Performance of the Middle East

Performance of the Middle East Property Markets

Over the last several years, the real estate market in the Middle East has been through a tremendous amount of challenges. Part of the reason for this, is because the different oil exporting countries experienced a boom in prices until 2008. This is when the price of West Texas Light Sweet Crude would reach $140 per barrel. Once this occurred, it meant that consumers and business cut back on their spending dramatically. This was the equivalent of a tax increase that was placed upon them, which was had an impact on spending. As a result, the price of oil declined to $35.00 per barrel in January 2009. This had a negative impact upon the economies throughout the region, as the global financial crisis and high energy prices were affecting demand. At which point, most counties in the Middle East and North Africa began to feel these overall effects. (Exiting the Great Recession 2009)

For the real estate market, this meant that prices suddenly began to shift. As buyers became: scarce and the total number of available properties on the market skyrocketed. This caused prices and available financing for a variety of projects to come to a sudden halt. A good example of this can be seen in Abu Dhabi, as the price of real estate was hitting an all time high in late 2007 to early 2008. Then, once the recession began to effect the market is when the decline had an impact. as, prices would fall between: 15% to 20% by the end of 2008 and the beginning of 2009. At which point, a shift began to occur in real estate values. What was happening is: the recession was running its courses and price of crude oil began to stabilize. This would have an impact upon financing as well as demand, with investors and buyers suddenly returning to a number of different countries throughout the region. This is significant, because it is showing how the Middle East real estate market, has the potential to provide above average returns, in comparison with the rest of the world. (Abu Dhabi Real Estate Gain Momentum 2010)

As travel into the area, is expected to continue to remain well above the worldwide average. Evidence of this is can be seen by looking no further than a study that was conducted by Group RCI. They found that air passenger traffic into the Middle Eastern countries will continue to grow at a rate of 6.7% every year until 2020. This is above the average rate for of growth for the rest of the world of 4.1%. (Middle East Leisure Real Estate 2008) as result, this is fueling demand for real estate in a number of different countries throughout the region. This is important, because it highlighting how investors are seeing the potential to: achieve above average returns in a variety of markets. To fully understand the overall scope of the changes that are taking place requires comparing the performance of the real estate market in a number of countries to include: Egypt, Israel, Kuwait, Saudi Arabia, the United Arab Emirates, Jordan and Qatar. This will be accomplished by: conducting a general analysis of these markets; comparing them with select developed nations (most notably the UK, the U.S.A. along with Australia); conducting a risk return analysis and examining the impact of various global events on them. Together, these different elements will provide the greatest insights as to: the overall profit potential and risks of investing in these markets.

An Analysis for the Real Estate Markets throughout the Middle East

Egypt

Egypt has become one of the most sought after destinations pertaining to: the real estate property markets. It is second only to Saudi Arabia in the region, by enthusiastically promoting international investment. As this interest, is expected to continue over the next several years.

In order to improve trust / transparency in the international community, the Egyptian government and real estate industry are: working to create a strong image globally. as, investors are continuously moving away from: Dubai and Jordan due to the competitive prices offered by Egypt. A good example of this can be seen with the country's performance in the sector during the first half of 2010. As prices began to quickly recover, doubling the return that they are offering to investors. This is important, because it shows how Egypt's real estate market is becoming one of the most sought after asset classes in the region. (Egypt Real Estate Attracts Interest from Foreign Investors 2010)

However, there are still those in international circles who are still not optimistic and have doubts about the long-term growth in the country's real estate market. As many investors, have been avoiding the sector by focusing their interests on: Europe and the ability earn higher yields. The main reason why this is occurring; is because, there are a number of different internal challenges inside the industry to include: a lack of transparency and recording keeping. This has caused some Egyptians to lose hope and demand more radical changes in the government. As they want to see some kind of effective reforms to tackle the growing shortages

This is because of: the increasing population and lack of affordable housing, have been leading to pressures on the government to address this situation. Evidence of this can be seen with over 600,000 marriages per year in Egypt, where this is fueling the strong demand for properties. As young Egyptian couples, are purchasing a house just before or at the time of an expected marriage (Egypt Property 2010). This is having an impact upon the underlying profits for a number of real estate developers.

