In 2015, the real estate market in the United Arab Emirates (UAE) yielded different results in the major cities of Dubai and Abu Dhabi, but according to JLL MENA, which has expressed their optimism for the industry moving forward. It has been noted thorough various sources that although an under performing oil industry has affected real estate growth and profits in the UAE, the market is beginning to mature and offers many opportunities for those able to understand and accept the new trends. Under such views, the UAE real estate market is positioned to sustain a slow, but still steady rate of growth through 2016.
The 2016 Top Trends for UAE Real Estate is the ninth edition of the annual report, which developers and stakeholders use to obtain valuable information, from reviews of the previous year to statistically based forecasts for the future. Craig Plumb directed research for the report, and he also maintains a positive outlook for the region. Here’s a look at some of the key points as indicated in one of the report; Less liquidity in the market The UAE government has announced it will implement a variety of strategies to build sustainable revenue from sources other than the oil market. In addition to potential new taxes, a cut in subsidies, and reduced spending, one key measure is to reduce the amount of liquidity invested in the financial system. As a result, real estate developers may have to forego conventional bank loans and similar financing avenues and instead rely on joint ventures and public private partnerships (PPPs). Alternative funding models As a result of low liquidity, real estate firms are expected to turn to business approaches employed by developers in more stabilized markets. Two such financing models are sale and leaseback (SLB) and build-to-suit (BTS). The main appeal of SLB is that it removes constraints on assets, allowing owners of buildings to reinvest in their core business. SLB has served as a viable solution for corporate and industrial properties, but interest in this type of financing has also increased in the education and healthcare sectors. BTS developments involve collaboration between tenants and developers. The tenant determines the scope and specifications of the building, and the developer in return secures a sale or lease agreement at the outset of the project. Similar to the SLB model, BTS developments have gained more attention across the entire real estate market. Shifts in international investments 2016 Top Trends for UAE Real Estate predicts that the amount of capital outflows to international real estate markets will decrease. In 2015, Middle East investors placed an estimated $11 billion USD in overseas ventures. However, in 2016, research projections anticipate a shift toward a profit-focused strategy centered on market exits. If this materializes, selling activity will increase. Delaying projects to avoid oversupply Real estate project completion rates in the UAE have averaged between 30 and 45 percent since 2010, and these numbers will likely decrease in 2016. The overall economy has provided an incentive to delay projects, a trend occurring in neighboring Saudi Arabia as well. Industry analysts predict that more builders will place projects on hold in an effort to reach market equilibrium and avoid oversupply Emphasis on quality Delays may prevent certain projects from completion this year, but the demand for properties and buildings of high quality is expected to remain consistent. This trend should take shape in response to a business sector seeking new office spaces that offer functional and efficient floor plans, elevators, ample parking, and easy access to public transportation. Renovations to increase equity While new building projects are put on hold, many owners will focus instead on renovating existing buildings to fit their needs. These so-called “fit-outs” are anticipated to gain traction in 2016. The trend will likely be strongest in the retail and hospitality industries, but any business may take advantage of the opportunity to increase property value without having to relocate. In general, these modifications will fulfill practical concerns, as companies move away from more aesthetically driven projects. Evolution of the hospitality industry The hospitality industry may experience the most noticeable changes in 2016, driven by shifting customer demographics, new technologies like online bookings, and greater variety in the types of resorts being built. In Dubai, the industry may shift away from the core luxury segment to encompass a broader range of properties. Overall, demand is expected to fall. Safety a priority The final main point from 2016 Top Trends for UAE Real Estate is that building safety will receive more attention at all levels of the industry, including property development, sale, and maintenance. Increased public and corporate awareness will cause builders to focus more on fire safety in particular. Better enforcement of existing building safety laws, and the creation of new regulations, are likely to be issues of hot debate within the UAE as the whole. Source: JLL MENA
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BATTLE FOR CUSTOMER ACQUISITION THROUGH EFFECTIVE CONTENT MARKETING STRATEGY “CONTENT IS A KING”4/27/2016 Content marketing is one of the most important elements of your marketing process. It’s about creating, promoting and distributing content consistently, with the goal of encouraging your target audience to take action. Despite its importance, many small business owners are making terrible blunders that are hindering their marketing efforts and stifling their businesses. It is obvious to know that the relationship between buyers and sellers is undergoing a major transformation. Social media and e-commerce have given buyers tremendous new power to research products, prices, reputations, and opinions—often before they even talk to the seller. Therefore, to compete in this buyer-empowered market, business-to-business companies have been forced to rethink how they market and sell their products and services. Yet companies have been slow to adapt to the changing landscape, and they are losing out in the battle for new customers.
