The Gulf real estate development companies are currently looking for investment opportunities in the US real estate market, which, in the view of experts and investors, may have hit the bottom or near bottom on account of the subprime mortgage crisis. The real estate crisis in the US has spread into other countries and into other sectors, including the capital markets. The renewed interest in the US market comes after a period when most Gulf investments were directed at Asian markets.

A monitoring report of the Al-Mazaya Holding group observed an increasing interest of investment companies and regional investment banks in the favorable opportunities in both the US and the British real estate markets, which are suffering from a sharp decline in prices due to the large supply and the limited demand.

Low-Cost Housing Projects

Mohammad al-‘Abbar, Chairman of the Board of Directors of Emaar Real Estate, the largest real estate development firm in the Middle East, stressed that the company is mulling over opportunities in the US market, considering that prices have become attractive but lacking urgency. He advised patience, not for fear of investment in that tempting market, but because a more attractive price configuration might be at hand. What was worth $100, he intoned, could now be obtained for $10 and may be even for $5 down the road. He disclosed Emaar’s plan to focus on the middle and low-income segments in the US market, by building thousands of homes at low costs.

Impact of Subprime Mortgage Crisis

The Al-Mazaya report stressed that the credit crisis, the subsequent sharp decline in the value of real estate and failure of millions of homeowners to serve their mortgages have created large investment opportunities in the United States and British real estate markets. The crisis was exacerbated by the availability of a large number of residential and commercial units in their final stages of delivery or that have already been delivered, which would force the developers or the funding banks to offer them in compelling deals to enable them to meet financial obligations. This crisis offers investment opportunities for companies and individuals who have the cash to invest in the US real estate [market] and boost it in the medium or long term. According to the report, the number of apartments that are being built in Miami alone is more than 80,000.

The Al-Mazaya report added that the high liquidity of Gulf financial institutions and firms as well as those of the sovereign wealth funds, resulting from high oil prices and strong economic growth in the region, have attracted banks and investment companies seeking investors able to meet those companies’ obligations.

The Gulf Real Estate Market

On the other hand, the report stressed that investment in the US real estate market does not necessarily mean the withdrawal of investments from local or regional real estate markets. Rapidly growing oil revenues coupled with rapid economic development will accelerate the demand for housing. A recent study suggests that the anticipated demand for real estate in the UAE will continue to surpass the supply over the next three years. The equilibrium between supply and demand would only be achieved at the end of 2010. Al-Mal Capital [Company] estimated the number of new units entering the market during that period at about 180,000, or about 30% of the units that were assumed to enter the market, were it not for the shortage of labor and the paucity of construction material.

According to international estimates, the Gulf states earned in the range of $1.2 - $1.5 trillion in revenues during the 2002 - 2006 period, bringing their overseas assets to more than $1 trillion, which significantly increased their share in the global economy.

Dar al-Hayat, London, April 1, 2008. The article originally appeared in Arabic and excerpts from the article were translated by the staff of www.memrieconomicblog.org