A good example of this can be seen by looking no further than, the performance of the real estate firm the Six of October Development and Investments. The below table illustrates the overall strength of the company from: 2000 to 2010 (by highlighting the performance of the common stock).

The Performance of Six of October Development and Investments 2000 to 2010

Year

52-Week Low

52-Week High

2000

13.65

17.65

2001

9.16

18.75

2002

8.87

15.52

2003

9.68

14.02

2004

8.94

17.73

2005

10.74

2006

2007

2008

2009

2010

(Six of October Development and Investments 2010)

What this shows, is how the company has seen a dramatic appreciation in the price of their stock. This is because the shortages in the real estate market are creating an atmosphere, where prices are continuing to increase despite: changes in the economic cycle and other factors.

At the same time, the booming tourism market has meant that many: luxury commercial properties and resorts have been constructed. This has been causing the price of residential and commercial housing to skyrocket. as, foreign direct investors are lured by: the enticing returns that the markets are providing. This is adding to the overall demand and causing the market to experience even more price increases (despite the recession).Because of the economic boom that is taking place, the country has become one of the most sought after real estate destinations in the Middle East. This is outperforming: Jordan, Dubai and Kuwait; while lagging behind Saudi Arabia.

Saudi Arabia

Saudi Arabia is one the strongest performing markets in the region. The reason why is because, it has not been exposed to the large speculative bubbles that many of the other countries have experienced. This is due to the fact that they have seen large increases in the population since the 1980's. As it is projected that the total population in the Kingdom will be 36.5 million people (a 40% increase from 2010 levels). This is fueling a housing shortage in the country, with the government reporting that there is currently a deficiency of 400 thousand homes. As the: growing population and increases in land prices are causing costs to skyrocket. (Sambridge 2011) (Kawach 2010)

This has been protecting the real estate market from: the devastating effects of the recession. A good example of this can be seen by looking no further than, the real estate firm Jabal Omar Development Corporation. The below chart illustrate the underlying performance of the stock from 2007 to 2010.

Performance Jabal Omar Development 2007 to 2010

What this shows, is that the stock has been through a tremendous amount of highs and lows. As it rose to 27.00 in 2008, then when the recession began to impact oil price is when shares would decline to 15.00. At which point, they would from a bottom and begin a gradual increase. This is important, because it is highlighting the overall strength of the real estate market in the country. As it would see a tremendous amount of demand prior to: the recession. Then, during the downturn the market would remain fairly stable. In this aspect, the up and down movements that were taking place in the stock; meant that the profits of the company, were reflecting the changes that were occurring in the price of real estate. As the population increases and immediate housing shortage, are fueling rising demand in the coming decades. (Jabal Omar Development Corporation 2010)

Kuwait

Since 2008, the real estate market in Kuwait has been continually declining. The reason why is because the economy was largely depending upon oil revenues. However, in 2010 the sector began witnessing an increase in prices. This is because of the Kuwaiti government was aggressively promoting the tourism industry. As developers are expecting a strong increase in foreign direct investment, due to the governments push to expand the sector. As a result, holiday and residential areas in Kuwait are continuing to boom. (Finkelstein)

In the housing industry, there are large numbers of shortages that are affecting prices. What has been happening is the residential sector has been facing restrictions over the last several years, surrounding building permits. As the government was slow to endorse them, which created a rush on new areas that were approved for development. At the same time, the government has placed various restrictions on property ownership. In this case, foreigners are prevented from owning any kind of property in the country. This is important because, it is showing how this restriction provides the ability to see substantial price increases. While simultaneously; making it challenging for investors to become involved in the market. (Finkelstein)

