JEDDAH – Sovereign wealth funds (SWFs) in the Middle East are set to continue investing in real estate around the world despite the economic slowdown, according to analysis from Cushman & Wakefield property services company. It noted that Saudi Arabia could be poised to become a more active investor in international real estate markets. With the oil price having almost trebled over the last decade, oil-rich countries are still building up high levels of reserves in spite of the slump in the global economy, the firm said. The price of oil rose above $96 a barrel Friday as traders remained confident that the European Central Bank's latest bond-buying plan will go a long way to resolving Europe's debt crisis, ahead of key US jobs figures. By early afternoon in Europe, benchmark oil for October delivery was up 54 cents at $96.07 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 17 cents to settle at $95.53 Thursday. In London, Brent crude was up 56 cents to $114.05 a barrel on the ICE Futures exchange. Crude was driven as high as $97.71 Thursday by word that the European Central Bank would buy unlimited amounts of government bonds to help lower borrowing costs for euro nations that are struggling with debt. Yahya Abdulla, head of capital markets for the Middle East at Cushman & Wakefield, said: “With sufficient funds seeming available in the short to medium term, whilst primary focus will remain on internal investments, a need to diversify in order to safeguard the nation's wealth will ensure that Middle Eastern SWFs continue to invest across the globe." “Without having the same returns criteria, life-span or cost of capital of large real estate funds, these organizations will seek to increase their portfolio, only making an exit once a compelling and perhaps strategic opportunity arises." Saudi Arabia could be a potential game changer, however, Abdulla said. Although the Kingdom was by far the major nation in the Middle East in terms of petrochemical reserves, population and wealth, it had kept the lowest profile regarding its international investment, he said. But there had been a real momentum shift within the country recently, he said, with trillion-dollar infrastructure and property projects earmarked for the cities of Jeddah and Riyadh. “While there have been instances of Saudi Arabian institutions investing successfully in global real estate markets, we have perhaps only seen the tip of the sand dune," he said. Middle Eastern SWFs have now begun to accumulate a diverse portfolio of international trophy assets, already having a significant track record and pipeline of domestic investments, Abdulla said. This has let them preserve their wealth and at the same time increase their country's stature in an ever-shrinking world. It is the Gulf Cooperative Council countries that have been the most active in the region in terms of cross-border real estate investment in the last 18 months – Qatar, Kuwait and the UAE. Lebanon, Bahrain and Turkey were also investment heavyweights with substantial wealth, but they lacked the natural resource backing, he said. “Against the backdrop of a global economic slowdown, the appetite and indeed competition for large trophy assets – more than £200 million – is limited to few funds and institutions," he said. But, despite this, it is a general misconception that vendors can put a big premium on these assets because these SWFs are so rich, and because of an “insulated trophy asset pricing structure," Abdulla noted. – SG/Agencies
