Discussions about Middle East property investment often focus on Dubai, home to the Burj Khalifa, the world’s tallest building, and a raft of other high-profile developments.
But amid investors’ fears of another property ‘bubble’ in the emirate ahead of the Expo 2020 exhibition, experts point to other cities in the region that have potentially lucrative, underexposed housing markets.
Richard Paul, managing director of residential valuations for consultancy Cluttons in the UAE, said Dubai has inspired other cities in the Middle East, especially those in the Gulf, to open up to foreign investors.
“[Other Middle Eastern cities have] learnt from its mistakes. A lot of them will be doing things slightly slower than Dubai,” Paul said. “That’s their prerogative and that’s fine.”
Paul said that while Dubai is the “frontrunner” among developing Middle Eastern property markets, many cities in the region will stand to benefit from its reputation.
Ian Albert, regional director of consultancy Colliers International, said the UAE housing market offers depth and maturity. But property buyers looking for perhaps riskier, untapped markets will do well to look at the surrounding region around the UAE, he added.
Dubai’s real estate market has bounced back from the recession, with a 21.7 percent rise in annual home prices marking the steepest increase globally, according to a September report by London-based property consultancy Knight Frank. That has prompted warnings by some analysts that the market is overheating, and a crash in prices is on the horizon.
There are plenty of opportunities in the wider Middle East, Paul says. Unlike in the UAE however, many other regional countries lack adequate regulation or have restrictions on foreign investment, he noted.
“Dubai’s only really come into its own in the last few years; even before the crash, it was kind of the Wild West, as it were,” Paul told Al Arabiya News.
“[When] processes are straightforward, transparent and clear, it gives that country an edge. I would suggest that these countries, if they want a successful property market, need to allow people to enter it and get involved,” he said.
Here are the top five Middle East property markets tipped by experts as up-and-coming:
Jeddah’s housing market is gaining momentum, with rents rising on par with demand. A steadily increasing population and Saudi Arabia’s national GDP growth of 6.8 percent in 2012 are likely to keep Jeddah on the rise for some time, experts say.
While property prices are tipped to increase, investors should note that buying property in Saudi Arabia is largely restricted to Saudi citizens, and in certain circumstances, Gulf Cooperation Council (GCC) nationals. That keeps the market off-limits to other buyers, according to the attorneys Saudi Legal.
A report earlier this year by advisory Jones Lang LaSalle noted that most of Jeddah’s new residential supply comes from minor developers and individuals building smaller projects, with the remainder coming from large government housing projects.
The same report noted that villa prices average $1,230 per square meter, while the average asking price for apartments - which are more in demand - stands at a stable $1,110 per square meter.
Although the advisory notes that approximately 19,500 homes will be completed this year, a shortage of housing still exists.
“Jeddah certainly has an undersupply of housing,” said Matthew Green, head of research at advisory CBRE’s Dubai office, adding that the lack of available housing creates potential for investors.
Albert agrees that Jeddah “ticks an awful lot of boxes.”
Jeddah’s property market includes upscale apartments on the city’s corniche, and high-end villas available further from the waterfront.
Significant demand for government infrastructure could, if built, further enhance Jeddah’s economy, Albert said.
One possible caveat for investors is the relative lack of regulation, common in many Middle East property markets, experts said. “The Saudi market is still relatively unregulated and we’re still waiting for the mortgage law to actually be properly brought into place,” said Green.
Robert Lee, CEO of Manana-based developer Bahrain Bay, said Jeddah and Saudi Arabia’s capital Riyadh are the “dark horses” of the regional real-estate market.
“They’re such untapped supply - there’s a huge demand,” Lee told Al Arabiya News.
Lee said that unmet demand from users extends all the way from high-end units down to social housing. Building planned communities favored by families and expats would be more “socially acceptable” in Jeddah than Riyadh, he added.
Qatar’s capital, Doha, is endorsed by some analysts because of its gradually improving, slower-paced market conditions.