As far as commercial properties are concerned, they are facing a tremendous amount of declines. The reason why, is because of the excessive building that occurred during the boom. as, the market was: seeing increases in prices and a shortage from corporate customers looking for new spaces. Then, once the recession began, is when it became clear that there were tremendous amounts of overbuilding in the sector. This is important, because it shows how the real estate market in Kuwait, is facing a number of different cross currents that are affecting a variety of asset classes. (Finkelstein)

UAE

In the United Arab Emirates, they have been facing extreme amounts of pricing pressures. This is because the markets have been undergoing major shift from: the tremendous amounts of overbuilding that took place during the boom years. This has caused a backlog in the large number of available properties on the market. As a result, there has been considerable decline in variety of sectors throughout 2010. The below table illustrates the overall amount of weakness in the market during this time.

Amounts of Weakness in the UAE Real Estate Market

Property

Amount of Decline

Residential Homes

-6.3%

Apartments

-7.0%

Villas

-4.7%

Townhouses

-9.0%

This is significant, because it shows the overall amounts of frailty in the markets. As the large number of available properties is only continuing to increase. Evidence of this can be seen with a report that was conducted by the real estate firm La Salle. They found that the total number of new properties in UAE is expected to increase by 25,500 units in 2011. This is problematic, because it is showing the overall amounts of weaknesses will remain in the market for the foreseeable future. (UAE Prays for Housing Recovery 2011)

A good example of this can be seen by looking no further than Aldar Properties. As shares increased to an all time high of 15.00, then once the real estate market began to cool is when this decline became more severe (with prices falling to 1.50). The below chart illustrates the overall performance of the stock during this time. (Aldar Properties 2010)

Performance Alder Properties 2003 to 2010

This is significant, because it shows the how the company was seeing their stock price follow the trends in the industry. As the sharp increases, during 2007 and 2008 was the result of a speculative bubble that developed. Once this burst, it meant that the markets would have to wrestle with a tremendous amount of inventory on their balance sheet. as, this had an adverse effect on: earnings and the underlying profitability (with the company seeing a more gradual rise in profits once the world economy began to recover). This is important, because it showing how the UAE real estate market will continue to face a tremendous amount of challenges in the future. As the large excessive inventories will mean; that prices will continue to: remain stagnant for some time. (Aldar Properties 2010)

Jordan

As far as Jordan is concerned, the economy has been performing very well in 2010. As it is following a trend, that has taken place in many countries throughout the region. What is happening is the country's real estate market was strong until the financial crisis of 2008. At which point, prices began to decline by 15 to 20%. Then, in 2010 is when a sharp turnaround took place. as, buyers quickly began to re-enter the markets, looking for great bargains in a host of different asset classes ranging from: residential homes to apartment buildings. Part of the reason for this, is because Jordan has a number of different free trade agreements with the United States and other countries. This has helped to improve transparency and the ability of foreign investors to easily purchase properties. At the same time, the large increases in population are creating a need for affordable housing. (Obedient 2010)

There are also joint efforts between the government and businesses to help promote the market to foreign investors. This has had a positive impact upon demand, as a variety of property types are providing the potential for consistently increasing long-term growth. A good example of this can be seen in the hotel sector during 2010. In comparison with the rest of the world, as the global economy was struggling to overcome the various challenges from: the lingering effects of the global economic recession. However, this all changed in Jordan due to the increased efforts from: the government and the private sector to promote tourism. At the same time, these two entities had an impact upon changing foreign ownership regulations on a variety of different properties. For many foreign investors, this combination made various sectors such as the hospitality industry very lucrative. as, they could promote various packages to a host of tourists, while being able to reap significant rewards from owning the properties. At which point, the prices for hotel real estate would increase by 20% during 2010. This is significant, because it shows how this overall philosophy that has been adopted by: the business community and the government are helping to make owning various properties easier. Once this occurred, it meant that demand for a host of asset classes would increase. The large improvements in the hotel sector in one year are a sign of the overall strength of these markets. (Obedient 2010)

A good example of this strength can be seen by looking at Methaq Real Estate Investment Corportation. What was happening is the company experienced a sharp slowdown in earnings, which was reflected by the decline in their stock price in 2009. Then, in 2010 is when this would change, as the demand returned to: the market and prices began to increase. The below chart: highlights the overall volatility in the stock during this time.

