Keeping it real on real estate trends

Am I surprised to see that institutional investors in the Gulf Cooperation Council have given a strong endorsement to the region's listed financial institutions, which have dislodged real estate as the most attractive sector, according to a survey conducted by HSBC?

Not really.

For me, the more interesting aspect of the findings was that real estate listed companies come second to the financial sector as the most attractive sector for investors in the region.

Real estate has had its day, rather years, and still is having a splendid run, with huge demand from foreign investors, many of whom happened to be European expats moving to enjoy the sunny climes and sandy beaches of the Gulf.

The demand for real estate moved into high gear with the freehold laws being brought into force and investors getting full entitlement for the properties they were buying.

And because of these factors, funds chased real estate projects, and real estate listed companies did (and are still doing) remarkably well.

It's not difficult to get into the minds of the institutional investors. With lots of supply coming on in 2008-09, real estate is expected to slow down.

By how much is another matter. Various research reports have played it safe on guessing that, but nobody is expecting a crash.

With this scenario in the offing, it's not surprising that institutional investors are going for the listed companies in the financial sector, comprising both commercial and investment banks.

"With real estate developing fast and banks maturing, interest in the latter is bound to develop," says Mohammad Ebeid, head of institutional sales at EFG-Hermes. "And of course, this increasing interest in the banking sector has come about because of growing demand for Islamic financing, especially sukuk. Generally the demand for sukuk is big."

The banking sector is picking up in regions like Qatar, Oman and Abu Dhabi. Most of the banks in Abu Dhabi have lagged behind those in Dubai in the last few years. That has to do with the fact that Abu Dhabi is not having the same scale of real estate developments as in Dubai. But now the banks in Abu Dhabi are picking up, growing their asset base and loan books.

Qatar, for example, says Ebeid, is expected to have the highest GDP per capita (of about $80,000) within the next three to four years. Lots of expats are going to move into the country, spiking the demand for retail projects. "More and more banks are needed to serve these people, and the expectation among analysts is that the banking sector will see a healthy growth."

Institutional investors normally greet such kind of signals positively before it really happens, and that's the trigger for such kind of demand for the banking sector.