A recent report by UAE-based property manager Asteco notes that a wave of expatriates moving to the city has led to undersupply in the city’s residential market, causing an increase in rents, particularly in The Pearl-Qatar island development.
Amid increasing rents, a scarcity of quality housing has led to increasing demand for investors eager to tap into the growing market, the report adds.
Prices for an apartment in the city range from between $2,600 to $4,800 per square meter, according to the survey.
Doha’s property laws keep some freehold and leasehold developments open to foreigners, while GCC nationals are allowed to acquire up to three residential properties, subject to restrictions on their area, according to the Doha branch of law firm Patton Boggs.
Green said investors buying into Doha’s property market are usually local, rather than international buyers, despite the country allowing foreigners to buy.
“We’re not seeing any kind of big return of international investors into Qatar, and obviously that’s quite often the key driver for price escalation,” he said.
The city’s property market is largely servicing local investor demand, lowering chances of a post-recession real estate bubble, he added.
“There’s less likelihood that prices are going to be inflated artificially as we’ve obviously seen in the UAE in the past,” said Green.
Doha’s residential market comprised of 23,185 villas and 74,370 apartments in 2010, a report by Colliernoted earlier this year.
Investors looking into Doha’s property market will need to take note of the differences between property favored by locals and the large expat community. Around 92 percent of Qatari locals opt to live in villas, while 80 percent of expatriates live in apartments closer to the city’s center, according to the report.
Property experts forecast that Doha’s market will see growth in the near future, although the city’s demographics will decide in which direction the market will move.
“The people that are coming… are they family orientated, or [will] there be more younger couples, or singles?” said Lee. “You know there’s going to be growth. It’s just exactly what form, you’re not quite sure.”
For example, if more temporary, short-term workers arrive, apartment-style projects are likely to become more popular. But more longer-term, middle-to-high income families are likely to give a boost to villa-type projects.
Green played down the commonly held belief that the Qatar World Cup in 2022 will cause a large increase in housing values. While a lot of development in the city is fuelled by the tournament, “there has to be the end-user demand behind that to really have an impact on pricing,” he said.
For some analysts, Oman’s sleepy capital of Muscat carries a quieter appeal than its flashier neighbors. “Muscat knows who it is, and knows who they want to be,” said Albert.
The Omani capital’s stable market means that it is unlikely to go through boom-and-bust cycles, potentially offering a lower risk for investors, analysts say.
Oman allows foreign nationals to buy property within certain zones, while GCC nationals can purchase property anywhere, according to real estate website Global Property Guide.
Lee calls Muscat a “boutique” market – offering safe and steady opportunities to property investors seeking sanctuary from often-hazardous and overheated markets elsewhere.
Oman’s vibrant and well-founded tourism potential was also picked up by analysts.
“Muscat will only attract those who basically want exactly what Oman offers,” Lee said. “It has never grown wild or big in a relative scale. In a way, that has benefited them.”
Despite the city’s historic credentials, investors looking for a steady profit will want to look towards newer developments.
A two bedroom apartment in the upscale freehold Wave Muscat development has a sale price of $350,700, while a four-bedroom villa costs around $844,300. Analysts note that new, realistically priced developments are quickly snapped up on the rental market.
Older property is “challenging” to rent and will likely continue to decline in value, a report by advisory Savills Oman noted early this year. A report by Cluttons notes that growing activity in the housing market is being boosted by more competitive mortgages as well as the new options to utilize Islamic methods of property financing.
Investors can enjoy a certain level of confidence in the country, which enjoys an “A-” ranking from ratings agency Standard and Poor, due to the strength of its balance sheets.
The report said that it expects the Oman’s government budget to remain in surplus through to 2015 if oil prices continue at current levels.
Oman’s economy is not on the level of many of super-rich Gulf neighbors.
But like most Gulf states, experts say that its political stability, diversity and a slowly growing population mean that Muscat may remain an unadventurous, yet firm favorite for some time.
International investors looking for any degree of security would not normally look to war-torn Iraq, given the constant stream of headlines about sectarian violence, political squabbles and suicide bombings.
