Executive Magazine

Food prices in check

by Executive Staff November 3, 2010

written by Executive Staff

Food prices in check - Lebanon Last month the cabinet endorsed a measure to allow for price controls on food products that would assign levels of “acceptable profits,” according the Agriculture Minister Hussein Hajj Hassan. The ministry reported that prices of tomatoes have risen by almost 100 percent in the past four months alone, with one variety up as much as 400 percent. Hassan also attacked the policy of former Minister of Economics and Trade Sami Haddad for issuing a ministerial decree that annulled a previous legislative decree that had set a profit margin of 27 percent for middlemen dealing in various foodstuffs and household items. The minister also stated that he expected meat prices to remain high until after Eid el-Adha. Hassan said that his aim was to lower the import-export ratio for food in the country from 80:20 to 60:40.

November 3, 2010 0 comments

Finance

Banking Special – Asking for the moon

by Emma Cosgrove November 3, 2010

written by Emma Cosgrove

When Beirut’s wealth managers talk about the financial crisis, their language is decidedly emotional. They speak of the “support” they gave their clients as they watched their portfolios crumble. They say that their clients “suffered,” that they were “hurt” and “scarred.” Clients felt betrayed and blindsided, as “a major part of these losses were derived from risks that they were unaware of,” said Dory Hage, head of advisory and asset allocation at Banque Libano Francaise.

Now that the bloodletting is mostly over, the worldwide economic recovery has created a unique financial climate in which wealth managers and their clients are feeding off the slowly healing global economy to mend their own fortunes even quicker.

But while they may both be in a far happier place than they were a year ago, the travails they went through together have changed the nature of the game.

According to consultancy firm Capgemini’s annual World Wealth Report for 2010, the number of high net-worth individuals (HNWIs) — those with over $1 million in investable capital — worldwide grew by 17.1 percent in 2009 after decreasing by 14.9 percent in 2008. The total fortune of these individuals also grew last year, increasing 18.9 percent from 2008 to reach $39 trillion.

But in the Middle East, the number of HNWIs only grew by 7.1 percent and the collective fortune of the region increased by just 5.1 percent. The region’s HNWIs are regaining their wealth slower than much of the rest of the world, and they’re not happy about it. Lebanese investors in particular are proving to be an especially intractable bunch.

The Where

George Tabet, head of private banking at BLOMInvest said he’s seen a reflexive abandoning of foreign banking hubs in favor of returning home to Lebanon’s alluring interest rates.

“Big clients used to put a big part of their money in big banks in Switzerland, Luxembourg or Singapore. Now, after the crisis hit the big banks of the world, they [decided] to move a big part of this money to Beirut,” he said.

Investors we drawn by the high returns offered on deposits in local currency (averaging 5.72 percent in August according to Banque du Liban, Lebanon’s central bank.) Even dollar rates at Lebanese banks remain attractive on a global scale, with the weighted average rate on offer at 2.78 percent as of August. And though these rates attracted record capital inflows into Lebanese banks, they also raised expectations and demands from clients who have grown more risk averse but still want to make higher returns than their bank account can provide.

The Who

After a client decides which institution will guard what is left of his piggy bank, he has to decide how much control he wants over how his cash is invested. And opinions differ as to which way clients are tending.

Some say that discretionary clients, those who turn all their investment decisions over to a wealth manager, have become more prevalent as clients have realized that they have neither the knowledge nor the time to manage their own money in what have proven to be complicated and volatile times.

Nael Raad, deputy general manager of Ahli Investment Group Lebanon is of this belief. “In these kind of markets you can really get hurt. I think people tend more to give their money to asset managers. They are less trusting in their own capabilities.”

Naji Mouaness, head of consumer banking at Standard Chartered Bank Lebanon agreed that some form of discretionary relationship leads to better results.

“There is a science behind investing, and a traditional do-it-yourself approach driving conventional decisions may often not lead to the best result,” he said. “Deciding where to invest and investing is just half the job done, since our needs will evolve over time… regularly monitoring and re-balancing your portfolio is very important so that it is always in line with your changing requirements.”

Others claim that after incurring the losses of the past two years, clients have never been more insistent that every decision regarding their portfolio be their own.

Roula Habis, general manager of Middle East Capital Group, like most of the managers Executive consulted for this report, prefers that clients be involved in deciding the course of their portfolio. “Even if the market goes down, they will understand why their portfolio went down. If you just manage their money discretionarily, you’ll be totally responsible.”

Just as clients’ preferences as to who controls their portfolio have shown conflicting trends, mangers say that their financial behavior has been similarly erratic.

“People either liquidated their portfolios and went into real assets like real estate here in Lebanon because there was a boom, or they took more risk and started trading their portfolios,” said Mohammed al-Hamidi, managing director of AM Financials.

The risk-taking clients looking to take advantage of market volatility forced wealth managers to change the nature of their jobs. “The period where there is a boom and bust is becoming shorter and shorter. And the reaction of the markets, because of technology, is becoming much faster and much more severe… we have to be more agile,” said Hamidi.

With this volatility, many of the traditional safe stores for capital have lost their utility, making way for other asset classes whose relative volatility seems less in such unstable markets.

“For the last two years or so, more conservative investments proposals were requested by clients; fixed income products, bonds, inflation-hedged products and the like,” said Reto Bartels of UBS’s Beirut representative office.

“Bond prices went up and more risky asset classes like equities became cheaper. In fact, equities look rather inexpensive today, and the next trend might be that the risk appetite of the investor is coming back again and investments in equities and commodities might increase, with rising prices as a consequence.”

Beirut’s financial minds all have their opinions on where these trends are going and how to seize the market as it morphs with fits and starts into whatever the brave new world of the financial recovery will look like. Until we reach that high ground again, the traumas of the crisis will remain fresh in client’s minds, and fully understanding current operating conditions is as important as ever.

To address this need, Executive has pooled the expertise of the best minds in Beirut to help investors be the masters of their own fortunes.

November 3, 2010 0 comments

Last Word

Empire in austerity

by Executive Contributor October 24, 2010

written by Executive Contributor

In an article earlier this year for Foreign Affairs magazine, the British historian Niall Ferguson discussed how quickly empires collapse. He noted that while many observers have tended to assume long cycles of imperial decline, a breakdown could come suddenly, “like a thief in the night.”

Ferguson has argued that the American empire is more likely to disintegrate for reasons related to the domestic economy than foreign policy. In his book ‘Colossus: The Price of America’s Empire,’ he argued that imperial America faced a ballooning fiscal crisis brought on by a propensity to consume much and save little, as well as an impending social security crisis caused by Americans living longer and overburdening the fiscal system.

