Details

With 192 deals worth $32 billion

Gulf countries moving towards mergers to accelerate growth, attract foreign investments

Cityscape Global valuable opportunity to identify real estate trends at local, regional, global levels

Property markets in Gulf countries are going through multi-faceted challenges and volatilities, so more effective plans are needed to regulate workings of real estate companies. It will ensure market cohesion and enable them to prepare for the post-recession period by taking effective measures that enhance their competitiveness and help them launch viable projects. Therefore, real estate and non-real estate companies across all economic sectors now tend to merge so that they can address existing challenges amicably.

Al Mazaya Holding in its weekly real estate report said that mergers and acquisitions during the current period are a step in the right direction that is justifiable due to the challenging conditions all business sectors are going through. The report added that mergers can generate lots of investment opportunities. Such a tendency towards mergers proves that GCC markets are flexible and adaptable and can recover through the launch of SMEs, said the report, noting that mergers contribute to preventing further losses and to maintaining existing assets, therefore, avoiding further volatilities and weaknesses.

Al Mazaya added that the establishment of new financial and economic entities will help economies of the region resist domestic and foreign challenges and achieve high growth rates that will enable them to continue to implement development plans and attract more foreign investments.

Al Mazaya pointed to data on mergers and acquisitions that show a recovery in the first half of the year in the Middle East and North Africa region, remarking that up to 192 mergers were completed, with a total value of $32 billion during that period. They are primarily centred on the oil and gas sector, in addition to some activities recorded in the aviation, energy and utilities sectors. The banking and capital markets’ sector appears likewise to be expecting further mergers over the coming period, stated the report.

On the other hand, the retail and consumer products’ sectors tend to merge under changing conditions. Capital is set to be allocated to e-commerce and technology sectors, which will have a positive effect on the overall economic performance, proving that the region is still a source of capital flows, with investors still believing that the added economic value generated from mergers is greater than the risks associated with these mergers.

The report highlighted the challenges and obstacles that have had over the recent period a negative impact on the performance of real estate companies and financial centres, which witnessed many fluctuations and pressures resulting from the sharp decline in oil prices and the accompanying decrease in the level of investments and development spending. Such challenges pushed property companies to introduce many adjustments to their short and medium-term plans with a view to meeting the requirements of the current conditions. They turned to overseas real estate investments, whether through the development of residential and commercial projects or through the purchase of real estate projects including buildings and residential units in Turkey and other European countries and the US market.

The report explained that the achievement of more investment returns and the utilisation of stable economic conditions have been and will continue to be the main objective of real estate companies to overcome the current decline paths through the value and number of projects offered. The activity recorded in the tourism sector and the increasing numbers of population and tourist arrivals in Turkey and Egypt, in particular, have led Arabian Gulf companies to go for these markets to utilise the emerging high demand over there. In the meantime, low investment costs played a role in increasing the value of investments abroad, primarily in the British and American markets which are known for their high investment returns.

The report addressed the challenges faced by property and contracting companies in the Saudi market over the recent years, where many companies are likely to exit the market due to their inability to withstand besetting challenges, including payment of worker wages. Such circumstances reflect the challenges faced by the sector and the consequent negative impact on the economic performance as a whole, especially in case, the number of faltering companies and projects continue to increase.

The report said that the UAE is the second largest economy in the region after Saudi Arabia thanks to the flexibility of its economy and its policy of economic openness, including the adoption of laws and regulations flexible enough to cope with the rapid and multi-faceted developments currently witnessed in the region.

Al Mazaya believes that there is a great need for mergers in non-real estate sectors in the UAE as the market needs entities that are stronger and more competitive.

The next stage requires better preparation by all operating companies. Economic diversification plans need to be benchmarked against relevant international standards and criteria in order to ensure their success.

The UAE economy accounted for 46% of M&A transactions in the Middle East during 2016, with a total value of $56 billion, said the report, adding that the UAE market is expected to record M&A transactions worth over $18 billion by the end of the year across all sectors.

Al Mazaya also pointed to Cityscape Global 2017 in Dubai as a valuable opportunity to identify trends adopted by local, regional and international real estate markets. The property event will identify how far mergers and acquisitions are needed at the present stage. It is held in a timely manner to identify sources of demand, their nature and strength, and measure this demand against the property supply provided by operating real estate developers.

Al Mazaya concluded that the 16th edition of Cityscape Global 2017 is expected to witness a significant development. It comes amidst reports that property companies will be allowed to conduct direct sales during the event for the first time in 15 years. The participating companies are also expected to offer mouthwatering deals in terms of prices and payment plans to ensure a new correction for current prevailing prices and boost competitiveness and stimulate demand.