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AT Kearney, a global strategic consulting firm, recently published its 2010 Real Estate Global Opportunity Index.
The index is designed to help property developers decide where to expand outside of familiar markets. Focused on emerging markets, the index weighs real estate development potential, based on construction spending and growth, and risk avoidance, a combination of a country's risk and the ease of doing business there.
When AT Kearney issued its last index in 2008, the real estate crisis was in its early stages in the region. Since then, prices have plummeted worldwide, creating a downward spiral that has devastated economies. Promising projects have been cancelled or downscaled, and developers are coping with previously unseen financial difficulties.
Today, it appears, the market is gearing up for a comeback. For developers active in emerging countries and with capital to invest, what is the next move?
"The countries of the Middle East and North Africa (MENA) continue to improve in the index, even as they are hit by the economic crisis. The United Arab Emirates jumps significantly, from 31st to 18th place," said Dr Dirk Buchta, partner and managing director, AT Kearney Middle East.
Since the beginning of the economic crisis more than a year ago, most real estate markets - emerging and mature - have seen plummeting prices, as much as 40 to 50 per cent in some Middle East countries.
According to a report by Real Capital Analytics, volume on global real estate transactions plunged 67 per cent year-over-year in the second quarter of 2009. Recently, conditions in most emerging markets seem to be improving, thanks to government stimulus, infrastructure investment and a resumption of lending.
For the markets of the GCC, and specifically the UAE, which had great price declines in 2008-2009, the Asian recovery following its 1997 crisis offers reason for hope.
Low real estate prices could put the region back on track for attracting foreign investors, who are already interested in the region for its other advantages. Gulf oil reserves, amounting to more than $5 trillion, give the area ample financial strength, and the region's lifestyle, particularly in the UAE, is attractive to foreign companies. As development projects are temporarily or permanently halted, the oversupply will begin to diminish.
For developers with some cash, the first step at this point is to reconsider whether to invest in geographic expansion or the transition towards a business of specialisation with the opportunity to improve operational excellence and develop ancillary revenue opportunities through asset management.