In the Foreign Affairs article, Ferguson focused on the vital matter of perceptions of decline. Even if fiscal shortcomings were not enough to erode American strength, he pointed out, “they can work to weaken a long-assumed faith in the United States’ ability to weather any crisis.” Just look at the relatively minor sub-prime defaults that spread through the global financial system by “blowing huge holes in the business models of thousands of highly leveraged financial institutions.”

Another scholar, Michael Mandelbaum, recently examined the implications of the financial crisis on American foreign policy in his ‘The Frugal Superpower: America’s Global Leadership in a Cash-Strapped Era.’ He argued that America’s debt obligations following the 2008 financial crisis, as well as its fiscal structure and entitlement programs such as social security and Medicare, prevented the country from continuing to play the leading international role it has for decades.

“[T]he public will no longer feel able to afford, and so will not support, operations to rescue people oppressed by their own governments and to build the structures of governance where none exist,” Mandelbaum wrote. “Interventions of this kind, which the United States has undertaken in the last two decades in Somalia, Haiti, Bosnia, Afghanistan, and Iraq, will not be repeated. The American defense budget will come under pressure, and so, too, therefore, will the missions that the defense budget supports.”

All this raises an interesting question. If, as Mandelbaum affirms, the United States becomes more frugal abroad, will that not undermine America’s long-assumed faith in its ability to weather any crisis, as Ferguson pointed out? In other words: too much realism about American limitations may actually accelerate America’s waning.

Certainly that is true in the Middle East, where, under President Barack Obama, the US has visibly downgraded its commitments. Obama has withdrawn American combat forces from Iraq. He has overseen a significant tightening of sanctions on Iran, in part to better avoid being sucked into an expensive, hazardous war with the country over its nuclear program. Obama’s support for Palestinian-Israeli peace, while it fulfills a campaign promise, may be viewed as an effort to stabilize a region that might cost the US dearly in the event of new conflicts. Even in Afghanistan, where Obama has deployed 30,000 additional soldiers, information recently published by the journalist Bob Woodward indicates that at the heart of Obama’s thinking were a clear-cut exit strategy and financial worries. “I’m not doing 10 years. I’m not doing long-term nation-building. I am not spending a trillion dollars,” the president told Secretary of State Hillary Clinton in October 2009.

That is sensible. However, America’s view of itself has always pushed in a contrary direction. It was John F. Kennedy who stated in his inaugural address that America would “pay any price, bear any burden, [and] meet any hardship… to assure the survival and the success of liberty.” For Obama to challenge that premise on financial grounds effectively denies Americans the self-assurance — some would say the egotism — a higher sense of purpose invariably brings with it. This in turn could hasten the demise of the American empire that Ferguson discusses. Balancing national values with national accounts will remain a major difficulty for American leaders. But the process of change may be quicker than some imagine, as Ferguson believes. America may not be able to afford high ambition, nor might it long outlast excessive modesty.

October 24, 2010 0 comments

Companies & Strategies

Buying back the Love

by Executive Editors October 24, 2010

written by Executive Editors

A journalist from Executive magazine and 200 others from around the globe were flown to San Francisco last month on a junket that included airfare, two nights at the Hilton Hotel, gourmet cuisine and a perpetually open bar.

Clearly, hosts Microsoft had something they wanted to say, or more accurately, wanted the assembled hacks to say. While some events make news, others are made news, and the later was certainly the case with the launch of Internet Explorer 9 (IE9) beta.

But why such expense for the trial version of a ninth edition web browser? As Sebastian Anthony, an editor at the AOL-owned technology blog Download Squad said, it’s been a good few years since Microsoft has been able to generate decent media coverage, while at the same time “Apple sneezes and people write a story about it.” Thus, perhaps, the reason for the public relations bonanza.

Internet Explorer (IE), at one point the default browser of nearly 95 percent of web surfers, has seen its market share slip through the noughties to just over 60 percent today, as competitors such as Mozilla’s Firefox, Google’s Chrome and Apple’s Safari have gnawed away at IE’s slice of the pie. Still, that’s 60 percent of the almost 2 billion Internet users worldwide.

“It’s a fun story to tell sometimes how IE has declined, but it is still very strong,” said Brian Hall, general manager of Windows Live and Internet Explorer. Microsoft officials promised, and in many ways demonstrated, at the September 15 launch in San Francisco that IE9 heralds the next generation of web browsing.

While developers and enthusiasts might ogle over its “hardware acceleration” and the evolution of HTML5 coding, the layman attraction is that web browsing with IE9’s minimalist interface feels cleaner, and is a whole lot faster than competitors when it comes to loading large websites. (IE9 requires Windows Vista or Windows 7, however, so those using Windows XP or older operating systems will have to fork out for something newer).

Weeks before the beta launch, Microsoft gave many of the world’s most popular websites advance access to the new code and offered support to help optimize the sites for EI9, thus securing customer usage and adoption even before the release.

Then it was time for the charm offensive in San Francisco for the beta launch, which Microsoft will use to gather feedback from users and developers before launching IE9’s final version, at an as yet undisclosed date.

Regional strategy

Asked whether Microsoft had a specific strategy to promote IE9 in the Arab world, Hall noted that the company operates in most countries around the globe and while there are some unique local Internet intricacies regarding bandwidth and latency in developing markets, generally, “the market dynamics are quite consistent, which is: enthusiasts set the tone, sites drive the real adoption, distribution helps with adoption.”

He said Microsoft will now work at “encouraging” PC manufacturers to ship IE9 with their products, and Microsoft has more than 1,000 staff who will seek out local partners to work with. “Even in Lebanon, we will have people who are meeting with companies that build the top sites in Lebanon, and we’ll want them to do work for Internet Explorer 9.”

What profit?

This all sounds very expensive, leaving one glaring omission: how will Microsoft make money off IE9?

“We don’t,” said Dominic Carr, director of Windows Communication. “Our business model is ‘happy Windows customers.’”

As Hall explained: “We have a little tiny business called Windows,” an operating system with more than one billion customers. “Especially for home users, the number one thing people do on their PC is browse the Internet… our job is to give the best web experience to Windows customers that we can, and that is the purpose of the browser.”

So will this strategy work? Will IE9 help Microsoft regain browser market share and put smiles on the faces of Windows users?