Too many organizations still market the old way, randomly bombarding customers and prospects with generic brochure-ware, product pitches, and banner ads. Increasingly this strategy is falling short. Marketing materials are routinely ignored, and companies continue to miss critical customer-growth and return-on-marketing targets. Marketers must move beyond traditional pay-per-click ad models or face tougher executive scrutiny of their digital marketing programs. If you’re a business, the takeaway is that sharing without analytics is essentially useless, that engagement is not as valuable as insight, and that seeing things in context is more important than being popular. -- Brian Solis, Altimeter According to research, 65% of all people are visual learners, 30% aural and 5% kinaesthetic. A study by ROI Research also shows that 44% of online users are more likely to engage with brands that provide visual imagery and dynamic content (like video). One key theme that emerged from this year’s B2B research is that effective content marketers do several things differently:
Here are some key takeaways: ■ Only 30% of B2B marketers say their organizations are effective at content marketing, down from 38% last year. Effectiveness levels are greater among respondents with documentation, clarity around success, good communication, and experience. ■ 44% of B2B marketers say their organization is clear on what content marketing success or effectiveness looks like; 55% are unclear or unsure. ■ 44% of B2B marketers meet daily or weekly—either in person or virtually—to discuss the progress of their content marketing program; however, the more effective the organization is at content marketing, the more often they meet (61% of the most effective meet daily or weekly). ■ Fewer B2B marketers have a documented content marketing strategy compared with last year (32% vs. 35%), even though the research consistently shows that those who document their strategy are more effective in nearly all areas of content marketing. ■ Respondents’ content marketing maturity levels were roughly equally apportioned: approximately one-third were in the early stages; one-third, in the adolescent stage; and one-third, in the sophisticated/mature stage. In general, marketers become more effective as they gain experience, the findings show. ■ B2B marketers allocate 28% of their total marketing budget, on average, to content marketing—the same percentage as last year. The most effective allocate 42%, and the most sophisticated/mature allocate 46%. ■ Lead generation (85%) and sales (84%) will be the most important goals for B2B content marketers over the next 12 months. ■ Over the last six years, B2B marketers have consistently cited website traffic as their most often used metric. This year, however, we also asked them to rate metrics by importance. The most important metrics are sales lead quality (87%), sales (84%), and higher conversion rates (82%). ■ B2B marketers, as in years past, continue to be heavily focused on creating engaging content (72%), citing it as the top priority for their internal content creators over the next year. The number one goal of every marketing program should be to generate leads that drive revenue. Traditionally this job has been more of an art than a science, with marketers relying mainly on experience and intuition to capture the attention of prospects and turn them into sales. Now that content is king, companies are shifting their focus to creating subject matter that will grab the buyer’s attention and serving it up in compelling formats at just the right time. Even though social media platforms have brought a wealthy of possibilities and opportunities for companies, products become more and more similar, thus there is a need for identity, image and uniqueness; but how does a company manage to stand out and differentiate itself in 2016? In the recent years a new trend has emerged; content marketing (CM), which focuses on content related information delivered to the consumers in order to provide them with something valuable. This marketing strategy is not focused on selling like traditional/old marketing, but merely to create brand loyalty and thus hopefully enhance purchases in the long-term. Our society is starting to shift from focusing on material value to gratifying information value; thus there is a need for great content. The consumers of today are increasingly more interested in the brand and the brand values that follows, which appeal to them, fascinates and even repulse them, rather than the actual product itself. Gradually, it is all about what the brand can do for the individual, personally. In 2016 companies need to win the consumers’ minds, but more importantly they need to win their hearts. They need to create trust and credibility and it can be questioned whether companies now need to focus on image marketing before product marketing, which I will elaborate the topic in my next article / blog. The global economic uncertainty has unleashed a wave of unprecedented challenges for the world’s economic order. Organisations can no longer take the liberty to underutilized their own capabilities. While this is one side of the coin, the other side of the coin, on the contrary, holds a great promise. Organisations today have an entirely new way to compete by maximizing their existing capabilities. The tough challenge here is to identify, synergize and leverage dispersed capabilities within the organisation; and the ability to do so may be the key source of competitive advantage in the current times. Profitability for organisations