It might be that Saudi Arabian residential or commercial property is the best real estate investment opportunity in the Middle East. But that matters little if you are a non-Saudi and unable to buy. Even in Qatar and Abu Dhabi foreign real estate buyers have to make do with long leases, that is not as good as freehold though London manages with leasehold. Dubai, Ras Al Khaimah and Umm Al Quwaim are the places for freehold.
Critical mass
If you are buying with a view to being able to sell or rent a unit then a large and liquid market for aftersales or rentals is essential. You also want to be sure that foreigners are welcome. Those living on The Pearl in Doha recently found all their local alcholol licenses cancelled abruptly.
Others have become embroiled in fractious disputes over community fees with their master developers. This can impact resale and rental values. So you need to be careful where you buy and that the community is a happy one with a ‘good’ developer. That narrows the field for investors down quite a bit in the Middle East. Ownership for foreigners remains fairly new and the learning curve has not been painless. Nobody seems to think of consulting neighbors about planning permission for extensive refurbishments, for example.
There is only really a market with any volume in Dubai and perhaps Abu Dhabi. Dubai saw an impressive 25,000 real estate transactions last year, comfortably ahead of the 10,000 unit completions. The pattern this year looks very much the same with exiles from the economic chaos in Europe matched by the influx of political exiles from the Arab Spring protests. This also reflects the excellent economics of doing business in Dubai with its outstanding infrastructure and tax free zones for all manner of trade and commerce. Labour laws mean that you can employ pretty much anybody from anywhere at whatever salary they will accept.
Oversupply?
Cheaper accomodation costs than before the global financial crisis and local real estate crash add to the attraction of Dubai. Abu Dhabi can offer the same but on a smaller scale and only where government subsidies are available will Dubai not be chosen first. That Dubai property prices tumbled by up to 60 percent in the crash after the global financial crisis struck is a blessing for newcomers, but plenty of investors got their fingers badly burned in the crash and will not be back.
Other things being equal if oil prices stay high and the migration into Dubai continues in 2012 then well located property with a ‘good developer’ looks like being the best real estate investment opportunity in the Middle East, partly by default but also on merit.
Yields are high by global standards and tax free, and capital values and rents have a nice upside potential and little downside risk. Oversupply is overplayed. Good deals on the best located property are hard to find and this is starting to chase up prices.
