Across the Arab world, Gulf-based property developers are changing the face of the region’s capital cities – and their real estate markets too.
Dubai today is a new city in the making. The seafront on the road south to Abu Dhabi is a forest of cranes, all operating ceaselessly at the hands of imported labor. Further west, just behind the skyscrapers on Sheikh Zayed road, is the prefabricated skeleton of the Burj Dubai, which when completed will be the tallest building on earth. It is reportedly going up at the rate of a floor every four days, while the overall level of construction in the Gulf Emirate is second only to the Chinese city of Shanghai.
Some within the market find Dubai’s breakneck speed of development hard to comprehend. They say the pace at which projects are announced and constructed is unreal.
But so far, there is no sign of a slowdown, and the naysayers, who have long predicted a crash or were doubtful that the Emirate’s property market had real substance to it are watching on with growing incredulity. Believers simply point to the fact that Dubai is stamping 60,000 new residential visas a month, and all of these people will need somewhere to live.
Contagious development
But, while Dubai is a master of attracting media attention, it is not the only city in the Arab world whose real estate sector is being transformed by the huge levels of capital derived from the high oil prices of the last three years.
Right across the region, from Rabat on Morocco’s Atlantic coast to Muscat in the Gulf of Oman, property developers – and mainly those based in the Gulf – are literally changing the face of most capital cities.
Over the last three years, real estate markets in the Arab world have benefited from surplus oil capital, the repatriation of investments following 9/11 and the increasing demand created by urbanization and population growth within the Arab world.
An improvement in property legislation in some countries has also been a factor contributing to a steep rise in property prices, which in some Arab cities have doubled in recent years.
The most visible effects are in the Gulf itself: drive 70 kilometers down the coast from Dubai to Abu Dhabi, where the capital of the UAE is planning around $270 billion in new construction projects over the coming years. Some $8 billion is set aside to build a new island city that will house 100,000 people, while plans are afoot to develop several other natural islands, one of which will feature a Ferrari museum and another a branch of the Guggenheim Museum – as well as, so it is rumored, an offshoot of the Louvre.
This level of construction and development will also be seen in most of GCC states in the coming years. In Bahrain developers are responding to the chronic shortage of land by “reclaiming” it from the sea, the prime example being the $3 billion Durrat Bahrain development on the south-eastern tip of the main island that planners say will accommodate 50,000 people.
New pastures
Yet while such monumental levels of activity within the GCC will continue, investors are starting to realize that saturation is possible. In order to spread risk, new opportunities should be sought, and sought largely on home ground.
The signatures of gargantuan developers, such as Dubai Holding and Emaar, are those most often found on the resulting string of mega-projects, which are signed on a seemingly daily basis across the entire region. The latter in particular has embarked on a monumental spending spree across Asia and the Middle East, spearheading Gulf-sourced investment in real estate.
The fact that these are inherently unstable areas has so far not been a turn-off. Lebanon is probably the best example of a country whose real estate sector is able to shrug off conflict and instability and still attract investors. Abu Dhabi Investment House (ADIH), for instance, has said that it will push on with its $600 million Beirut Gate development despite current travails, supporting the maxim that Beirut real estate never loses its value – no matter what else happens in the country.
Across the border in Syria, hardly considered an easy or stable place to do business, Emaar has announced two projects worth a combined $3.4 billion. In Amman, the government’s decision to move a military base out of the centre of the city has created 2,592 hectares of prime real estate in the heart of the capital. Abdali, as the project is known, has already seen $1.5 billion of investment.
Into Africa
Further afield, North Africa is also attracting serious interest, particularly since it is often perceived as offering the familiarity of the Arab world but also a certain insulation from Levantine instabilities.
With probably the largest middle class in the Arab world, Tunisia has recently hosted a number of Gulf suitors studying retail and residential projects in the country. Emaar has lead the way – this time with an $1.88 billion marina investment – but Dubai Holding and other developers are also tentatively exploring the market.
Morocco, despite an economy still highly dependent on rainfall, has in the past year launched a series of large-scale joint ventures with Gulf-based investors on the Atlantic coastline in and around Rabat and Casablanca. Many now feel the country is on the verge of a property boom, given heightened interest not only from the Arab world but also from Europe, where developers see great potential in a tourist industry whose hotel capacity will struggle to keep up with demand.
And, while neighboring Algeria is still emerging from more than a decade of debilitating civil conflict, Emaar recently announced plans to construct a tourist development on the Mediterranean. Others will surely follow. Even in Libya, one of the most untouched markets in the region, the Dubai-based developer last month signed a deal with Muammar Gaddafi’s son to build a free zone in the north.
Is it viable?
So far, property prices in the greater Middle East show no sign of being dented by the worsening situation in Iraq, Palestine and Lebanon. If anything, these conflicts are fueling a rise in some places. Jordan, for example, is now a center for the Iraqi middle class who have fled the violence in their country and are pushing up property prices in Amman.
It appears that buyers and investors alike are indifferent to the potential risk that exists within many of the region’s property markets. Indeed, in some Arab countries real estate is one of the only segments of the economy to show any serious activity, which makes it even more difficult for governments to resist the advances of mega-projects whose less-publicized effects include raising wider property prices out of the reach of most locals, pushing up inflation and blotting out historical skylines.
Spurred on by double-digit yields and apparently undeterred by the swaths of bureaucracy and corruption evident in most of these markets, developers are likely to continue their investment drive across the region. This kind of inter-Arab economic activity should be applauded. But, whether the investment is the result of genuine financial logic or simply a bubble inflated by countries with massive amounts of capital and a pressing need to invest, is another question.
Another issue to be examined is whether these investments create communities that will guarantee the long-term social health of Arab cities. In Beirut, for one, there are fears that the luxury apartments sprouting up in the city centre will be empty for most of the year, only occupied while their owners visit during the summer holidays. Some projects are seeing the same problem in Dubai, with developers gradually realizing the importance of creating mixed-use communities as well as making good investments.
Whatever strategy is adopted, the urban landscape of the Arab world is undergoing an unprecedented period of change. Not even mentioned here are yet more giant developments in Egypt, Saudi Arabia, Oman and Qatar, all of which suggest that this could be just the start of a wider transformation. How that will change everyday life for the average citizens living in these countries remains to be seen.