is a given. Organisations that are not competitive as measured by profit, in the absence of the sustained monopolistic position, may fail. Profitability may continue to be a business issue in the future, but the accepted path to profitability is likely to change. Increasingly, profitability may come from some combination of increased revenue and decreased cost. Thus organisations are expected to simultaneously formulate and pursue their revenue and cost strategies. With the organisations entering new age of economic uncertainties, competing by capability maximization may become the new name of the game. Such organisational capabilities are created using combination of limited resources dispersed within the organisation. Optimized organisations ensure that the resources are leveraged to their best potential to create the unique capabilities. Ideal state optimization results with the concurrent maximization of resource efficiency, effectiveness and utilization. Recent changes in the global business landscape have triggered the organisations to pursue optimization. Some of the key triggers in this regard are globalization, pace of change, profitability through cost and growth, focus on capabilities, complex regulatory environment, mergers and acquisitions, rapid technological evolution and high customer expectations. These changes are expected to set the direction and pace for optimization. Organisations of all sizes and from most industries may consider optimization in near future; however the nature and scale of optimization may differ. Creating and sustaining an optimized organisation may require extraordinary leadership commitment. Key avenues of optimization may be explored and leveraged only with the right leadership intent. Leaders may not be able to sustain the optimization effort without investing to change the fundamental mindset of people. In other words, leaders may need to create the culture of optimization. In many cases, leaders may also need to manage a parallel cultural transformation, with focus on optimization, as they lead efforts to create an optimized organisation. Dimensions of culture, such as knowledge sharing, resource consciousness, collaboration, inspirational challenges, openness to change and team working may need to be strengthened. Furthermore, creating an optimized organisation may require much deviation from the normal ways of working within the organisation. Such deviations may impact the work profile of individuals, teams, functions and organisation at large. In the case of creating a shared services organisation or outsourcing select work activities, significant number of employees may get relocated or even separated. Managing such people issues may hold the key to success of creating an optimized organisation. Thus, in a nutshell, leaders may be expected to create the fundamental traction for change in their pursuit to truly realize the benefits of optimization. Organisations typically create capabilities through utilization of resources at multiple levels. Optimization is about ensuring effective and efficient deployment of existing resources for capability maximization. Some of the key avenues of internal resource optimization include process re-design for efficiency, technology up-gradation, workforce planning, role clarification, goals cascading, skill alignment, cross functional/departmental communication, organisation de-layering and team based governance. Thus, it is imperative that dimensions of organisational framework structure, workforce, processes and technology be aligned to the overall objective of optimization. Culture weaves all the said elements into a uniform thread, hence strengthening the alignment. While it is important to explore individual dimensions of the organisational framework to identify avenues of optimization, it may be observed that the real opportunity for optimization is locked in the way these dimensions interact with each other. Workforce optimization is a key element in creating an overall optimized organisation. Simply stated, it is about getting the right set of employees, at the right time, at the right cost and at the right place. It seems like organisations have to get a lot of things ‘right’ in order to reap the benefits from workforce optimization. This often seems to be the reason why most organisations don’t even attempt it. However in the changing economic scenario, organisations can no longer take the liberty of continuing with the misaligned workforce. Appropriate ‘workforce planning’ and negotiating the right ‘workforce contract’ (part time, temporary, permanent, contract employees) are the two key facets of workforce optimization. Organisations are thus increasingly exploring diverse internal/external partnerships to realize the objective of workforce optimization. Organisations deploy combinations of different delivery models to realize the benefits of optimization. The delivery models define the nature of interactions among the structure, workforce, processes and technology. One of the ways organisations optimize their overall value chain is by strategically outsourcing select work portfolios. Even though strategic outsourcing enables organisations to maximize capabilities and ensures high resource utilization, it also involves a fair degree of risk. In another approach, firms create a separate shared services organisation within the larger organisation. Creating a shared services organisation provides a unique opportunity to leverage both, the economies of scale and the depth of expertise. Many firms choose to bundle the