Future plans likely to be curtailed as governments seek to adjust
Low oil prices are leading to a fiscal restructuring across GCC nations, which will likely lead to cuts in infrastructure spending, according to a report by real estate consultancy JLL.
According to JLL, fiscal restructuring in Gulf states is already evident in the form of budget cuts. It will involve reduced public spending and increased taxation to bolster government revenue, which will have implications for infrastructure real estate investment in the region.
“While many of the announced projects are likely to proceed, they may be scaled back or rescheduled over an extended time frame, with future projects being curtailed. This will inevitably have a knock on effect on local real estate markets,” the consultancy said.
Meanwhile, governments are also seeking to raise revenues through sales tax, land or housing taxes and the reduction or removal of subsidies.
“While we remain positive on the long term outlook for real estate markets across the region, there is little doubt that the rebalancing of the fiscal position will result in headwinds and challenges over the next 12 months,” said Craig Plumb, Head of Research JLL MENA.
Although governments will continue to spend on development and infrastructure projects, the level of this spending will be curtailed over the medium term to adjust to the reality of lower oil revenues.
Overseas property investments by government-controlled sovereign wealth funds (SWFs) are expected to decline in 2016 on account of a prolonged period of low oil prices, Plumb said. JLL expects more funds to be diverted into local real estate, providing “an important source of additional capital for real estate markets across the Middle East.”
However, some of the decline in offshore investments by SWFs will likely be offset by private Middle Eastern investors, who are becoming active purchasers of property overseas.
“The prevailing geopolitical and security tensions across the Middle East are expected to result in an increased flight of private capital as wealthy Middle East investors seek opportunities in more stable and secure overseas real estate markets. JLL expects North America and the United Kingdom to remain the largest recipients of Middle East private capital, with Germany also becoming a preferred location.”