 billion, are expected to continue their growth at 9% by 2023.

In conclusion, Al Mazaya believes that the constructive decisions taken by the region’s governments over the past period are set to achieve best possible results and to mitigate the impact of the accumulated pressure on the performance of the overall economy. According to the report, this is a real positive indication of the ability of the current mechanisms and tools to stimulate growth, taking into account that the stimulus plans and strategies adopted to increase liquidity levels at the financial, investment and service sectors are moving at a good pace until now.