Methaq Real Estate Investment Corporation

This is significant, because the volatility in the price of the stock from: 2008 into 2010, is illustrating the resilience of this market. As a result, the long-term perspectives are one of the best in the region. This is because of: the favorable investment climate, reduced regulations, increased transparency and large population growth are creating sustainable long-term profits. Therefore, it would not be surprising to see the underlying strength continue for the foreseeable future. (Methaq Real Estate Investment Corporation 2010)

Israel

Israeli monetary authorities are worried that despite tighter land policies and repeated warnings from the Central Bank. That housing prices continue to rise, thus pushing the average price of homes upward. The reason for this increase in the price of houses is due to: strong economic growth, low interest rates and the long periods of relative peace in the country (despite the threats from neighboring nations). In some disputed areas in Israel, house prices will weaken (such as the Gaza Strip or the West Bank), yet many Israelis buy these properties as part of their patriotic duty.

As a result, Israel's residential property market has outperformed other countries in the region in 2009. However, it may lose some of its popularity after becoming one of the first to raise its interest rates since the global recession. As the Central Bank has begun to raise rates, which is a part of their strategy for: fight inflation. This is a part of concentrated effort to discourage loans for: mortgages, which intentionally may lead to a decrease in real estate property values in the future.

The restriction in land purchases has contributed to a drop in the number of apartments on the market. This is because of: the political climate presently facing Israel, as the government controls 95% of the land and they are continuously restricting the amount available to developers. Part of the reason for this, is because of: new laws, the pace of construction is increasing and the Central bank is pushing down prices. One such law passed by government is to free up publicly owned lands for private development. This is accomplished by: freeing publicly owned lands, as citizens will find it easier and cheaper to buy / build homes.

Despite some setbacks, Israel's housing sector is continuing to improve. As rising demand, has increased average home prices. This good news for home owners, but bad news for buyers. As the recent surge in prices has made life difficult for many Israelis, especially for first time home buyers (Tree 2010)

Based on demand, the Israeli government is now marketing land for the construction of: 1142 homes in Netanya, 450 in Tel Aviv, and 650 in Jerusalem. To meet demand, they plan to build about 40 thousand apartments per year. The northern areas will be marketed in: Karmiel land for construction of 100 apartments, Nazareth 100 will build dwellings in the non-Jewish sector, and Kiryat Motzkia will be marketed land for construction of 94 apartments. (Tree, 2010) This is significant, because it is showing how the government restrictions are creating significant amount of demand inside Israel.

However, efforts from both government and the Bank of Israel failed to stabilize the housing sector; hence, there is some weariness among citizens. As more and more home owners are turning to renting their properties, to reap increasing financial benefits.

Qatar

The real estate market in Qatar faced similar challenges as some of the stronger markets throughout the region. as, prices were seeing a period of consistent increases; until the beginning of: the recent recession and global financial crisis. This caused a host of asset classes to experience declines of: between 9 and 15%. Then, when the economy began to recover, is when conditions changed. In this case, the markets began to see steady price increases throughout 2010. A good example of this underlying strength in the markets can be seen by looking no further than rental rates. As the below chart illustrates, that the average leasing rates for residential and commercial properties have continued to remain steady during this time. (Qatar Real Estate 2010)

(Qatar Real Estate 2010)

This is significant, because it shows how the rental rates in the country's real estate market had stabilized during 2010. As this is a sign of underlying strengths, following two years of the market posting declines.