“No one thought they would succeed with the X-Box, but they threw enough money at it until it succeeded, and now it’s huge,” said Download Squad’s Anthony. “I think [IE9] will succeed — they will throw money at it until it is a very big success.”

“It comes down to how much they value their free browser app, and whether they just want to beat Google — that might be the pure intention: they want to smash Google to pieces.”

October 24, 2010 0 comments

Finance

Regional equity markets

by Executive Editors October 24, 2010

written by Executive Editors

Beirut SE

Current year high: 1,200.49 Current year low: 953.88

> Review period: Closed Sept 23 at 969.34 points Period change: 1.4%

Despite a minor improvement in the MSCI Lebanon index, Lebanese stocks are in the mode of attractive pricing; the Beirut market is the biggest loser so far in 2010. Political concerns were unabated in September as market participants marveled at fractious interactions between local, regional and international power brokers. Citigroup analysts confirmed that they continue to regard real estate scrip Solidere as having price potential far above the sub-$20 range it has been traded at lately. Bank of Beirut saw some selling after disclosing plans for a $159 million preferred shares issue.

Amman SE

Current year high: 2,693.91 Current year low: 2,223.30

> Review period: Closed Sept 23 at 2,309.21 points Period change: 2.68%

Although gainers outnumbered losers on the Amman Stock Exchange in the review period, the ASE index has a ways to climb to alleviate concerns over the Jordanian bourse’s poor performance and lack of stamina in 2010. One has to wonder if the mid- September announcement of a prime ministerial committee tasked with examining the reasons for the ASE downtrend qualifies as reassurance for investors. On the bright side, the industrial sub-index was the best gainer on the ASE in the review period. Arab Potash gained 11.8% while market cap leader Arab Bank advanced 4%.

Abu Dhabi SM

Current year high: 3,239.74 Current year low: 2,467.04

> Review period: Closed Sept 23 at 2,639.33 points Period change: 5.64%

With a price return that was less than half of what was seen in Dubai, the Abu Dhabi Stock Exchange on Sept 23 nonetheless closed still ahead of the DFM in terms of to year-to-date performance: 3.8% in the red versus Dubai’s 6.3%. But the more important matter is that all GCC bourses recorded a period of gains as the region celebrated the end of Ramadan. Real estate, which was weak in August, was the outperformer among sector indices on the ADX, followed by banking. The consumer index underperformed. Abu Dhabi Commercial Bank gained 26.5%.

Dubai FM

Current year high: 2,373.37 Current year low: 1,461.80

> Review period: Closed Sept 23 at 1689.45 points Period change: 13.87%

It seems that perhaps Ramadan prayers and spiritual discipline are as good for the books as they are for the soul, as the Dubai Financial Market had its most bullish moments for some time in September. As the DFM index reduced its loss for the year to date to 6.3% by Sept 23 market close, the telecoms sub-index led all active sectors in double-digit gains. Whether that growth is sustainable remains to be seen. Logistics firm Aramex leapt almost 28% higher; market cap leader Emaar gained 15.6%.

Kuwait SE

Current year high: 7,882.60 Current year low: 6,319.70

> Review period: Closed Sept 23 at 6840.10 points Period change: 2.27%

The upward trend across GCC markets allowed KSE investors to breathe easily as the bourse’s benchmark index loss for the year to date narrowed to 2.4%. Industry and insurance were the best performing sectors on the KSE, making September a real “in” month on the Gulf’s northernmost exchange. Share prices of market cap leaders Zain and NBK advanced 8.3% and 7.3%, respectively. Losers in the review period included First Takaful Insurance, down 15.6%, Kuwait National Airways, down 7.7%.

Saudi Arabia SE

Current year high: 6,929.40 Current year low: 5,760.33

> Review period: Closed Sept 21 at 6,434.90 points Period change: 5.38%

While the Saudi Stock Market still didn’t return to its former glory after regressing a month earlier, the solid gain in the TASI benchmark index indicated a return to greener pastures for the year-to-date performance, in step with the monthly growth. Petrochemical and agro sectors outperformed the market while retail underperformed. Gains were broad based across sectors and with few exceptions, stocks advanced. Holy and national holidays meant fewer trading sessions than peer markets.

Muscat SM

Current year high: 6,933.75 Current year low: 5,968.36

> Review period: Closed Sept 23 at 6,339.29 points Period change: 3.15%

With a middling performance as compared to its GCC peers, the Muscat Securities Market benchmark index returned to a positive reading for the year to date but remained a bit too close to the drop zone to break out in full cheers. Led by the services sector, the MSM sub-indices for services, banking, and industry all performed modestly above the general index in the review period. The most exciting thing for the Omani market after the holidays was the opening of subscriptions for the Nawras IPO.

Bahrain SE

Current year high: 1,605.98 Current year low: 1,361.19

> Review period: Closed Sept 23 at 1,445.75 points Period change: 1.91%

Continued recovery brought the Bahrain Stock Exchange benchmark index back within one percentage point of its value at the start of 2010. With its price to earnings ratio of 11.49x, the BSE ended the review period less pricey than the average 13.69 P/E ratio for GCC bourses. Banking and investments led the market’s gains, while movements in the insurance as well as the hotels and tourism sub-indices pointed in the opposite direction. Gulf Finance House emerged on the losing side with a drop of 13.8%. Market cap leader Ahli United Bank gained 4.3%.

Doha SM

Current year high: 7,801.33 Current year low: 6,502.93

> Review period: Closed Sept 23 at 7,661.67 points Period change: 6.03%

The first market trend in the GCC this year that conveys real rally flair is the rise of the Qatar Stock Exchange along a 12-week upward path since early July. By its close on Sept 23, the benchmark index in Doha had worked its way into the gains range of 10% versus the start of 2010. Financial values outperformed the general index on the QSE in September while the sub-index for services lagged behind. Among market heavies, Qatar National Bank and Industries Qatar benefited from the upwind, while market cap leader Ezdan Real Estate was flat.

Tunis SE

Current year high: 5,599.28 Current year low: 4,021.14

> Review period: Closed Sept 23 at 5,531.97 points Period change: 4.07%

From the uninvolved observer’s perspective, the 2010 Tunisian Stock Exchange performance borders on boring, but it must be different from the local investor’s point of view. The Tunindex extended its gains further and by Sept 23 was up 28.9% for the year-to-date. Directly after the Fitr holidays, the index shot up 200 points to yet another record but at least there was some profit-taking in the last two sessions of the review period. Newcomers Carthage Cement and Ennakl Automobiles were among the best gainers, up by 8.6% and 4.7% respectively.

