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Investor sentiment is up, says JLL

Investor sentiment is up, says JLL

…at least in the MENA region. In Dubai things “remain stable.” Which means bad, we’re guessing.

October 4, 2010 3:55 by

Jones Lang Lasalle is in the mood for issuing reports it seems. Just a day after its Dubai City Profile (mentioned in yesterday’s Real Estate round up), the real estate advisory firm has published its 5th Real Estate Investor Sentiment Survey for the Middle East and North Africa. So what’s the short summary? In a nutshell, sentiment is better everywhere, apart from the UAE. Though on the plus side, at least in the UAE it isn’t getting any worse.

The majority of investors still expect capital values to increase in most MENA markets except the UAE over the next year, says the report, although the extent of these anticipated increases are now more modest. In other words, investors are hopeful but have their feet firmly on the ground.

The two hot spots in the region are Saudi Arabia and Egypt, according to the report, which is probably thanks to their large populations and hence significant economies. And of course, a little oil wealth does no harm. So, in the next 12 months, expect these two countries to outperform markets such as the UAE.

“Sentiment is stabilising and marginally improving, as investor confidence returns on the back of the region’s economic recovery,” explains Andrew Charlesworth, Head of Capital Markets at Jones Lang LaSalle MENA. But he emphasizes that “market regulation and legislation remain the most important factors influencing investment decisions, particularly for organisations addressing a variety of risk management and corporate governance issues.”

In other words, investor sentiment may be high for Saudi, but local transparency and finance issues make speculators wary. By contrast, Dubai has little short term appeal thanks to oversupply and the UAE’s well published economic difficulties, but it is gradually undertaking market reforms and regulations and it remains the most transparent market in the region. JLL believe this will contribute to a gradual, but hopefully long term, recovery of confidence in the embattled Emirate.

But it will take time. As the report says, across the MENA region, negative changes in real estate values were the highest in Dubai (18 percent down). It was followed by Kuwait, the Levant, Bahrain, Abu Dhabi, Oman and Qatar. True, the government’s generally successful debt restructure has helped sentiment improve by 70 percent since April 2009, but there is still a way to go. Right now JLL says there are as many sellers as there are buyers in the Emirate, while in the rest of the region the buyers outnumber the sellers, creating a healthy market. The fact is, right now Investors are looking for low risk and income generating assets, and at the moment Dubai does not fit the bill – particularly in terms of income generation.

It’s not just Dubai that is falling out of grace with investors. While positive sentiment may not be abandoning the GCC, you can find much more of it directed towards the North Africa region and the Asia Pacific region, says the report. JLL speculates that investors are looking to diversify their portfolios into these emerging markets. Though their interest is only half of the story – while the sentiment on these regions is strong, right now the actual cash is heading to Europe and in particular the UK.

This suggests that the wary investor is currently opting for safety, while keeping an eye on the next opportunity.

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