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GCC Real Estate X GCC Real Estate Al Masah Capital Management Limited Level 9, Suite 906 & 907 ETA Star - Liberty House Dubai International Financial Centre Dubai-UAE P.O.Box 506838 Tel: +971 4 4531500 Fax: +971 4 4534145 Al Masah Capital: GCC Real Estate Sector Email: [email protected] Website: www.almasahcapital.com Disclaimer: This report is prepared by Al Masah Capital Management Limited (“AMCML”). AMCML is a company incorporated under the DIFC Companies Law and is regulated by the Dubai Financial Services Authority (“DFSA”). The information contained in this report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities in any jurisdiction. The information in this report is not intended as financial advice and is only intended for professionals with appropriate investment knowledge and ones that AMCML is satisfied meet the regulatory criteria to be classified as a ‘Professional Client’ as defined under the Rules & Regulations of the appropriate financial authority. Moreover, none of the report is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the report is directed to any person in any country in which the distribution of such report is unlawful. This report provides general information only. The information and opinions in the report constitute a judgment as at the date indicated and are subject to change without notice. The information may therefore not be accurate or current. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable in good faith, but no representation or warranty, express, or implied, is made by AMCML,as to their accuracy, completeness or correctness and AMCML does also not warrant that the information is up to date. Moreover, you should be aware of the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do not guarantee future performance. We accept no liability for any loss arising from the use of material presented in this report. This document has not been reviewed by, approved by or filed with the DFSA. This report or any portion hereof may not be reprinted, sold or redistributed without our prior written consent. Copyright © 2015 Al Masah Capital Management Limited 51 December 201 5 GCC Real Estate Sector Report_V3 COVER.indd 1 11/10/15 6:59 PM X GCC Real Estate GLOBAL REAL ESTATE MARKET Global real estate market fell back in 2014 due to policy changes in China and other Asia Pacific countries, which led to weakening in land sales. However, sales volumes excluding land sales registered a robust growth courtesy of global liquidity in the markets. Real estate investment to gain traction in 2015 Global real estate investment fell in 2014 for the first time in 5 years, dropping 6.3% to USD 1.21 trillion from 1.29 trillion in 2013. The slowdown was primarily due to drop in Chinese land purchasing affected by the policy related changes coupled with tightening measured in other APAC markets. Other regions recorded a strong performance with Americas up by 11.4% and Europe, Middle East and Africa (EMEA) up by 11.8% in 2014 as compared to the previous year. Going forward, real estate investment is expected to gain traction in 2015, growing by 11% to reach USD 1.34 trillion driven by increased activity in Americas and EMEA markets. Exhibit 1: Global Real Estate Investment (2010-15E) 1,600 USD bn 1,342 1,400 1,292 1,211 1,200 983 928 515 1,000 818 657 502 800 453 437 600 434 480 417 375 400 272 318 184 200 291 348 200 220 211 260 0 2010 2011 2012 2013 2014 2015E Europe, Middle East & Africa Americas Asia Pacific Source: Cushman & Wakefield, Al Masah Capital Research Offices and hospitality sectors witnessed the strongest investment activity in 2014 followed by retail and industrials. Investments in hospitality sector grew by 16.6% in 2014, accounting for 5.5% of total new investments while office real estate investment accounted for nearly 27% of total new investments in 2014. Multifamily residential sector registered a flat performance on the year with modest US growth offset by falls in Western Europe and parts of Asia. By fund type, sovereign wealth and private equity funds registered strong growth in real estate investments in 2014. Private equity funds cut spending in Asia and increased their allocation to Southern Europe as well as Western Europe and North America while Sovereign Wealth funds continued to focus in Europe, but investment into North America and Asia grew at a faster pace. Pension funds were also active in 2014 and increased spending in Northern Europe and Australia. 