Lower oil prices to affect real estate sector negatively in 2016, says JLL
According to the JLL, the world’s leading real estate investment and advisory firm, lower oil prices are leading to a fiscal restructuring across GCC’s hydrocarbon economies, which involves both reduced government spending and increased government revenue through taxation.This scenario will have various implications for real estate investment both in the region and globally.
While many of the already announced projects are likely to proceed, they may be scaled back or rescheduled over an extended timeframe, with future projects being curtailed.This will inevitably have a knock on effect on local real estate markets.
GCC investors have been active on the global real estate stage for many years. Since 2007, GCC investors have purchased a total of over USD45 billion of real estate globally. In reality this figure under estimates their exposure to real estate, as it only includes direct commercial real estate purchases and excludes both residential projects and also company acquisitions. While many of the high profile purchases have been made by government controlled Sovereign Wealth Funds, there has been growing interest from private investors over the past 2 years and this trend is expected to continue further.
Despite lower oil prices, JLL’s data shows that Middle East SWF’s remained active purchasers of global real estate during 2015. A total of 38 deals worth USD 6.5 billion were transacted over the 9 months to September 2015. While the number of overseas transactions has declined from the 74 deals seen in 2013, the value of investment has remained high and is likely to exceed that experienced in 2014. The volume of investment is expected to decline in 2016 as we enter a prolonged period of lower oil prices that will cause sovereigns to reconsider their objectives and strategies.