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The Market 2008 covers real estate development in Abu Dhabi, Dubai, Northern Emirates, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, Jordan, Lebanon, Syria, Turkey, Yemen, Algeria, Egypt, Libya, Morocco, Tunisia, Nigeria, India, Sri Lanka, Pakistan, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The 24 emerging markets are analysed and ranked by their residential, commercial, hospitality and retail sectors. The rankings assess factors including economic background, income, the size of groups able to afford residential property in units costing more than $100, 000, financial instruments contributing to affordability, supply and demand, bank lending on construction, legislative and political environment, foreign investment rules and more.

ISBN: 978-1-902339-06-1
ISSN (Online): 1759-4715
ISSN (Print): 1759-4707

TABLE OF CONTENTS

REAL ESTATE RANKINGS 2008

As in 2007, India ranks the highest in overall appeal in terms of development of the residential, commercial, hospitality and retail sectors. India has lost some ground in the 2008 rankings as the balance of supply changes and liquidity becomes scarce in key cities. Still, rents and sales prices continue to climb across CBDs, and retail and hospitality developers remain positive.

Malaysia replaced the Philippines in second place in 2008. Real estate values have climbed consistently and prices for condominium developments commonly increased by 50-70% within a year of release. Commercial yields are around 7%, while tourism arrivals climbed by some 9.6% between 2006 and 2007. Occupancy rates in Kuala Lumpur rose by 7% and five star room rates by an impressive 27%.

Indonesia, the Philippines, Thailand, Turkey, Morocco, Algeria, Egypt, Syria, Nigeria and Pakistan rounded out the rest of the top twelve most attractive countries for investment.

COUNTRY ANALYSIS

UNITED ARAB EMIRATES

ABU DHABI

In its developments plans, the Abu Dhabi government has announced that it will spend $200bn on infrastructure and real estate development through 2013, with the private sector expected to shoulder 60% of the financial burden. Consequently, the need for cohesive thinking between the public and private sectors is paramount. The government has created Plan Abu Dhabi 2030 as a blueprint for development, making explicit the expected infrastructural demands in terms of anticipated population increases.

DUBAI

It is estimated that Dubai's real estate sector contributed $5.5bn to GDP in 2007, while the construction sector outweighed this with a contribution of $6.4bn in 2007. The IMF reports that construction contributes to a stabilised 8% of GDP. The growth of the economy and the population has placed significant pressure on Dubai's infrastructure. Under the Dubai Strategic Plan 2015 the Real Estate Regulatory Authority has introduced a number of rules to control and regulate the real estate markets. Through master plan developments, Dubai's urban landscape is being planned, developed and controlled to ensure sustainability.

NORTHERN EMIRATES

Together, the Northern Emirates accounted for around 18% of the UAE's total GDP. The Northern Emirates includes Sharjah, Ajman, Ras Al Khaimah (RAK), Fujairah and Umm Al Quwain (UAQ). Both UAQ and Ajman have witnessed growth in the real estate and industrial sectors. In the past couple of years, the property boom in the UAE has spilt over to the Northern Emirates as a result of economic fundamentals and the revamping of real estate regulations to allow foreign ownership. There are also major development projects underway in Sharjah and RAK.

GULF COOPERATION COUNCIL

BAHRAIN

Bahrain has historically acted as the financial capital of the GCC and even with regional competition, continues to thrive. The economy had a compound annual growth rate (CAGR) of 6.8% between 2003 and 2008. The kingdom is expected to be the first GCC member to run out of oil, which has resulted in the diversification process starting in Bahrain long before its neighbours. The real estate and building boom that has been a part of this diversification has given Bahrain one of the most developed property markets in the GCC. Since 2001 several decrees have been passed to permit all foreigners, in addition to GCC nationals, to buy and invest in real estate. Both foreign buyers and investors can enjoy 100% ownership of land in predetermined areas. Bahrain has the 2030 National Strategic Masterplan in place that has already approved land-use plans for residential, commercial, industrial and agricultural uses, resulting in greater investor confidence.