Casablanca SE

Current year high: 12,457.59 Current year low: 9,997.56\

> Review period: Closed Sept 23 at 11,722.95 points Period change: -0.11%

The Casablanca Stock Exchange’s MASI was the only non-gainer in the September review period, and though its performance was a bit choppy the market does not deserve to be labeled as “weakening”. Market cap leaders Maroc Telekom and Attijariwafa Bank were in a good mood, gaining 2.4% and 3.6%, respectively. For Morocco’s top listed banking scrip, the share price at the end of the review period was almost back at its 12-month peak from June 10 of this year.

Egypt CASE

Current year high: 7,603.04 Current year low: 5,850.00

> Review period: Closed Sept 23 at 6720.00 points Period change: 4.87%

While volatility on the Egyptian Stock Exchange was more pronounced than North Africa’s other bourses, the EGX 30 continued to move nicely in a northerly direction. The vast majority of stocks showed gains in the review period, led by Arab Cotton Ginning which announced its highest dividend ever on Sept 13. The Orascom corporate values advanced modestly at 2.1% for OTH and 1.7% for OCI. Developer TMG fluctuated heavily after another set of headlines from a business-related court ruling.

October 24, 2010 0 comments

Economics & Policy

Executive Insight – Booz & Co

by Ahmed Youssef, Chady Zein & Raymond Soueid October 24, 2010

written by Ahmed Youssef, Chady Zein & Raymond Soueid

Over the last decade, the state of private equity (PE) in the Middle East has gone from virtually nonexistent, to a booming prospect, to an industry facing a shakeup. In 2004, the region was home to just 26 funds, with a total of $3 billion under management; in 2010, 142 funds manage $34.5 billion.

The sector’s breakneck evolution has made it difficult for investors to get a clear picture of the industry’s underlying fundamentals, and they therefore have been understandably cautious about directing their funds to regional PE firms.

In fact, it is now becoming clear that the region’s heady growth over the last decade worked to cover up some critical weaknesses in the PE industry. Some issues are structural: Significant gaps remain in the region’s legal and regulatory frameworks and corporate governance requires development, as the influence of family-owned businesses may hinder corporate disclosure and limit transparency. Another challenge is the fact that PE firms in the region are still sitting on about $11 billion of unspent capital — much of which is contingent on the performance of previous funds.

Even if the appetite for PE investing were to return to the insatiable pace of 2006–2008 (around 70 transactions per year, with an average size of $30 million), it would take more than five years to deploy all of this capital. Considering that most firms average three to five years until they invest their funds, the mismatch could create significant pressure to invest quickly. The PE market in the Middle East would need to develop much faster in order to absorb the available capital.

In order to fulfill its potential and continue attracting global investment dollars, the industry will need to undergo some reform as it consolidates. PE firms that hope to operate in the Middle East should consider five key imperatives.

Develop an investment approach based on themes with staying power. Focusing on individual nations or sectors, as many firms outside the region do, might limit Middle East-focused PE firms’ pool of opportunities, thus restricting their ability to scale their assets with superior returns and in a reasonable time frame. Theme-based investments, by contrast, are built around economic trends and span numerous countries and sectors. For example, PE firms that focus on the theme of serving a growing and increasingly wealthy population will invest in sectors such as consumer and mortgage finance, real estate management, retail, and restaurants and leisure.

Tighten up risk management practices. PE firms will need to ensure that their portfolios are not over-concentrated. Naturally, this means that they should not be heavily skewed toward any single geography or sector. However, firms must also ensure that the companies in their portfolios are balanced between different stages of their development — i.e., between companies still in the growth stage that demand cash, and those that have achieved maturity and generate cash. Meeting this target is particularly problematic in the region, where many opportunities are at an early or greenfield stage. A better balance in the portfolio will create a hedge against the cyclicality of the business. In terms of individual deals, PE firms will need to practice more rigorous risk management before, during, and after each transaction.

Be an active owner. The robust economic growth that preceded the downturn allowed many companies in the region to chase top-line growth at the expense of working capital and profitability. Liquidity issues bubbled beneath the surface while the economy was booming, but rose to the top when the recession hit. These same companies are now struggling to get their house in order. Adopting the appropriate financing approach, anticipating a buildup of operational capabilities and strengthening relationships with key stakeholders and suppliers will require active oversight by existing PE backers, as leading firms KKR and Blackstone have demonstrated.

Deepen relationships with limited partners (LPs), especially institutional investors. Historically, the majority of LPs in the region were high-net-worth individuals. However, institutional investors now represent a more significant percentage of LPs — an important development for PE firms as they broaden their investor base. Firms should seek to strengthen relationships with institutional investors, whether regional or international, which are looking to make a play in the region. These may include banks, insurance companies, pension funds and others that have been adding private equity assets in hopes of achieving risk-adjusted returns beyond those possible in public equity markets. Deepening the relationship entails more rigorous relationship management, including continual reporting, and better understanding of the risk-return relationship that institutional investors seek.

Build confidence through new fee structures and fund-raising approaches. Lowering entry fees will encourage investors to come on board and give fund managers the opportunity to prove their worth. Among limited partners globally, the standard “2 and 20” fee structure — in which firms take a management fee of 2 percent of the fund’s net asset value each year and a performance fee of 20 percent of the fund’s profit — has become a source of increasing dissatisfaction. Sensitive to investors’ concerns regarding these arrangements, some big PE firms around the world have lowered their management fees on committed but uninvested capital to 1.5 percent (and sometimes lower for LPs with large commitments); regional firms should consider doing the same. Another peculiarity is fundraising for specific opportunities — while cumbersome, this bespoke option appeals to investors and should be taken into account.

The region’s PE industry sprang up when equity prices were rising, and many local players enjoyed early success in the form of quick and profitable exits from investment positions. However, that dynamic soon reversed. Today, winning will not depend on timing or on external market factors; it will depend on more fundamental sources of value. As firms in the Middle East rebuild, they will need to do the basic things right: Identify sustainable investment ideas, create value within their portfolio companies, reduce their risks, and gain the trust of the best possible investment partners. These are things that will work, and remain important, in good times and in bad.