2 GGCCCC RRealeal EEstatestate SSectorector Report_V3.inddReport_V3.indd 2 111/10/151/10/15 66:49:49 PPMM X GCC Real Estate GCC ECONOMIC OVERVIEW Booming economy GCC’s economy stood at USD 1.65 trillion in 2014 as compared to USD 535.7 billion a decade ago, growing at a CAGR of 11.9%. While the recent drop in oil prices have subdued GDP growth in the short term, the GCC economy is expected to recover on back of supportive economic policies and strong performance in non-oil sector. According to IMF, GCC's economy is estimated to reach USD 2.0 trillion by 2020, with Saudi Arabia contributing USD 902 billion, followed by the UAE (USD 502 billion), Qatar (USD 269 billion), Kuwait (USD 196 billion), Oman (USD 81 billion), and Bahrain (USD 40 billion). Exhibit 2: GDP, Current Prices (2010-15, USD tn) 2.5 USD Trillion 1.99 2.0 1.65 1.58 1.64 0.20 1.44 1.44 0.27 1.5 0.18 0.17 0.18 1.14 0.13 0.15 0.19 0.20 0.21 0.17 0.20 0.50 1.0 0.12 0.37 0.40 0.40 0.13 0.35 0.36 0.29 0.5 0.90 0.67 0.73 0.74 0.75 0.53 0.65 0.0 2010 2011 2012 2013 2014 2015E 2020P Saudi Arabia UAE Qatar Kuwait Oman Bahrain Source: IMF, Al Masah Capital Research While the GCC region as a whole is still heavily dependent on oil revenues, the non-oil sector comprising manufacturing, tourism, hospitality, and trade, has emerged as the major growth engine, especially in the UAE. Consequently, despite the steep decline in oil prices in H2 2014, the GDP growth in GCC was not severely affected due to strong performance of the non-oil sector and the large cash buffers, which ensured steady levels of spending and investment. According to the IMF, the region's GDP grew at 3.6% in 2014, at par with its performance in 2013 and considerably higher than developed countries such as the US (2.4%) and the UK (2.6%) and the global GDP average which stood at 2.5%. Among the GCC countries, Qatar recorded the strongest growth of 6.2%, followed by Bahrain (4.5%), the UAE (3.6%), Saudi Arabia (3.5%), Oman (2.9%) and Kuwait (1.3%) in 2014. Over the last five years, the GCC economy has grown at an average annual rate of 5.0% against the world average growth rate of 2.8%. Within the GCC region, Qatar recorded the highest growth rate of 9.7%, followed by Saudi Arabia (5.2%), Bahrain (4.0%) and the UAE (4.0%) respectively. The increased contribution of the non-oil sector to the economy has been the major reason for the relatively better performance by the GCC countries, surpassing the growth rates of the developed countries in the last five years. 3 GGCCCC RRealeal EEstatestate SSectorector Report_V3.inddReport_V3.indd 3 111/10/151/10/15 66:49:49 PPMM X GCC Real Estate Exhibit 3: Average Annual GDP Growth During the Last Five Years (2010-14) 12.0% 9.7% 10.0% 8.0% 6.0% 5.2% 5.0% 4.0% 4.0% 3.5% 3.3% 4.0% 2.8% 2.2% 1.7% 2.0% 0.0% Qatar Saudi GCC UAE Bahrain Oman Kuwait World US UK Arabia Average Average Annual GDP Growth Rate (%) Source: IMF, Al Masah Capital Research Continued GDP growth in the region has translated into higher personal income levels. In 2014, GCC’s per capita income grew at 7.6% CAGR to reach USD 33,135 from USD 15,895 in 2004, highlighting the region’s rising affluence levels. The GCC region has a relatively higher per capita income as compared to the world average of around USD 10,804 and MENA average of USD 10,334. Within the GCC region, big differences in per capita income can be observed across the countries. Qatar boasts the highest per capita income of USD 93,397 in the GCC, nearly double of that in the UK (USD 45,603) and the US (USD 54,629). Kuwait has the second largest per capita income in the region of around USD 50,534, followed by the UAE (USD 42,522). Exhibit 4: Per Capita Income (2014, USD) 35,000 USD Qatar 93,397 30,000 US 54,629 25,000 Kuwait 50,534 20,000 UK 45,603 UAE 42,522 15,000 GCC 33,135 10,000 Saudi… 25,409 5,000 Oman 20,832 World 10,804 0 2004 2009 2014 MENA 10,334 GCC per Capita Income (USD) Per capita Income (USD) Source: IMF, Al Masah Capital Research 4 GGCCCC RRealeal EEstatestate SSectorector Report_V3.inddReport_V3.indd 4 111/10/151/10/15 66:49:49 PPMM X GCC Real Estate Favorable Demographics During 2004-14, the GCC population grew at a CAGR of 4.0%, almost double the rate witnessed in MENA during the same period and considerably higher than the world average of 1.2%.
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