When you compare these findings with the performance of different real estate stocks in Qatar, they are following a similar pattern as the rest of the market. As the prices of their stocks, have: reflected a sharp decline in asset values and a stabilization / recovery. Evidence of this can be seen by looking no further than, the Ezadan Real Estate Company. As they posted a 62% increase in the price of their stock during 2010. While another major competitor, Qatar Real Estate Investment posted a 15.24% increase in earnings. The below table illustrate the overall amounts of growth in the stock that was seen during this time.

Ezadan Real Estate Company vs. Qatar Real Estate Investment

Company

Growth Rate

Ezadan Real Estate Company

62.00%

Qatar Real Estate Investment

15.24%

(Top Real Estate Companies in the Middle East 2010)

This is significant, because it showing the overall strengths in the real estate market of Qatar. as, prices have begun to dramatically increase: following the recession. When you look at the two different real estate companies, they are a reflection of this underlying strength in the markets. As this upward momentum is an indication of: the underlying strengths and demand for a host of different asset class. Therefore, it will not be surprising to see these markets continue to outperform others around the world. (Top Real Estate Companies in the Middle East 2010)

After a careful examination of the different countries in the Middle East, it is clear that they are experiencing similar trends. As they were impacted (in one way or another) by: the global economic recession. While at the same time, this had an effect upon their underlying asset classes of properties, by reflecting how each market is different. This is because government regulations and demand in the market are playing a major role in determining which ones are strong. As some such as: Saudi Arabia and Jordan are experiencing an increase in home prices since 2010. Then, there are other markets that were once hot and are now wrestling with lingering inventory such as: UAE. This is important, because it shows how the overall strengths and weaknesses of a particular market will be dependent upon these different factors working together. As the strongest markets have increasing demand and they have a favorable investment climate for foreign direct investors. Once this takes place, it means that the distinctions between the different markets will be clear. At which point, we can have a greater understanding of the overall risks and rewards. (Qatar Real Estate 2010)

A Comparison of these Markets with: the UK, the United States and Australia

The performance of real estate in the in Middle Eastern countries of: UAE, Israel and Jordan are still weak in comparison with the last few years. This is despite the fact that both: Jordan and Israel showed improvements during this time. As both markets have begun to realize consistent price increases, while many others were lingering around the world. As a result the real estate markets in these countries are stronger compared to: the United States, the United Kingdom and Australia. While, there are select markets that are following similar trends as these developed nations.

When you conduct a comparison with the property industry in UAE, it has been week since the global economic recession began. As this is causing prices of some real estate properties to decrease as much as 50%, which happened in the third quarter of 2008 (Oxford Business Group 2008). This is problematic, because it means that the country's industry is struggling, as the value of properties continues to drop. Analysts have predicted a 30% slide in certain areas of the industry and that lesser transactions are expected in the next few months. As a number of regions such as: Dubai will encounter several population issues, mainly overpopulation, and this will cause property prices to increase. According to some industry analysts and investors, the country's real estate market could possibly crash and the property industry might continue to drop until the next few years. This is important, because it shows the overall amount of stagnation that the UAE property markets are experiencing.

Jordan's real estate market remained weak since 2009. As Jordan and Dubai are two of the struggling property markets across Middle East. This is because Jordan's land sales had a 50% drop in 2009 and profits on residential apartments decreased by 28%. As investors had noticed a drop of 10% to 20% in prices since 2008 and the transactions on real estate markets had experienced a slide since 2009. The probable causes of Jordan's weak performance include 1) oversupply of properties, 2) high construction costs and 3) global financial crisis.

In 2009, this created an 11% slide on real estate transactions and a 14% land transactions on land transactions. Yet, when you look beyond these issues there are other sectors of the economy that are outperforming various markets. The most notable increases can be seen with increases in residential and commercial real estate. As these sectors would quickly rebound following the recession. This is important, because it shows how Jordan is seeing increasing and decreasing prices in select sectors. As a result, one could argue that investors are very cautious about the industry, based upon concerns that are not associated with demand.