AHMED YOUSSEF is a principal, and CHADY ZEIN and RAYMOND SOUEID are senior associates at Booz & Company

October 24, 2010 0 comments

Economics & Policy

Turkish delight

by Executive Editors October 24, 2010

written by Executive Editors

After a summer in which equity preachers in the Middle East and North Africa found their faith tested by an absence of offerings, Oman’s first initial public offering (IPO) in two years is welcome news indeed. Nawras, the sultanate’s second mobile phone player, has opened for subscriptions to 40 percent of its capital in a month-long offering from September 15 to October 14, with the intent of raising between $471 million and $609 million. The wide range in projected IPO revenue is because the company is using book building to determine the issue price for the $260 million shares on offer, a first in Oman’s stock market history. This method of setting the issue price also gives Nawras greater ability to stir interest among international institutional investors, whereas the region’s other IPOs in the year to date were either inaccessible or short on attractiveness for international money.

But, for all the good signals the Nawras IPO sends regarding the vitality of the Muscat Stock Exchange, it is only a light drizzle after a drought and regional primary markets show only the vaguest promise for the fourth quarter.

This dusty picture was reinforced by corporate talk around the Gulf from late September when executives of Bahrain’s aluminum smelter, Alba, and United Arab Emirate information technology retailer Axiom, independently from each other touted the possibility of going public in the not-too-distant future. So far in 2010, similar announcements of possible impending flotation have far outnumbered the subscription offers actually put in front of investors. This is not to say that IPOs were a bad idea this year. According to Zawya, the thin crop of 2010 market entrants in the MENA — 21 companies entering bourses in Riyadh, Damascus, Amman, Tunis and Cairo — has seen eight stocks achieve massive growth. By September 20, each of these stocks was quoted at least at twice their issue price.

The list of gainers was led by Egypt’s solitary debutant, juicer Juhayna, which in a little more than three months rose from its EGP 1 par value to EGP 5.49 per share, however the real gain margin was much lower than 450 percent. The actual issue price, which included a hefty EGP 3.66 premium, indicates a three-month return rate of 18 percent since flotation.

On September 20, Three of the new market entrants were quoted lower than at the close of their respective first trading days. One of these underperformers was the largest IPO offered in the first 36 weeks of 2010: Saudi urban developer Knowledge Economic City. Its share price range in September was 12 to 14 percent below the stock’s SAR 10 issue price.

But there is one stock market in the wider Middle East which this year has been outperforming the region and most other finance centers on earth. The Istanbul Stock Exchange’s ISE 100 index, which closed 2009 below 53,000 points, has recently raced from one peak to the next, closing September 22 at 64,479.14 points. After a hiatus in new listings throughout much of the past decade, 2010 has seen IPO announcements bloom on the ISE.

According to the exchange, 14 IPOs in the first half of 2010 raised $842 million, and the official ISE list of current IPO applicants just added its 10th hopeful issuer on September 20: retail group Kiler, which applied to offer 13.05 percent of post-IPO capital of $93.8 million.

Of the IPOs in the Turkish pipeline, almost half are related to real estate — a traditional favorite of the Middle Eastern investor. According to the Istanbul Stock Exchange, four GYOs (the acronym in Turkish for real estate investment trusts) are in the 2010 IPO pipeline, the largest of which is the Emlak Konut GYO with a capital of TRY 2.5 billion, (Emlak Konut is an affiliate of Turkey’s Housing Development Authority).

Another fund is being floated by Akfen Group, which is known internationally for, among other things, construction and operation of airports. The Akfen GYO, which received approval for its IPO on August 25, is a partner with France’s Accor Group in hotel developments in Turkey, Russia and the Commonwealth of Independent States.

October 24, 2010 0 comments

Economics & Policy

For your information

by Executive Editors October 24, 2010

written by Executive Editors

Beirut’s runway hotspot

Air transport activity is continuing to grow, with figures released last month by the Beirut Rafiq Hariri International Airport showing passenger numbers in Lebanon increased by 11 percent year-on-year in the first eight months of 2010. The total number of passengers (arrivals, departures, transit) reached some 3,691,000, reflecting the 16.8 percent year-on-year growth in total flights, which reached 43,360. The national carrier, Middle East Airlines (MEA), constituted nearly a third of incoming flights with 12,545 of the total. Royal Jordanian followed with 1,932 flights, trailed by Etihad Airways (1,247), National Air Services (1,199), Emirates Airlines (1,168) and Turkish Airlines (994). The United Arab Emirates constituted the largest portion of flights to the country with 6,365, or 14.7 percent of the total.

In other airline news, Bloomberg reported last month that the governor of Banque du Liban, Lebanon’s central bank, Riad Salameh, has decided to indefinitely postpone the long awaited listing of a 25 percent share in MEA on the Beirut Stock Exchange. Salameh cited the Greek debt crisis and its ripple effects on Europe, a drop in oil prices and the lackluster performance of regional stock exchanges as the factors that dampened investor appetites for subscribing to new listings, and consequently led to his decision. MEA also announced last month that it signed an agreement with Brussels Airlines to serve 12 African locations via the Belgian capital.

Consumer price index advances

Figures released last month by the private Consultation and Research Institute (CRI) have shown that in the year-to-August the consumer price index (CPI) in Lebanon rose by 2.6 percent, despite deflation in the months of February, March, July and August. The Central Administration for Statistics (CAS), Lebanon’s official body for statistics, however said that the CPI actually increased 0.8 percent in August, a main component of which was rising food prices brought on by Ramadan and higher global food prices. According to CRI, on a year-to-year basis total CPI growth came in at 3.2 percent, which is similar to the official figure from CAS of 3.4 percent over the covered period. The two institutions often give different results.

Satisfied students

Lebanese university students and graduates seem to be comparatively happy with the level of education they are receiving, according to a survey released by the recruiting agency Bayt.com. A total of 83 percent of Lebanese survey respondents reported a high level of satisfaction with the education they received. The figure was topped by only one other country surveyed, Pakistan, with an 86 percent satisfaction level. Only five percent of Lebanese surveyed said they were dissatisfied with their level of college education. The lowest levels of satisfaction in the Middle East and North Africa were registered in Egypt and Syria with 51 and 52 percent of respondents, respectively, unsatisfied with their higher education. Lebanon took top spot in terms of those who were “very satisfied” with their education, at 38 percent. The survey also revealed that Lebanese expect their monthly salary to range between $1,501 and $3,000.