KUWAIT

Kuwait's real estate and construction sectors grew by 7.9% in 2006 and contribute approximately 6% of the nation's economy. According to the NBK, the value of real estate sales grew by 67% in 2007. Volume of units sold expanded by 54% in the first half of 2007, as compared to the same period in 2006. Total real estate investment tradings have increased during first-quarter 2008 to account for KD385m ($1.3bn) compared to KD490m ($1.7bn) during the fourth quarter of 2007 with a decrease of 21.5%. The sector has been receiving increased investor attention. Around $8bn of private investment and $3bn in government investment is expected to come into the sector in the next five years.

OMAN

Given the amount of infrastructural development involved in Oman's plans to diversify the economy, it is no surprise that the construction sector is the second-fastest growing sector, having grown at a compound average of 22% between 2001 and 2005. This sector's contribution to the country's GDP rose from $3.9bn in 2006 to $4.7bn in 2007, accounting for nearly one-third of the country's GDP. Projects released towards the end of 2007 and beginning of 2008 have sold out quickly, in a matter of hours in some cases. At the same time, land prices have increased by close to 100% since 2006.

QATAR

The oil boom, expanding gas sector, increased foreign direct investment, major real estate projects and public infrastructure programmes have contributed to the GDP, increasing by 10% from 2006 to 2007 and achieving a CAGR of 27% from 2004. The finance, insurance and real estate sectors made up 11.3% of GDP, at $7.2bn in 2007—growing at a CAGR of 38% from 2004. Meanwhile, the building and construction sector contributed 6.3% of GDP at $4bn in 2007, growing at a CAGR of 32% from 2004. The government has estimated that approximately $125bn worth of real estate developments is scheduled for completion by 2015. Foreign investments in the real estate sector commenced in 2004, when the foreign ownership of real estate law permitted non-Qataris to invest and own land, buildings and constructions in three designated projects.

SAUDI ARABIA

According to a report by the Council of Saudi Chambers of Commerce, the real estate industry will achieve 6.7% growth over the next five years, owing to commercial and residential projects, in addition to land and houses. Overall, real estate investments more than doubled by the end of 2007 to reach about $26bn following increasing prices and demand, according to a report by the Kuwait-based Global Investment House. Demand drivers for real estate include high levels of liquidity stemming from generous oil revenues, a continued preference for investing in the local market, low interest rates and an increase in bank credit. Real estate demand is based primarily on population growth and economic diversification.

MIDDLE EAST

JORDAN

During the first quarter of 2007, the Jordanian construction sector's contribution to GDP increased to JD74.6m ($106.2m) compared with JD69m ($98m) recorded for the same quarter in 2006. According to the Department of Land and Surveys, the total value of real estate transactions in the first six months of 2007 was JD2.96bn ($4.2bn), representing a 23% rise when compared to the same period in 2006. Recent investments in the country are estimated to exceed $13bn, while planned investments over the next five years are reported to be around $15bn. A number of governmental measures, like the Investment Promotion Law, which grants tax exemptions and allows repatriation of capital and profits, are helping to create an investment friendly environment. There are few restrictions on foreigners owning property or investing in Jordan, provided that they wait five years before selling. However, the market has been showing signs of a correction since the beginning of 2008, with land and property prices stabilising. Still, the correction has been anticipated since 2007 and experts expect that it will pick up again towards the end of 2008.

LEBANON

The real estate sector in Lebanon is currently considered more stable than it has been in recent years. Political stability has been extremely fragile over the years, leading to a number of events that have traumatised the nation. Nevertheless, developments in the capital and neighbouring districts have not slowed down. Despite all the recent political sensitivities, construction activity does not appear to have been affected in the capital. Most of the projects are financed heavily by companies and investors that originate in the GCC and the tremendous amount of investments made in the central district has facilitated the successful completion of the majority of projects. Local developers have been introducing a higher standard of commercial and residential space.

