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June 8, 2017

Middle Eastern investors will significantly increase their level of investment in the Asia Pacific in the future. The only question is when. That’s the message from Fadi Moussalli, from JLL in MENA.

The Middle East currently ranks fourth globally in terms of its cross-border global investment activity. But there is one major region it neglects – the Asia Pacific. On a numerical basis, this is surprising. While Asia Pacific accounts for 32 percent of the world’s GDP, according to World Bank statistics, Middle Eastern investors hold only 11 percent of their foreign assets in that region.

“To put it in human terms, the Asia Pacific region is outside the comfort zone of many Middle Eastern investors,” explains Moussalli. “The people who make the asset allocation decisions in Dubai, Riyadh and other hubs are far more at home when buying and selling in the United States, the UK and the rest of Europe.

“For decades these investors have been sending their children to Oxford, Cambridge, Yale and other western universities – and in the process, they have bought into those residential markets and become familiar with the culture and business practices of Europe and North America.”

Sovereign wealth leads the way
By contrast, there is far less of that familial and business traffic across between the Middle East and Sydney, for example. Nonetheless, some significant steps are being made. The Qatar Investment Authority’s 2016 acquisition of the Asia Square Tower in Singapore was a record-breaker. The US$2.4 billion deal was the largest ever single-asset transaction in the Asia Pacific and the second biggest globally.

Sovereign wealth funds are leading the way into Asia Pacific. Of the US$10 million invested there by Middle Eastern institutions over the last decade, 80 per cent of these purchases have been made by just two of these funds and the average transaction is worth $400 million. In contrast, it’s just US$150 million in Europe. No Middle Eastern private money of any significance has entered Asia Pacific real estate market. But that will come, says Moussalli.

“Sovereign wealth funds are pioneers and, as the most sophisticated analysts of markets, they set an example to smaller players who – sooner or later – follow in their wake.”

Hospitality is one of the main areas of focus for sovereign wealth funds in the region. When smaller players decide to put their money into Asia Pacific, they are likely to find a lively hotel market which is being fed by domestic, foreign and business tourism. The logistics sector also stands to benefit from future capital flows – offering opportunities which compare well to the more crowded transport and warehousing markets of Europe and North America.

Singapore is by far the most popular target location for Middle Eastern investors in Asia. In the last 10 years they have invested almost US$4 billion in this city-state. Hong Kong (US$2.4 billion) comes second, followed by Sydney (US$0.9 billion).

While Middle Eastern investors are not yet on the verge of taking the plunge into Asia Pacific in large numbers there is no doubt that they will look east in the long term.

“The need to diversify will take them to Shanghai, Jakarta and other fast-growing cities there,” says Moussalli. “They will come to accept the risks of a rockier ride in order to participate in economic growth.” According to World Bank forecasts, the region’s growth potential sits at three times as high on a short- to medium-term outlook as the sub 2 percent level predicted for the United States and Europe.

Click to read about How China is growing its influence in Middle East?

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Fadi Moussalli

Capital Markets, JLL MENA

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