Gulf investors seek safe havens in overseas realty
A massive $11.5b was taken out by them to buy prime commercial property in H1-15
Published: 13:31 November 16, 2015 Gulf News
By Manoj Nair, Associate Editor
Dubai: Gulf investors are intent on playing safe with their commercial real estate asset allocations by taking out a massive $11.5 billion (Dh42.2 billion) outside of their home markets and putting them in safe-havens in the US and the UK.
Qatar’s overseas transactions directly into real estate made up $5.24 billion and the UAE followed with $4.54 billion, according to estimates released by the consultancy CBRE. And these are not just transactions pushed through by sovereign wealth funds or a handful of high networth individuals.
“The investor base is growing and so is their investment strategy towards greater geographic and sector diversification, with activity spreading beyond gateway markets to second-tier locations in Europe and the Americas, and more recently towards core Asia-Pacific,” CBRE notes.
According to Nick Maclean, Managing Director at CBRE Middle East, “data from H1-2015 shows a continuing acceleration in the flow of capital out of Middle East region by private offices and high-net-worth-individuals.”
“This, to some extent, is compensating for a decline in sovereign wealth capital going overseas, naturally perhaps as a consequence of reduced revenue allocations because of recent oil repricing.
“The interest in overseas investments, particularly from the UAE, is also being influenced by some uncertainties in the local real estate markets.”
What makes this quite pertinent is that the overseas commitments on investment opportunities have not tapered off despite the still soft oil prices and the lower proceeds this means for the Gulf states. But this might be coming at the expense of assets at home, and indicates why investor-driven transactions in Dubai’s real estate remain muted compared with the last three years. It could also be indicative of the reduced trading volumes sloshing around in the UAE and Gulf stock markets.
In all, investors worldwide pumped in $407 billion in commercial property in the first six months, the best showing since 2007 and up 14 per cent from what it was the same time last year.
The Americas did the best among the competing regions in pulling in the fund flows, aided by investors rush to boost their dollar-denominated holdings. Europe, Middle East and Africa suffered in comparison from the strong dollar regime. ‘In dollar terms, EMEA was up just 5 per cent from H1-2014, with Asia-Pacific down 19 per cent year-over-year,’ CBRE estimates. ‘When measured in local currency EMEA grew by 25 per cent, while a decline in Asia-Pacific was more muted at 9 per cent year-on-year.’
US investors also led the way in committing funds outside of their home territory, with $25.4 billion during the first six months. The next three positions were taken by funds flowing out from Canada ($8.5 billion), Germany ($7.1 billion) and China ($6.6 billion).
“Even ignoring rental value growth, real estate offers a ‘spread’ over bond rates of between 200 to 300 bps across global markets and capital will continue to be attracted to the sector,” said Iryna Pylypchuk, Director, Global Research, CBRE.
“The influx of new sources of capital targeting real estate as part of long-term liability-matching allocation strategies is helping to extend the investment cycle. At the same time, this pushes the ‘old capital’ into niche sectors, prompting expansion of the investment universe,” Pylypchuk concluded.