Among the Middle Eastern countries Israel had a good performance in property industry, with a 4.5% increase in the country's gross domestic product (GDP). Over the past few years, as the Jewish state has maintained its ability to make the industry's performance stronger. As stated by the London Economist (2010), "Israel, over the past two decades, has transformed from a semi-socialist backwater into a high-tech superpower." (Oxford Business Group 2010) Moreover, the country's adjustment to its population has given rise to: high-tech start-ups and increased venture-capital industry. As the real estate was not seriously affected by the global economic recession, which is why it was able to create new sectors and make improvements. The country's residential asset class is: one of the fastest rising house prices in the world and its rate of GDP growth are expected to increase in 2011.

This is important, because it shows how the real estate markets in select countries, such as Jordan and Israel are experiencing larger than normal increases. Once this began to occur, is when these different markets began to see some kind of price stabilization. While at the same time, the UAE markets could continue to experience larger supply issues for many years to come. As they are wrestling with similar challenges as everyone else; which means, that prudent investments must be undertaken.

The United States remained weak, as its labor market experienced double-digit returns in 2010. There were also notable signs of improvement in: the commercial real estate market of the country in the last quarter of 2010. As the United States remains to be one of the leading countries in terms of the property industry, and there were increases in transactions during December 2010. This is in spite of the improvements in United States the housing market, as still relatively stagnant. As a result, the market could be in the process of trying to form some kind of a bottom. A good example of this can be seen, by looking no further than pending home sales between 2009 and 2010. The below table illustrates the overall volatility in these numbers. as, they would: sharply decline in 2009 and then begin to steadily increase for all of 2010. (Pending Sale of Existing Homes 2010)

US Pending Home Sales between: 2009 and 2010

Year

Percentage Increase / Decline

2009

-22%

2010

10%

This is important, because it shows the overall weaknesses of the markets during the last couple of years. However, despite these issues some kind of a recovery has taken place in pending home sales. As new buyers are quickly entering the market, possibly signaling that the U.S. could be going through a bottom. (Pending Sale of Existing Homes 2010)

In United Kingdom, the performance of its commercial property market continues to achieve increased amounts of growth recent months. As values are up by 0.2-0.4%, based on UK monthly index. Nevertheless, the positive feat that the property market has accomplished also includes: certain fallbacks. This is because several sub-sectors of United Kingdom's property industry experienced a decrease in its performance in the last quarter of 2010 (Ellis 2010). Furthermore, property values experienced an increase of 0.2% in a single month that produced a 0.7% increase in the property industry.

United States and United Kingdom's property industries had a strong performance over the past few years, though several setbacks were experienced. However, Australia's property market only experienced minor decreases -- it even proved to have the most transparent property market in the world (Lang 2010). As the country's markets had greater transparency rates that determined an: increase and recovery in the industry. A good example of this can be seen by looking no further than, the total amounts of volatility in the market over the last several years. The below table illustrates what has been taking place during this time.

The Performance to the Australian Property Market

Year

Percentage Increase or Decrease

2003

15%

2004

12%

2005

3%

2006

5%

2007

10%

2008

-5%

2009

-3%

2010

10%

This is important, because it shows how the Australian real estate market has been experiencing stronger returns in comparison with other markets. As a result, one could argue that of the three markets, this is the strongest in comparison with the Middle Eastern countries.

The performance of the property industries in Middle Eastern countries of: Egypt, Saudi Arabia and Qatar are improving over the past few years, whilst the performance in Kuwait is otherwise. One of the main reasons why the markets in these countries are stronger, because of the significant improvement in property sales.

The relevance of the property markets in Egypt is starting to gain more interest from investors worldwide. As they are becoming aware of the investment opportunities and incentives present in the country. Some of the main reasons for Egypt's improvement include: its developing the tourism sector, the legislative programs of the government that are intended to help the investment climate, and the affordable prices of Egypt's properties that possess greatest potential. The past several years in Egypt have shown significant changes in the overseas property industry. As the global economic conditions have caused economic setbacks that changed the way investors view property markets. However, the industry has experienced substantial amounts of success in the recent years, although the growth is focused on the Sharm El Sheikh area, which is popular for its resorts and real estate investments. This is important, because it is showing how there are pockets where the majority of development is taking place throughout the region.

