Kuwait: Overseas Property Investment |
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Kuwait's Global Securities House (GSH) finalized the acquisition last week of a major high-rise office and residential development in downtown San Francisco, in conjunction with US-based SKS Investments. The property, which is located in the Rincon Hill area of San Francisco's financial district, is part of a massive city-planned redevelopment in one of the world's most expensive real estate markets.
We were attracted to the asset because it offered our investors an exceptional opportunity to invest [...] at a projected return level that exceeds most development projects, said Fahad Boodai, CEO of GSH.
The Rincon Hill neighbourhood may lie on the opposite side of the globe as Kuwait City but the overseas location of GSH's new acquisition is by no means unique. Kuwaiti investors, both public and private, have been snapping up property around the world, floating on a rising tide of oil-fuelled liquidity.
GSH's newest property joins a portfolio already stocked with holdings around the world. In Libya, Kuwait's National Real Estate Company last month joined Libyan companies in signing an almost $75m project finance facility for an upscale waterfront development of over 400 mixed-use units near Tripoli, while across the Mediterranean, Kuwait Investment Authority (KIA) purchased the Cevahir Shopping Centre in Istanbul, for $750m. Kuwait Finance House, the emirate's oldest Islamic bank, has established a joint venture corporation with a pair of Chinese firms to explore real estate investments in the Chongqing province of central China. In Africa, Kuwait's IFA Hotels and ResortsIFA Hotels and Resorts
has established itself in the South African hospitality market. Closer to home, Kuwaiti companies have been snapping up properties in neighbouring markets. Al Argan International Real Estate has boosted its middle-income residential developments in Oman and Bahrain while Al Madina for Finance and Investment has expanded its property holdings in Saudi Arabia. In Jordan and Egypt, Kuwaiti firms also have a sizeable presence in the residential and commercial real estate markets.
Kuwait's investors have benefited from a surge of liquidity, courtesy of high oil prices. A barrel of oil, which cost around $30 a few years back, has more than doubled in price and, as a result, Kuwait's coffers - like those of its neighbours - are brimming with cash. Gulf Cooperation Council (GCC) countries have spent over $5bn on foreign investments over the past year, with acquisitions ranging from blue-chip shares to treasury bonds.
The current scenario is reminiscent of the 1970s oil boom, where skyrocketing oil prices encouraged an outpouring of lavish spending. However, this time Kuwait is taking a prudent approach toward spending its oil revenues. Since prices began to rise three years ago, Kuwait has invested in diversified holdings and the private sector. Following the 2003 boom, Middle East OPEC members spent less than 40% of their revenue increase, as opposed to 80% during the 1970s.
People are asking where all the petrodollars are and why we have not seen anything like the spending of the 1970s and 1980s, said Bader al-Saad, the managing director of the Kuwait Investment Authority. What has changed is the economic and political reforms in the region, the fall of the barriers for investors and the improvement of the banking and financial system. If we had not learned from our previous mistake, this would have been a big stupidity, he said.
A significant difference is the increased clout of local private investors, who have tripled stock valuations in the GCC over the past few years. According to the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) from emerging economies and resource-rich states has grown steadily since 2005. In the GCC region, outbound investment has more than doubled to over $16bn, 88% of which comes from Kuwait, Saudi Arabia and the UAE.
However, there has been a growing discussion in Kuwait over the disparity between the massive investment outflows into overseas property and capital markets, and the relatively low investments coming into the country. Kuwait has a high FDI potential, with an impressive level of capitalisation, a growing debt market, and a developed equity market. Investment in the country's real estate sector is expected to balloon past $8bn by 2012. However, its FDI performance has been relatively low, with foreign investors traditionally concentrating on the manufacturing sector and, to an extent, the services sector. According to UNCTAD, while Kuwait ranks as one of the top nations for attracting FDI, it has one of the smallest inbound investment flows in the region, at $250m, far behind UAE ($12bn), Saudi Arabia ($4.6bn), Qatar ($1.4bn) and Bahrain ($1bn).
© Oxford Business Group 2007
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