SYRIA

The Syrian government has traditionally dominated the country's construction sector. While it still holds the lion's share of development, it has decreased its control in the past few years and has worked to encourage the development of private sector investment. In 2005 the total amount of construction area in Syria stood at 16.4m sq metres, which represented a CAGR of 55% since 2002. Contractors regard 2006 and 2007 as the beginning of a phase of real growth. These years were marked by the entry of a significant number of high-profile Gulf investors funding major development projects around the country. Construction and real estate have been targeted as major areas for development as part of the government's attempt to counteract the effect of falling oil revenues by encouraging investment in other sectors.

TURKEY

Construction and real estate are very important contributors to Turkey's GDP, and also to export earnings, with Turkish contractors realising development planning from North Africa to Asia. Sluggish GDP growth and the subprime crisis have negatively affected the real estate sector. The construction sector grew by an estimated 17% in 2007, slowing down from 20-21% in the previous two years. Real estate transactions reduced drastically in the first quarter of 2008. In February 2007 the government introduced a new mortgage law, but it has not yet had a sizeable impact on the market, with high interest rates persisting. Real estate companies continue to take measures to increase sales, subsidising interest rates on housing loans to entice home-seekers into acquiring property at a time when interest rates would ordinarily be considered too high.

YEMEN

Yemen continues to be one of the least developed real estate markets in the Middle East and North Africa. Yemen is the poorest country in the Middle East and suffers from major development challenges, including water scarcity, high unemployment and underdeveloped infrastructure. There is also a serious lack of grade A facilities in the retail, office, residential and—until recently—hospitality sectors, all of which are increasingly experiencing demand. Despite the negative indicators, Yemen also has a significant number of high-income residents, as well as a large segment of the population living and working outside of the country. Many of these are now keen to invest in tangible assets, such as the real estate market. The lack of advanced infrastructure has been the major deterrent to international investment, with foreign cash inflows thus far having been directed almost exclusively at the oil and gas sector. However, important measures directed by the government in building infrastructure have made a considerable difference, as has a pledge of $4.7bn from GCC countries to help develop the country's infrastructure.

AFRICA

ALGERIA

In Algeria, the demand in real estate has increased since the diversification of the economy away from hydrocarbons began in recent years. This new demand will attract an expanded supply of housing units to the market. The housing requirement stood at over 1m in 2006, but with the significant expansion of the real estate market, supply is increasing. Over the past six years the construction sector has grown by 8% and most of the major construction projects are financed by the government. Several international developers have decided to enter the country in order to play a role in developing and improving the tourism sector, the prize assets of which include beaches, deserts, and historic and cultural attractions.

EGYPT

The real estate market in Egypt is regarded as healthy, with continuing high levels of demand from population and GDP growth, and foreign investment. With a population of 80m, Egypt has the second largest population in Africa. More than $50bn of foreign funds has been committed to large-scale developments. According to Global Finance House, foreign direct investment into real estate increased by 136% between 2005 and 2008 and now stands at $39m per annum. The real estate sector declined, as its contribution to the percentage of GDP between 2006 and 2007 slid from 3.3% to 3.1%. Despite this decline, the sector grew 9.9% during this period. Between 2001 and 2007 the real estate sector grew at a CAGR of 8.5%. The building and construction sector rose by 27%. The main threat to the market is posed by rising construction costs, which estimates suggest have increased close to 40% since the beginning of 2008 primarily due to the price of steel, which climbed from $565 per tonne in December 2007 to $1400 per tonne according to official estimates.

LIBYA

The construction and real estate sector presents some of the best opportunities for investors seeking to take advantage of Libya's new economic wealth since both are current government priorities. Demand is widespread across all sectors, but developers who have launched projects in Libya have not always found the endeavour easy. Permission can be difficult to acquire and prices can be irrational, with prices paid for land by foreign investors recently doubling, as local authorities test how far Gulf and international investors will go for market entry. The growing number of construction projects in the country reflects the increasing market interest, with 17 new projects in 2000 and 84 in 2005. International developers with projects now in the planning stages are typically second-tier firms with interests in other economic fields. Local developers have proven reluctant to take on projects of any scale. The key factor keeping projects small has been a lack of funding and access to lending. International banks are reluctant to lend in the Libyan market.