More big help for small enterprises

Funding for small and medium enterprises (SMEs) has continued to expand throughout the first eight months of the year. Kafalat loans — government guaranteed loans to SMEs — experienced annual growth in numbers totaling 43.5 percent in the year-to-August. The value of guarantees rose by 28.4 percent year-on-year in August from $88.8 million to $114.0 million. The average value of loans, however, fell to $118,000 over the same period, representing a 10.53 percent contraction. Some 45.6 percent of the loans during the first eight months of the year went to the agricultural sector, followed by industry (37.7 percent) and tourism (13.4 percent). Loans to Beirut and Mount Lebanon accounted for 47.6 percent of all loans in the year-to-August followed by South Lebanon and Nabatieh (21.3 percent), Bekaa (19.0 percent), and North Lebanon with 12 percent of the total. Last month the European Union also granted 15 million euros geared toward SMEs to Kafalat and Banque du Liban, Lebanon’s central bank.

Hotels hike profitability

Hotels are reaping the benefits as Beirut becomes more attractive to tourists. According to the global accounting firm Deloitte’s most recent report on hotel performance in the Middle East, in the year-to-July, Beirut posted the highest rise in average revenue per available room (revPAR), an industry measure of the hotel industry’s profitability. The rise represents the largest expansion in revPAR in cities throughout the Middle East at $164.90. That said, the occupancy rate at hotels in the city fell marginally by 2.6 percent to 68.4 percent in the first seven months of 2010. In the region as a whole, revPAR during the first seven months of this year has fallen by 8.8 percent to $120.40, with occupancy rates down 1.8 percent to 61.8 percent.

A ‘no’ from the WTO

The World Trade Organization (WTO) has said that it will not meet with Lebanon for an eighth round of ascension talks until the country gets serious about the process. The reason for the delay in ascension was identified by the WTO as being the non-implementation of the required procedures in various ministries and the apparent disinterest of parliament in enacting the laws needed to join the global trade body. The WTO also noted that Lebanon has made some progress on the bilateral front with many countries but would need to focus further on negotiations with the United States, the European Union, Turkey and Ukraine. The organization also stated that 70 percent of Lebanon’s services are already liberalized.

The Arab hand that gives

A World Bank report on Arab development funding has said that Arab countries contributed more than double the level of their Gross National Income requested as aid by the United Nations, and five times the average amount the countries in the Organization for Economic Cooperation and Development put forward. The report covers the period between 1973 and 2008 and identified total development assistance from the Arab world over that period at $272 billion, equivalent to 1.5 percent of Arab nations’ GNI. The lion’s share of development assistance came from three Gulf countries, which together offered over 90 percent of the total. Saudi Arabia had the highest share of the total with 63.65 percent, followed by Kuwait (16.29 percent) and the United Arab Emirates (11.54 percent). Over the entire period of the study, Syria was identified as the largest recipient garnering $33.6 billion dollars. However, during the most recent period (2000-2008) the West Bank and Gaza received the most assistance at some $1.6 billion, with Lebanon coming in second with $834 million.

Auto industry rolls along

Lebanon’s Association of Automobile Importers has stated that the industry is still cruising at a steady pace. During the first eight months of the year, new car sales in Lebanon increased 3 percent year-on-year, while sales in August fell by 9.58 percent to 2,906 new cars. In the year-to-August a total of 22,545 new cars hit the roads of Lebanon. Japanese cars lead the pack with 38.3 percent of all sales followed by Korean cars (31 percent), European cars (23.7 percent), American cars (6.2 percent) and Chinese cars (0.9 percent). The leading brand in the market was Kia with 4,224 sales in the year-to-August.

Global gauge of Arab sovereign wealth funds

Arab Sovereign Wealth Funds (SWFs) hold 40 percent of assets under management (AUM) in the world’s top 38 SWFs, according to a report published by Institutional Investor magazine. The survey was compiled from questionnaires filled out by the institutions, information from websites, and annual reports. Total AUM at Arab SWFs was some $1.5 trillion at the end of the first quarter of this year. The rankings included seven Arab SWFs and identified the Abu Dhabi Investment Authority as the largest SWF in the world, with an estimated $627 billion in AUM. In second place in the Arab world came the Saudi Arabian Monetary Agency (third globally) with $429 billion in AUM, followed by the Kuwait Investment Authority ($277 billion, sixth globally), the Libyan Investment Authority and the Qatar Investment Authority, each with $65 billion (12th globally) and Algeria’s Fond de Regulation des Recettes with $53.8 billion (14th globally).

October 24, 2010 0 comments

Real estate

Shaky or solid?

by Executive Editors October 24, 2010

written by Executive Editors

For savvy investors who jumped on the downtown train and bought off-plan properties in Beirut’s first high-rise towers, it isn’t uncommon to hear cigar lounge stories of 300 percent re-sale profits. Around 2005, prices per square meter hovered near $2,500 and the cost of construction was still relatively low, making Beirut cheaper than the capitals of Egypt, Syria and Jordan.

By 2009, prices in Beirut had jumped 250 percent. The average registered real estate sales value also showed a 47.2 percent increase in the first five months of 2010, according to a Bank Audi report in June, though most of these sales were likely initiated during the frenzied buying spree of 2009.

Nassib Ghobril, head of economic research and analysis at Byblos Bank, sees the hand of speculators in the meteoric price rises.

“Speculators have been increasingly active, especially in Beirut… the price increases cannot be justified only by demand,” he told Executive.

Given that most developers use their pre-sales to finance the bulk of their projects, problems can arise when a building is partially sold and construction has started, but then sales (and thus financing) dry up as the market cools, leaving the project at risk of stalling and investors out of pocket.

As of June, there were nearly 350 residential buildings under construction in Beirut, with the 24 in Beirut’s Central District (BCD) experiencing the most difficulty selling, according to Bank Audi’s report.

While this type of news has prompted some to wonder whether the golden property bubble may be about to burst, Emilio Khoury, owner of brokerage MetreKarre, said: “‘Bubble’ is a very big word. Prices are freezing and the market is adjusting… but there will always be demand,” especially for smaller luxury apartments of around 200 square meters in downtown or Ashrafieh.

Speculators? What speculators?

Many brokers and developers disagree with Ghobril, arguing that speculation is near zero in Lebanon, or at least it is so minimal that it does not affect property prices.

“Even if speculation accounts for 20 percent of the Beirut market, that… is only 10 percent of the whole real estate sector,” said Elie Harb, president of Coldwell Banker; therefore, short-term flipping does not significantly drive up prices. He added that Beirut prices have risen to appropriate levels, given the limited land area and intense demand by expatriates. The 500 or so flats being constructed now are nearly the last residential segments of the reconstruction.

As of the end of September, off-plan starting prices in downtown rang up at an average of $6,000 per square meter, largely due to the increase in land prices as plots run out, according to a source at Care Group, the real estate sales and marketing firm.

