In June 2015, Saudi Arabia’s US$530bn Tadawul stock exchange opened its doors to foreign investors for the first time. What’s the consequence for real estate investors?
One of the last major global stock markets to open up to foreign investors, the Middle East’s biggest economy now allows direct market access to large overseas investors that have been in existence for five years or longer and have more than US$5bn in assets under management. The measure is the latest move from the conservative kingdom as it continues a gradualist approach to financial reform.
After rallying ahead of the market’s opening on Monday 15th June, there was no immediate impact on either the level of the index or the volume of trading which remain largely in line with levels seen over the past year.
However, the move does signify a welcome maturing of the Saudi financial system and, in the longer term, some analysts expect the market to attract up to US$40 billion in foreign investment, especially after Saudi Arabia is classified as an emerging market by index compilers such as MSCI.
So what does it mean for real estate?
Of the 170 companies listed in the Tadawul all share index (TASI), just 8 are real estate developers, yet the industry has been one of the market’s strongest performing sectors over the past year, recording a growth of around 20% (Y-O-Y) compared to a marginal (-3%) decline in the overall index (Y-O-Y).
“While the opening of the market to foreign investors has not had an immediate significant impact, we are likely to see an increase in capital flowing into the market over time,” said Jamil Ghaznawi, head of Saudi Arabia for JLL.
“Although increased liquidity will prove to be positive for listed real estate developers, the market is likely to remain dominated by private companies and high net worth individuals in the short term.”
“Despite lower oil prices, there remains strong appetite, from these investors, for opportunities in the real estate sector, appetite that has been traditionally focussed on investing and trading in land. “
“Recent suggestions of a tax on undeveloped urban land may result in a shift in interest towards development and completed assets over coming years”
“The gradual opening of the Saudi economy to outside investment will be a positive for the country’s real estate market over the longer term, increasing access to capital and raising standards of transparency”.