MOROCCO

Morocco's real estate boom, which is growing at a much faster rate than in the EU, is likely to continue until at least 2010. Despite high manufacturing costs, nationally produced cement is among the cheapest in the world and will continue to provide a strong foundation for future growth in the construction industry. Future expansion and growth is currently constrained by a dearth of well-trained human resources. Programmes such as private training plans are necessary to ensure ongoing development. But there has been international interest, particularly in the privatisation and public offering of state-owned land.

TUNISIA

Despite the rising price of construction materials, Tunisian construction firms stand to profit from the recent proliferation of development in the country, as foreign investors are likely to outsource part of their projects. Urbanisation is one of the major drivers for real estate development; the urban population is growing at a rate of 2.8% per year. Thus there is a high demand from buyers for higher standard of building and community design. One of the main issues in the construction sector is the rising cost of materials as well as labour costs, which have been increasing due to industry wages being set by the unions. The workers' unions have a strong influence on the market.

NIGERIA

The Nigerian economy, oil-dependent for over two decades, is moving towards diversification and real estate is one of the sectors that stands to benefit from the changes. The real estate sector has seen sustained growth since the beginning of 2000 with developers beginning to build homes for affluent Nigerians. The value of real estate and business activities grew by a 30% CAGR from N167bn ($1.6bn) to N809bn ($6.51bn) from 2000 to 2006. The development of the real estate market has been triggered by an increase the number of projects approved and under construction in Nigeria. According to the central bank's housing construction index, from 1998 to 2005, approved projects in residential, commercial and industrial segments have increased by an average of 29%, 15% and 27%, respectively.

ASIA & FAR EAST

INDIA

The sheer size of the Indian market remains a key source of strength. A report by Goldman Sachs has suggested that rates of growth over 5% annually could persist in India for an extraordinary 50 years. With 1.14bn consumers and a middle class estimated at close to 250m people, demand for residential, commercial, retail and hospitality space will continue to grow. India enjoys high levels of foreign direct investment and despite increasing land prices in 2007, the sector saw sustained interest from a growing number of foreign firms. However, a number of these deals were made during a period when the real estate sector was on a high-growth trajectory, which has been stabilising from the end of 2007 onwards. Thus, despite the line-up of substantial funds, high-cost entry barriers are prompting some of the firms not to deploy all of their resources.

SRI LANKA

Despite considerable challenges, real estate and construction remain comparatively stable in Sri Lanka. Construction has consistently accounted for 6% of the Sri Lankan economy since 2003. Sector growth has begun to pick up only over the past three years, with 9% growth recorded since 2004. Housing developments, particularly in the post tsunami reconstruction phase have also been hampered by spiralling construction costs, which have increased by more than 30% per year. The industry lost out on investment as the result of prohibitive real estate investment regulations, which include a 100% property tax for foreign buyers of freehold real estate. The biggest driver of the real estate sector is the tourism and second-home market. Despite the 2004 tsunami and the prospect of renewed civil war, the number of tourist arrivals has remained steady since 2003 at about 550,000 per year. The second-home market is largely driven by expatriate Sri Lankans looking to invest in their country and planning for their future return.

PAKISTAN

Pakistan's real estate market underwent an intense period of growth post-September 11, 2001. At that time, investors from the Gulf and the Pakistani diaspora pulled billions of dollars out of Western markets. Yet, political instability in 2007 has prompted developers and buyers to hold back on making investments, opting to wait for conditions to stabilise. There are already signs that momentum has returned to the real estate market, with property prices in prime areas of Islamabad and Karachi beginning to climb back. Real estate and construction in Pakistan has been a direct beneficiary of the return of capital. Overseas remittances jumped from $1.5bn to $4bn in 2002. Increased liquidity helped real estate prices to rise consistently from 2002 to 2005. The central bank also took a role in promoting real estate investments, as interest rates declined to historic lows of 3-4% from as high as 22%, resulting in greater use of credit and financing options. Until recently the property surge has mainly been confined to the major cities and, as result of high-risk activities there, the urban market began to turn in mid-2005. Institutional investors moved out of property investment, causing a decline in prices by as much as 40% between 2004 and 2006. Undeveloped plots were the worst affected portion of the market, with prices in certain areas declining by 40-50% across key cities. Although interest rates have been raised to contain inflation, property prices and rentals have been increasing for the past year.

