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GCC property investments to shoot up

JEDDAH: The $452 billion of government spending on GCC infrastructure projects will begin to resonate in regional property markets within the next 12 months, DAMAC Properties , the largest independent developer in the Middle East, said Tuesday.

Saudi Arabia, UAE and Qatar account for 80 percent of the total value of investment in projects, already announced in the GCC, according to research specialists Ventures Middle East.

"We predict the wide-scale government spending on infrastructure will begin to have a significant impact on GCC property markets over the next 12 to 18 months. There is a lag-time with any fiscal stimulus, and with infrastructure projects in particular, it takes time for the injection of funds to resonate in the real economy," Niall McLoughlin, Senior Vice President DAMAC Properties , said.

Spending on infrastructure has been used by GCC governments as an economic instrument to diversify oil-based economies for sustainable long-term growth.

"Government spending on infrastructure has a multiplier effect on the overall economy. Major projects require an impetus of resources and skilled labor. The more money spent, the more skilled labor required to execute those projects, which attracts new people to the GCC countries, boosting demand for residential properties, both to rent and also to buy" he further said.

While there are already more than $450 billion worth of projects in the pipeline, rising energy prices may be a strong catalyst for regional governments to further increase expenditure on infrastructure.

The crude oil price has risen to its highest level in two and a half years, and that is delivering additional revenue to the governments of oil producing nations within the GCC. Converting surplus oil revenues into major infrastructure projects has long been a strategic objective of regional economic policy makers in the Middle East region. Investment in infrastructure can have the effect of stimulating non-oil sectors of the economy including transport and logistics, health services and education.

"Property investors should be taking note of macro-economic developments across the region for two reasons; firstly, new projects attract more labor which creates more demand for housing, and secondly government funding on public amenities such hospitals, schools and rail networks it can revitalize entire areas and leverage property values higher" McLoughlin noted.

Of the scheduled projects, rail infrastructure accounts for nearly a quarter of all government spending. This includes the highly anticipated Gulf Cooperation Council (GCC) railway project, linking GCC member countries. The 2,117-km-long network, starting in Kuwait and Saudi Arabia, is likely to take a little over five years to complete.

Qatar is also investing heavily in infrastructure following its FIFA 2022 World Cup bid. Key industry analysts are estimating that Qatar will need to invest at least $90 billion over the next decade on housing and infrastructure. The country has pledged to allocate 37 percent of its budget to major capital projects.

"We predict the wide-scale government spending on infrastructure will begin to have a significant impact on GCC property markets over the next 12 to 18 months. There is a lag-time with any fiscal stimulus, and with infrastructure projects in particular, it takes time for the injection of funds to resonate in the real economy," McLoughlin said.

© The Saudi Gazette 2011