Patrick Geammal, chairman of Ascot Real Estate brokerage, said estimates are difficult to formulate without proper information. “In every large project in Lebanon, there are usually 10 to 20 associates that go into a project… if each one reserves one or two flats, they say in the beginning that half of the project has been sold, so to know how much was really sold [to end-users] is difficult to assess in Lebanon. Sometimes the same company resells to its own directors.”

Mireille Korab, head of sales and marketing at FFA Real Estate, says that resales mostly occur when there are no more units available in the project; at that point, the developer is nearly out of the picture, thus they have little information regarding the resale market — or, by association, the scope of speculation in Lebanon.

Although Georges Chehwane, chairman of real estate developers and marketers Plus Holdings, believes about half of the off-plan buyers in the BCD were not end-users, he argues that they are “hardly speculators,” particularly in comparison to the Dubai market at the height of its bubble in 2008. “In hindsight we know that 75 to 80 percent of those buying homes in Dubai were speculators,” he pointed out. These speculators only put down a 5 to 10 percent payment on pre-launch price tags before flipping the properties as prices rose — for those who got out before the party ended.

“There is no speculation in Lebanon in terms of people who don’t have enough money to pay for the apartment,” said Chehwane. “There are some investors, yes, but these people have the full capacity to pay” between the pre-launch down payment and the time of project delivery, at which point they either rent out the property or sell it for gain.

Chehwane says this behavior is not risky like the speculators of Dubai, and in fact guarantees that speculation in Lebanon hovers around 1 or 2 percent of the market. Of the half-sold Plus towers under construction in downtown, he says 80 percent of the buyers are end users and 20 percent are investors. In September 2008 during the “aggressive pre-launch campaign,” investors made up 35 percent of the buyers.

As proof that resales emanate from investors and not speculators, Chehwane said “of the 60 units sold in Plus Towers 1 and 2, only one party applied for a bank loan,” and the contract obliges them to pay nearly 40 percent of the full unit price before reselling the unit, minimizing risk.

Others, such as Karim Bassil, chairman of Byblos Real Estate Investment, also said that while they have been approached by speculators, they try to limit speculative activity. Bassil said speculators account for only 1 percent of buyers in his residential projects in Faqra and Gemmayze.

Massaad Fares, founder of Prime Consult and president of the Real Estate Association of Lebanon, said he has not allowed the bulk sale of flats in the upcoming 50-story Sama tower in Ashrafieh, which is already 30 percent sold. He claims that units are being bought up entirely by end-users, and that the same is true for all of his project portfolios. So far all buyers in Sama tower are Lebanese (though some 65 percent reside outside the country) with the exception of one Gulf national.

One Lebanese investor wanted to buy three floors in the upcoming landmark tower in Ashrafieh, but Fares said he did not allow the sale, noting that there was no need to sell in bulk since the owner Fadi Antonios is well capitalized.

Like Harb, Fares believes speculation in the market is less than 10 percent and “only occurs in specific situations whereby the developer himself has promoted it in such a way.”

Geammal of Ascot Real Estate said speculation in Lebanon is mainly related to land, not apartments, but adds: “Some entrepreneurs have come to Lebanon with a ‘Dubai mentality’ where they encourage speculators by telling them to buy off-plan as an investment, without even seeing the flat, telling the buyer that he can sell it later for a 50 percent profit.”

“There is no speculation in Lebanon in terms of people who don’t have enough money to pay for the apartment. There are…investors, but these people have the full capacity to pay”

It’s all money in the end

Salim Tayssoun, chief executive officer of Ascot, rebuffed the idea that developers would refuse to sell to speculators: “I hardly think that anyone in Lebanon [would] reject a check because he thinks the buyer is a speculator and not an end-user.”

Chehwane took a similar line, saying that developers often claim not to deal with speculators “to give an impression that we are so sure of our project… that we choose our clients.”

Fares insisted that: “It’s not wrong or right… It’s another way of financing a project. As an economist, I have to say it depends on their financial situation to tell whether [selling to speculators] is wrong or right.”

Real estate investment reached $7 billion dollars in 2009, according to Bank Audi, and Fares claims only some $500 million of those transactions are somewhat speculative in nature. This, he argued, means speculation is not a problem for Lebanon’s economy. Indeed, re-sales keep the market stimulated, said Fares, adding that: “If the area becomes dead, there is no reference as to how much units are worth, because there’s no more buying or selling in that area, and the lack of transparency hurts everybody.”

The hotspots

Brokers say the most resale activity in the last two years occurred on Beirut’s downtown coastline, specifically in the vicinity of Marina Towers.

“I would do the same if I was in their position,” concedes Fares. “The people who bought there bought for very cheap prices, for $2,500 if bought at the time of launching, when there was so much hype because it was the first mega project… now the square meter is at $7,000 there.”

Christian Baz of Baz Real Estate is currently trying to re-sell three 300 square meter apartments in Ashrafieh’s Le Patio, still under construction, as their respective owners bought units during off-plan sales and now hope to make a 20 percent profit margin in their resale. With the starting price at $4,200 per square meter, each has an asking price of about $1.26 million and more for higher floors. The problem, he says, is that most buyers in today’s market stop well short of the million-dollar mark. Baz adds that in most high-profile towers under construction in Ashrafieh, 10 to 20 percent of the units bought are to be resold before the building is delivered to market.

Marcus Marktanner, assistant professor in the economics department at the American University of Beirut, suggested that the focus should be on the sustainability of speculation in the Beirut property market, rather than the actual amount of speculation taking place.

“Whenever in the history of Lebanon money flushed into the economy, it was because of speculation,” he said, adding that the current state of the housing market is sustainable because Lebanon is in the fortunate position of having high demand from wealthy buyers coupled with inelastic local supply. Marktanner added that those investors still in the market are more cautious and well capitalized enough to withstand the cooling period the market has recently entered.

Rachid Tawk, owner of Victoria real estate company, says the real problem is the influx of inexperienced builders who price units higher than they should be, rather than using legitimate market studies to price their projects. The oversaturation of builders resulted in an oversupply in the market, especially in Ashrafieh, and as a result, the market needs two to three years to reach stability between demand and supply.