INDONESIA

In 2007 Indonesia's GDP grew 6.3%, elevating it to a per-capita average of $3725. Inflation was reigned in considerably during 2007, dropping to 6.96% compared to the 14.55% of 2006. However, now that the government has decided to remove energy subsidies, inflation could again bounce back as high as 10%. As the world's fourth-most-populous country, with nearly 225m people, there is a high demand for residential development, particularly in the affordable housing sector. Additionally, since tourism is one of the economy's many drivers, the hospitality sector also offers opportunities. The number of tourists who visited Indonesia rose 13% to 5.51m in 2007, from 4.87m in 2006.

MALAYSIA

Laws restricting the purchase of residential real estate in Malaysia by foreigners virtually no longer exist. Since the end of 2006 foreigners have been allowed to purchase residential property valued above RM250,000 ($71,750) per unit. The number of properties that can be purchased is unlimited. Previously, foreigners were allowed to own property only for personal use and not for any type of investment purposes. Local financing is now available to foreigners as well. Property-related tax in Malaysia includes a stamp duty, which varies. The percentage can increase up to 3% depending on the sale price of the property. In April 2007 the capital gains tax was repealed for properties sold within a year and gradually less for properties held for longer periods of time.

THE PHILIPPINES

Remittances from overseas foreign workers have helped to revive the real estate and construction sectors in the Philippines. After several years of stagnation, the real estate sector started recovering and witnessed escalating capital values, prices and rents over the past couple of years. Demand has been expanding and absorbing all of the upcoming supply leading to reduced vacancy rates of between 3% and 6%, compared with nearly 18% in 2000-01. One of the most important industries, technology services, is set to develop further with the introduction of the real estate investment trust law and the rationalisation of the laws concerning foreign ownership of land. Currently foreign investments are limited to 40% equity on land and leaseholds of up to 75 years, 100% equity is permitted for condominium units and retail establishments. Outright ownership of land is not permitted and the situation is unlikely to change in the near future.

SINGAPORE

Corresponding to its strong economy and limited room for development, the real estate market in Singapore remains healthy. The country's economy has expanded over the past three years and growth is expected to be between 4% and 6% in 2008. Singapore has a population of 4.6m and it is increasing at an annual rate of 1.1%. With a land area of just 690 sq km, population density is more than 7000 people per sq km, but despite this, significant areas are reserved for green space, military and government purposes. The construction industry is growing by more than 20% per year. Land remains at a premium and there is little space available for redevelopment. In the beginning of 2008 prime plots attracted up to $2663 per sq metre. In total, land sales in the first quarter in 2008 reached $8.3bn, a slight increase in comparison to the $8.17bn in the last quarter of 2007.

THAILAND

Despite the turmoil that has stricken the economy over the past decade, such as the 1998/99 Asian financial crisis, the tsunami in 2004 and the military issues in 2006, Thailand has managed to maintain steady GDP growth over the past few years. At the end of 2007 GDP per capita was a healthy $8000. Thailand has a population of over 65m people, with around 8m living in Bangkok. The annual population growth is currently 0.64%. Under Thai law foreigners may hold land only if they have permission from the Interior Ministry or have a registered business promoted by the Board of Investment. This directive has traditionally been set aside, with foreigners able to buy land through shell companies. However, in 2007 foreign buyers were warned that they would no longer be able to hold real estate in this manner—something that has become a matter of great concern for owners of second homes. The newly elected government, however, has announced that these legislations will be changed over the course of 2008.

INVESTMENT LAWS

This section includes the name and a description of the provisions for real estate acquisition in each of the countries covered.

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