Erbil, capital of the largely autonomous region of Iraqi Kurdistan, is however gaining a reputation as a safe haven from the turmoil in much of the country.
Erbil’s fast-growing housing market will be further strengthened by leading Dubai developer Emaar’s announcement in October to develop a $3bn residential project in the city.
“A lot of companies want to try and use Erbil as a gateway into Iraq,” said Albert. Erbil has also carved out a reputation as a launch-pad for business and investment.
A report by Colliers earlier this year said that government studies highlight the need for 112,500 housing units during the next five years. But it is “doubtful” that existing construction will be able to keep pace with demand in Erbil, the report noted.
Average sale prices per square meter inside master-planned communities stand at $1,677 per square meter, while villa prices range between $330,000 and $625,000, and apartments from $300,000 to $350,000.
While opportunities for investment exist in filling existing shortages, one caveat for developers and buyers is the difficulty obtaining data.
The lack of accountability and transparency in Iraq’s wider real estate market is further evidenced by a rather grim “opaque” ranking by Jones Lang LaSalle in 2012 – ranking it among Mongolia, Pakistan, and Sudan at the bottom of the list.
However, due to Erbil’s recent emergence as a hub for commercial activity, a growing residential market has followed.
Demand for housing is heavily influenced by the lack of banking infrastructure in the country.
“What you see in Erbil is a lot of off-plan sales, where people are basically in real estate because there’s nowhere else to put their money,” said Albert.
Wealthy Kurds seem likely to continue investment in the city for some years to come, he adds.
A report on the city released earlier this year by Colliers said Erbil’s housing market sees a slow growth in supply, boosting demand from both city residents and buyers from other parts of Iraq.
Foreigners wishing to buy property in Erbil are currently limited to certain developments aimed at expatriate workers, an attorney from the city’s branch of legal consultants Meyer-Reumann & Partners told Al Arabiya News.
Despite current restrictions, Emaar’s entry in to the real estate market may usher in new legislation allowing for foreign ownership, says Albert.
Beirut’s property market is not for the faint of heart.
The country’s proximity to conflict-ridden Syria is likely to scare off many investors, amid fluctuating and unpredictable property values, experts say.
Unlike most countries in the region, Lebanon has a very open property market, allowing foreign nationals to buy property anywhere in the country - including Beirut - with restrictions on size, according to Global Property Guide.
Lebanese lender Bank Audi noted in a mid-year property report that Beirut’s current housing market has been decelerating since 2011, due to domestic and regional instability.
The report attributes this slowdown to market players adopting a “wait and see” attitude, with the bulk of demand coming from resident households, which are growing at 1.5 per cent per year.
“Prices either rise of stabilize but do not practically decrease in Lebanon,” the report noted.
Instead of tourists and foreign investors fuelling demand for property, refugees fleeing Syria’s conflict have been providing support for the rental market, with many choosing to rent furnished apartments.
However, some analysts reckon that investors with a large risk appetite could do well amid the current slowdown.
“If you are really into risk-taking, you’d buy now, because the prices are at their lowest, but somebody has to have a really strong stomach to go through the [market’s] ups and downs,” said Lee.
Demand for real estate in Lebanon has displayed a “roller-coaster” trend over the last five years, in line with the “twists and turns” of local and regional politics, a report last year by Lebanese lender Credit Libanais said.
The Lebanese capital has weathered enough storms to carve out a position of some strength, according to Albert.
“Beirut is a market where it doesn’t matter what you seem to do, the Lebanese will always find a way to survive, thrive and increase,” said Albert.
Prices in the city have “basically doubled” over the last ten years, Albert says – although official statistics are hard to come by.
Lee believes that while the city’s housing market is unsuitable for the “fainthearted,” property investors could see considerable returns, if they are prepared to wait for regional stability to improve.
“Some people made a truckful of money when they bought real estate in Kuwait, during the invasion. If you can see through the smoke and make a gut investment, I think you’ll do really well,” he added.
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