In Saudi Arabia, its property market is one of the best performing among Middle Eastern countries over the past few years and it will continue to improve its performance over the next few months. Since the country's primary industry (crude oil) has started to recover, the Kingdom has been more mature and stable in terms of its performance (as structured growth in the Saudi Arabian market was made possible) (Watson & Carter 2006). Property investors are likely to gain an increase of 10% in the succeeding months, and most analysts / economists predict that the country's property market will continue to recover and improve as more investors put their assets into the real estate industry.

In the case of Qatar, they are experiencing a rapid increase in the demand for available properties. This is because, they have diversified their economy and they have more liberal regulations surrounding the industry. As a result, this is allowing the country to experience similar trends that are occurring in Saudi Arabia. This is important, because it shows how over the long-term trends in Qatar, will continue to see above average economic growth well into the future.

Among the Middle Eastern countries, Kuwait shows the weakest performance in terms of the country's property industry. The main reason why is because it lacks foreign investors. As the weak performance has continued since 2008 (Kuwait International Bank 2008), even though the number of sales is increasing and the values are decreasing. A good example of this can be seen with information compiled by the Kuwaiti International Bank. As there were 1,185 recorded real estate transactions in the second quarter of 2009, which shows a 6% increase compared to that of the first quarter. However, the value of the transactions fell roughly 8%, and the recorded total investments in the second quarter of 2009 were: 42.5% lower compared to the same period in 2008 (Kuwait International Bank 2008). In spite of the fact that Kuwait's industry performance is weak, it has been a great spot for investors. It has to promote its property market to foreign investors, which will help in determining a market's long-term stability. As a result, this market will more than likely face a number of different challenges in the future. This is because the different government regulations are preventing reforms from occurring, which is making the market more stagnant.

Even though, the four Middle Eastern countries of: Egypt, Saudi Arabia, Qatar and Kuwait seem to improve on its industry performance (with the exception of Kuwait in terms of value increases). These three countries are stronger compared to the industry performance of United States, United Kingdom and Australia (the only exclusion is Kuwait).

In the case of the United State and the UK, they have been experiencing a gradual recovery from the financial meltdown that took place in their real estate markets. This is because both nations are wrestling with high amounts of: foreclosures and consumer debt. These two factors are problematic because, they mean that over the next several years it will take some time to remove the excess inventory from these markets. Therefore, it would not be surprising to see these markets continue to remain stagnant over the next several years. As a result, any kind of potential profit returns will be limited in these areas in: comparison with the majority of the Middle Eastern Countries that were examined.

However, Australia has been experiencing greater amounts of appreciation, despite the recession that has occurred. This is important, because it is showing how their markets should deliver a similar kind of return as other Middle Eastern countries. Therefore, all future projections of possible profits will be greater in this area in comparison with the U.S. And the UK. This means that investors will more than likely be favoring these markets in comparison with some of the others that have been discussed.

When you step back and compare the different real estate markets with one another, it is clear that there are stronger amounts of growth in select Middle Eastern markets. The most notable include: Saudi Arabia, Israel, Qatar, Egypt and Jordan. This is important, because it is showing how these different markets are offering stronger growth based upon their policies. as, they are seeing sharp increases in demand for: a wide variety of properties. Part of the reason for this, is due to the fact that they have greater amounts of: transparency, an increasing population and a growing travel sector. These elements are helping these markets to experience: above average growth, despite the stagnant economic conditions. While at the same time, other markets such as: Kuwait and UAE are experiencing more extreme slowdowns in comparison with various regions of the world. In the case of Kuwait, the reason why they are experiencing so many challenges is: because various regulations control the ability of foreigners to own property. This is problematic, because it discourages investors from becoming involved in the sector, as they will seek out more favorable markets in the region.

