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UAE Leads in GCC Region for Investment
in Real Estate Sector

Real estate accounts for $250 billion of planned projects, or more than one-third of the total $717 billion for all categories in the region from 2010 to 2013 while the UAE’s lion’s share will be $110 billion during the same period, the bank said in its latest report. During the past several years, most GCC investment was directed at the real estate sector and this trend is expected to continue in the coming years, according to data on future planned projects sourced from MEED Projects, the Middle East business intelligence projects tracker.

“In our view, given the correction in the housing market, most of the cancelled projects will be related to the real estate sector. This is not necessarily a negative development, as more funds will be made available to the productive areas of the economy,” the bank said.

The bank estimates that 70 per cent of the value of awarded contracts in 2008 in the UAE was in real estate. That year was dominated by ample liquidity and excessive moves in real estate prices, which distorted economic incentives and encouraged short-term speculative behaviour at the cost of longer-term strategic planning. Although the housing market is undergoing a correction, there is an opportunity for the UAE to refocus its investment on productive sectors of the economy – such as ports, education, petrochemicals, financial services, and tourism – that are likely to have a more sustained impact on the economy than real estate.

“We estimate infrastructure projects in the GCC will reach sq$205 billion by 2013, with Saudi Arabia having the lion’s share at $105 billion. Infrastructure projects including hospitals, roads, railways, and airports in the GCC region are almost exclusively government driven, and largely fall under the regional government’s fiscal expansionary spending outlays and wider socio-economic programmes,” the bank said.

In Dubai, the state budget has set aside close to 40 per cent for expansion and development of the transportation network. In Saudi Arabia, the government’s decision to take over a number of key infrastructure projects that ran into funding problems has re
sulted in these projects moving ahead very rapidly.

“We believe GCC governments will continue to support projects deemed beneficial to the wider social and economic interests of the state, which further supports our belief that infrastructure projects are likely to receive direct state support owing to their strategic importance. Thus, infrastructure projects in the region are likely to underpin regional demand for both base metals and steel, despite potential weakness in private sector real estate,”
 the bank said.

The Middle East and North Africa region is an important pillar to emerging market-led raw materials demand growth, even if it is much smaller than China. The scale of projects that are unaffected illustrates this; in a dynamic similar to China, the region has been much more able to sustain investment spending than Western governments through its favourable fiscal position and the ease with which government policies can be enacted.

“We forecast that base metals are likely to pull back in the short term, as the pace of Chinese import growth stabilises and inventory levels climb higher. This could provide compelling entry levels for long-term investment in industrial metals over the next few months, especially for those who subscribe to the view of a sustainable and demographically driven urbanisation process throughout resurgent emerging markets,” the bank concluded. 
— abdulbasit@khaleejtimes.com