October 24, 2010 0 comments

Real estate

For your information

by Executive Editors October 23, 2010

written by Executive Editors

Beirut’s retail rent soaring

The average retail rent in Beirut’s downtown district, at $551 per square meter per year, is higher than any other city in the Middle East, according to a September 20 report covering 269 global retail centers by Cushman & Wakefield titled “Main Streets Across the World 2010.” In comparison to Dubai, which has “far too many shops, not enough people and a recession,” Beirut has an undersupply and shops have high turnover, given the 2.5 million resident population, according to Mike Dunn who worked on the report. The second most expensive retail center in the Middle East is Ramat Aviv in Tel Aviv, with average retail rent going for $505 per square meter per year, and the third is in Lebanon’s ABC Ashrafieh Mall, where the average rent is $479 per square meter per year. Whereas rental rates had dropped in Jordan, Bahrain, Qatar and the UAE, Lebanon was among the countries that showed some increase in demand, as well as Israel, Kuwait and Saudi Arabia. New York’s Fifth Avenue remains the world’s most expensive retail center, where rent hovers around $6,105 per square meter per year.

World’s most expensive flat sold

Brothers Christian and Nick Candy, who bought the famous Monaco home of Lebanese-born financier Edmond Safra in the early 2000s for a mere $15.8 million, have now sold the 5,334-square-meter flat for $308 million, making it the most expensive flat ever sold. The buyer, who is rumored to be Arab, snapped up the two-story penthouse in Monaco on a 97-year lease. Christian Candy, 36, revealed in a 2009 interview that he spent $41 million renovating the property, which includes 30 rooms, a highly secure panic room, a state of the art surveillance system, a media room and a spa with an infinity pool. Safra was 67 when he died in an arson fire in the flat in 1999.

Hefty housing for Beirut’s expatriates

For the first time, Beirut has ranked as the most expensive city in the Middle East in terms of rental housing prices for expatriates, shifting from its position at 28th place globally last year to 10th place this year, according to a survey by EuroCost International. The survey analyzes two and three-bedroom apartments of high quality in expatriate communities in 250 cities worldwide. This year also marks the first time that Beirut has glided into the top 20, surpassing Paris and Abu Dhabi. Bank Audi reports that the upward shift is partly due to “real estate speculation that has generated a strong increase in the supply of high quality housing.” It added that the fall in rental rates in other Arab cities helped push Beirut upwards on the list. Abu Dhabi, the only other Arab city in the top 20, fell from 11th to 12th place in the past year.

Ranking of most expensive cities (rental)

Jordanian expatriates boost housing

Jordan has seen a 14 percent surge in the number of apartments sold in the first eight months of this year compared to the same period last year, reaching 14,109, according to a Department of Land and Survey report. The report put the boost down to the stability of housing prices and the government’s recent exemptions on taxes and fees. Real estate trading expanded 26 percent during this eight month period, reaching 3.5 billion Jordanian dinars ($4.9 billion), but the report also mentioned that real estate-derived government revenues were 7 percent lower than in the same eight-month period in 2009, due to the halving of registration fees from 10 percent to 5 percent and the exemption of fees altogether on the first 150 square meters of any apartment of 300 square meters or less. Zuhair Omar, president of the Housing Investors Society, told the Jordan Times the surge was due to Jordanian expatriates returning home for the month of Ramadan and buying properties before returning to their countries of employment, mostly in the Gulf.

Saving the city’s spirit

“Lebanon considers itself a pioneer in everything, but when it comes to this we are way behind other Arab countries,” said Lebanon’s culture minister Salim Wardy to AFP, in regard to preserving heritage buildings in Lebanon. His remarks followed the September 25 march in Gemmayze, organized by the Save Beirut Heritage association, where hundreds protested at the neighborhood’s new high-rise construction sites. A consortium of heritage groups and activists held signs calling on the government to legally protect designated buildings that reflect Lebanese heritage. The scope of the problem is quantified by official figures, which according to The Daily Star, show that out of the 1,200 designated heritage buildings listed by the Ministry of Culture in 1995, only 400 remain standing today.

March organizer Georgio Guy Tarraf claims “several dozen” buildings will be destroyed by the end of 2010, adding, “It’s a massive shame to lose our heritage — we must all come together to fight this and stop developers evicting any more people or tearing down any more of our history.” According to Tarraf’s written statement, they plan to save Beirut’s heritage by, firstly, reforming the old rental law which would allow original owners to reclaim homes that have been rented out indefinitely to those paying below market rent rates. The group also plans to set up a “rehabilitation fund” to maintain historical districts by using tax revenue from new building permits. Thirdly, they are calling for proper zoning that would limit the height of new buildings in historical neighborhoods. A hotline has been set up to accept eye-witness reports of demolitions, which now require the minister’s signature.

Egyptian housing project under fire

A September 14 supreme court ruling in Egypt upheld a June 22 decision that effectively cancels the government’s sale of 33 million square meters of land to the Talaat Moustafa Group (TMG) Holding, Egypt’s largest listed property developer. The land was for the company’s Madinaty project, for which investors and homeowners have already bought units. The government’s New Urban Communities Authority received $2.3 billion in housing units in return for selling the land, which it should have sold at a public auction according to a 1998 Egyptian law. The deal was under fire as the firm was receiving unusual and first-of-a-kind exemptions on construction fees and free electricity, water and sewage utilities from the government, reported Bloomberg. The $3 billion housing project located on the outskirts of Cairo was supposed to provide homes for 600,000 and have a golf course and hotels. Finance Minister Youssef Boutros-Ghali said the government would come up with a solution to “preserve the rights of all the shareholders and buyers” in Madinaty, according to Reuters Africa. Egypt’s cabinet said it would scrap the original contract for TMG’s estimated $3 billion Madinaty project after a court ruled the deal was illegal, but would reallocate the same land to the firm in a new contract. Also in Cairo, a subsidiary of TMG announced September 1 that it had paid $145 million to buy the remaining 43.7 percent stake in Cairo’s Four Seasons Hotel, which it now wholly owns.

Turkey’s property eyeballed

Turkey is the best location for residential investment in Europe, according to Global Property Guide. The research firm says in its recent report that “property in Turkey is now substantially undervalued using all conventional metrics,” especially since it is the most visited place in Europe after Monaco and London. Low taxes, mortgage rates, and newly voted-in reforms have all given Turkey’s residential property market a boost. “The housing boom’s pre-conditions are repeating themselves in Turkey today,” said Matthew Montagu-Pollock, Global Property Guide publisher. From their height in June 2007, residential prices have fallen by 15 percent nominally, “although the drop may be closer to 30 to 70 percent, after adjustments for inflation,” according to the report. High-end property in Istanbul costs on average $3,210 per square meter, compared to $5,290 per square meter in Madrid and $19,400 per square meter in London.

October 23, 2010 0 comments