NCB Capital, the investment banking arm of National Commercial Bank, Saudi Arabia’s largest bank, believes that although the real estate markets remain subdued in many countries because of weak economies and credit constraints, by contrast the GCC countries are likely to benefit from favourable fundamentals and see property prices begin to rise.
Dr Jarmo Kotilaine, the Chief Economist at NCB Capital, said, “Following an oil-led stabilization in the region, the most recent data now suggests that a property market recovery might be upon us, even in Dubai. However, the crisis has underscored the need for systemic reforms so as to ensure that this is a sustainable recovery.”
The bank believes that the structural drivers of the GCC real estate sector will be:
• Robust economic growth – solid macroeconomic fundamentals, high degree of stability and a favourable business climate.
• Diversification – moving away from a dependence on hydrocarbons.
• Favourable demographics – demand for housing from a growing, young population.
• Foreign ownership – a relaxation and deregulation of ownership laws.
• Real estate credit – lending should improve along with economic recovery and the development of regional debt capital markets.
In Saudi Arabia, the outlook is favorable with economic activity set to benefit from the combination of an oil price recovery, continued government stimulus and gradual relaxation of bank lending.
“We expect gradual price appreciation of some 20 per cent over the next three years in Saudi Arabia which the new mortgage law would likely accelerate. The UAE market looks likely to be the slowest to recover with little prospect of sustained price appreciation before 2011,” said Dr Kotilaine.
He concluded, “The gradual development of the debt capital markets will make it easier to raise funds for construction in the Kingdom while continued progress of at least some of the economic city ventures will drive growth.”
NCB Capital believes that to ensure the predicted growth in real estate is sustainable will depend on the GCC economies working to curb speculation, improve transparency, develop mortgage markets, agree common building standards and synchronize new construction with their broader infrastructure developments.
