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ANALYSIS

GCC real estate investors ‘remain cautious’

Dubai, September 4, 2013

While macro-economic conditions are improving in the GCC, investors still remain cautious regarding new real estate projects, carefully picking opportunities and taking into account a developer's experience and capabilities, a report said.

Though there are real estate development opportunities throughout the GCC, a selective development approach based on thorough assessments will be crucial to avoid repeating the negative experiences of the past crisis where purely opportunistic development was paramount, added the GCC Real Estate Development study by Roland Berger Strategy Consultants, one of the world's leading strategy consultancies.

"Successfully dealing with increasingly demanding clients, reacting to stronger competitive pressure from skilled international players and getting access to land banks will determine the winners and losers," said Dr Tobias Plate, partner at Roland Berger.

"Overall, the competitive landscape is intensifying, forcing GCC real estate developers to rethink their strategic positioning," explained Dr Fabian Engels, principal at Roland Berger.

Increasingly demanding clients are requiring more from developers, expecting that total completion time, cost and especially quality be on par with international standards. Taking the approach "if you can't beat 'em, join 'em", local companies are already partnering with international players – a clear sign that these international players are adding to the rising competitive pressure.

Finally, land bank access is controlled by only a few institutions. As a result, GCC land prices are very high, accounting for up to 60 per cent of total development costs, in turn putting pressure on proper development planning and execution in order not to jeopardize profits, the study said.

According to Roland Berger, development decisions have to be made with due care. The years in which every investment turned into a success are clearly over and are not expected to return.

The increasing pressure from international real estate developers and clients demanding state-of-the-art properties is further heightened by opening up the markets and making doing business easier for foreign investors and service providers.

"Clearly, GCC real estate developers need to scrutinize their positioning and strategic leverage to be successful in the future," said Dr Plate.

Segments, geographic differences, clients, business model, asset intensity, equity and financing requirements, potential risk and possible outsourcing of functions are just a few topics that need to be addressed – all in light of potentially changing economic conditions.

Long-term success on the GCC real estate markets must be based on a set of interlinked success factors, the study noted.

"Unfortunately, project experience has taught us that existing strategies often do not cover all relevant aspects," said Dr Engels. Therefore, the company's overall strategic targets must be broken down into actionable objectives on the project portfolio and individual project levels.

The organizational setup needs to mirror the targeted value chain coverage and thereby facilitate reaching the objectives. Finally, defining the right depth and breadth of the value chain and establishing an effective and transparent organization staffed with high-caliber employees will yield long-term success.

"Altogether, GCC real estate developers will definitely have to do their homework in order to be successful in the long run,” Dr Plate concluded. – TradeArabia News Service




Tags: GCC | Developers | real estate investment |

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