As far as UAE is concerned, they are facing various challenges, because they were a part of the global building boom that took place throughout the last ten years. However, this strategy has backed fired upon developers, as there is a glut of excess inventories on the property market. This is problematic, because it means that the country will continue to face a stagnant real estate market over the next several years. As a result, both Kuwait and UAE are illustrating how specific individual factors in the country are leading to their underperformance.

When you compare this to: the U.S., UK and Australia; it is obvious that these markets are facing similar situations as those of the Middle East. In the case of the U.S. And the UK, they are wrestling with similar challenges to UAE. As they are struggling to: remove the excess inventory on the markets. This is problematic, because it means that over the next several years both markets will continue to provide limited returns. As a result, the better investment returns can be found in: Saudi Arabia, Israel, Qatar, Egypt and Jordan.

In the case of Australia, they are experiencing above average growth in comparison with the Middle Eastern markets. This is because they would experience less, severe declines during the slowdown, which helped to: provide stability to the market. This is similar to what happened in the markets of: Saudi Arabia, Israel, Qatar, Egypt and Jordan. Therefore, this market can provide a similar kind of return as these areas over the long-term.

As a result, the strongest real estate markets of the Middle East are showing similar trends as Australia. The reason why, is because they have lower amounts of unsold inventories and various regulations that are helping to promote the industry. When you put these different elements together, this means that Australia and these markets are the best place to see long-term capital appreciation over the next several years.

Conducting a Risk Analysis of these Markets

To determine the underlying risks that are facing these different markets requires looking at the common sense principals and different tools. This means that we will use the beta from the capital asset pricing model to decide the underlying amount of risk in comparison with the industry. At which point, we can take the rate of return that was seen last year and use this as base under the Sharp Rations Index.

When you look at the different general factors, it is clear that the lower amounts of risk can be seen in the markets of: Saudi Arabia, Israel, Qatar, Egypt and Jordan. This is because all of them have various elements that are helping to contribute to increasing demand to include: a growing population and business friendly government policies. These different factors have played a major role in shaping the potential return that investors are seeing. As they will provide stability to the markets and ensure that any kind of growth that is taking place, is at reasonable levels. As a result, the basic economic backdrop for these different countries is that the macroeconomic principals, are supporting that demand should remain strong in these areas over the foreseeable future.

Once you begin applying the different CAPM tools to the various countries, it is obvious that they are helping to determine what stocks pose the greatest amounts of risk. In this case, we must utilize the underlying amounts of volatility, to determine the impact that it is going to have. Once way that this can be accomplished is by looking at the Beta factor for the different companies. When you apply this to: the specific countries and the stocks that in the sector. The risks are lower in comparison with the market average. This is important, because the lower Betas will tell investors how volatile the underlying security can be. For example, Alexandria Real Estate trades on: the Cairo Stock Exchange and is major player in this sector. As the company has a Beta of .734, which is lower than the market average of 1.00. This is significant, because it showing how the company is less risky in comparison with the major market averages. Once you apply these figures to the strong demand that is being seen in these figures, they are showing how the sector has a low amount of risk in comparison with other asset classes. (Alexandria Real Estate 2010)

The Sharp Rations Index is a measure of excess returns that can be achieved in a particular asset class. The way that it works is by looking at the consistent returns that are being provided in a particular asset class. This is when you will look at the past performance of the markets to determine the overall risk free return that can be obtained in a particular security. As a result, we can use the different figures from 2010 as a way to determine the underlying risk free return (in a host of markets throughout the region). The below table illustrates the risk free return in these different markets.

Risk Free Return in the Different Markets

Country

Risk Free Return

Saudi Arabia

10%

Kuwait

-5%

Egypt

11%

Israel

7%

Qatar

10%

Jordan

20%

UAE