GCC builds $1.65 trillion economy on real estate

Filed on December 15, 2015 | Last updated on December 15, 2015 at 07.13 am
GCC builds $1.65 trillion economy on real estate
According to IMF, the GCC's economy is estimated to reach $2 trillion by 2020, with the UAE contributing $502 billion. - Getty Images

Region's growth at 5%, well above the global average rate of 2.8%.

Hinting at positive growth rates for the real estate markets in the GCC, Al Masah Capital published its report announcing a booming GCC economy at $1.65 trillion in 2014 compared to $535.7 billion a decade ago.

The reports were in comparison with global real estate market investments, which fell back in 2014 due to policy changes in China and other Asia-Pacific countries, leading to a weakening in land sales.

Global real estate investment fell in 2014 for the first time in five years, dropping 6.3 per cent to $1.21 trillion from $1.29 trillion in 2013. While the recent drop in oil prices have subdued GDP growth in the short term, the GCC economy is expected to recover on the back of supportive economic policies and strong performance in the non-oil sector.

According to International Monetary Fund, the GCC's economy is estimated to reach $2 trillion by 2020, with Saudi Arabia contributing $902 billion, followed by the UAE ($502 billion), Qatar ($269 billion), Kuwait ($196 billion), Oman ($81 billion) and Bahrain ($40 billion).

Al Masah also observed that the GCC region as a whole is still heavily reliant on oil revenues, while the non-oil sector comprising of manufacturing, real estate, tourism, hospitality and trade has emerged as the major growth engine, especially in the UAE. Consequently, despite the steep decline in oil prices, GDP growth in GCC was not severely affected due to strong performance of the non-oil sector and large cash buffers, which ensured steady levels of spending and investment.

Over the last five years, the GCC economy has grown at an average annual rate of five per cent against the world average growth rate of 2.8 per cent. Within the GCC region, Qatar recorded the highest growth rate of 9.7 per cent, followed by Saudi Arabia (5.2 per cent), the UAE and Bahrain (four per cent each).

The increased contribution of the non-oil sector to the economy has been the major reason for the relatively better performance by GCC countries, surpassing the growth rates of developed countries in the last five years.

After the global financial crisis, the GCC has emerged as an attractive destination for global investors and the real estate and construction sectors have become key economic barometers for the growth in the region. GCC countries are also organising mega events such as Dubai World Expo 2020 and the 2022 Fifa World Cup in Qatar, which will provide a major boost to the region's tourism, as well as the real estate industry in the coming years. However, private equity investment in GCC real estate is still recovering from the effects of the economic recession in 2009. The recovery rate has been slow due to cautious investor sentiments and the industry has a long way to go before it reaches the pre-2009 levels of investment.

The hospitality, residential and office lease markets remain buoyant in the GCC, whereas the retail segment is expected to continue its aggressive expansion in the coming years. With major ongoing commercial projects, GCC real estate markets are attracting considerable interests from private sectors to indicate potential for further growth.

Views expressed are by Al Masah Capital and do not reflect the newspaper's policy.

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