standard transactional work of functions such as finance, human resources, information technology, procurement etc. into a separate service organisation called ‘service centre’. Additionally, many firms also bundle special expertise (required only on need basis) into a separate organisation called ‘centre of expertise’. Both ‘service centre’ and ‘centre of expertise’ may together constitute the shared service organisation. Driven by the pressures of reduced cost and timely service delivery, many firms also deploy self service delivery model, in addition to the above delivery models. Interactive technology and seamless processes integration underpin the effectiveness of the delivery models. Recent changes in the business landscape have triggered the need to create an optimized organisation. Some of the key triggers, in this regard, are ; Globalization: Globalization seems to dominate the competitive horizon. The concept is not new, but the intensity of the challenge to get on with it is. Globalization entails new markets, new products, new mindsets, new competencies, and new ways of thinking about business. In times to come, many organisations may have to evolve new models for attaining global agility, effectiveness and competitiveness. Additionally, organisations may also have to devise means to consolidate their dispersed capabilities to provide unparalleled value to the customers at reasonable cost. Pace of Change: This is perhaps one of the most challenging eras of the business history. The speed of change is unprecedented. Organisations seldom have time to adapt themselves to the rapidly changing business landscape. Ways of working are becoming obsolete with each passing day. Innovation and self-discovery have become new catalysts for growth. Changing employee demographics is posing yet another challenge for organisations. Increasing number of baby boomers in the west and increasing number of millennial in the east is causing unique organizational challenges in the respective countries. Employees and consumers are increasingly becoming aware of the organisation’s responsibilities towards communities and environment. All this, along with changing customer preferences and expectations, is making business even more challenging in current times. Profitability through Cost and Growth: Profitability for organizations is a given. Organisations that are not competitive as measured by profit, in the absence of the sustained monopolistic position, may fail. Profitability may continue to be a business issue in the future, but the accepted path to profitability may likely change. Increasingly profitability may come from some combination of increased revenue and decreased cost. Thus, many organisations are simultaneous working on their revenue and cost strategies. In current times, the focus however seems to be more on cost strategies. Focus on Capabilities: Organisations are increasingly focusing on identifying and strengthening their existing capabilities. Organizational capabilities are the DNA of competitiveness. They are the things the organisation always does better than that of the competition. Organisational capabilities may be hard (such as technology) or soft (such as innovation). Soft capabilities are more difficult to create and replicate. They are often the source of sustainable competitive advantage to the organisations. Complex Regulatory Environment: Organisations are expected to comply with the statutory and regulatory provisions of the countries they operate in. Compliance with the complex and evolving regulatory and legislative requirements is a top-of-mind objective for organisations of all sizes. Changes in the regulatory framework have acted as a catalyst leading the organisations to roll back and work in a constrained environment with little scope to deliver on its strategic objectives. Organisations have to revisit their programs, policies and processes in order to be compliant with the laws of the land. Mergers and Acquisitions: Mergers and acquisitions, divestitures and outsourcing continue to be some of the key drivers in organization’s plan to drive revenue growth, reduce costs and grow profits. Historically, many of these major business changes have not generated the expected business value. The upheaval caused by integrating with another organisation significantly challenges the way both organisations conduct business. Moving ahead in an indecisive environment is demanding, but a business commotion is an excellent time to look at ways to optimize across the organisation. Technology: Rapid evolution and adaption of technology has been the defining feature of the current decade. Technological innovations occur faster than we can keep up. Technology has made our world smaller, closer and faster. In an environment of burgeoning computer literacy, ideas and images spread quickly worldwide. Technology overcomes geographical distances as well as language and cultural differences. Thus the above may likely set the direction and pace for optimization. Organisations of all sizes and from most industries may consider optimization in near future; however the nature and scale of optimization may differ. As mentioned earlier, organisations typically create capabilities through utilization of resources at multiple levels. Resources are deployed within the organisational framework of structure, workforce, processes and technology. Organisations create value for stakeholders through synergic interactions among the above listed dimensions of the framework. Each dimension is aligned to the overall organisation strategy. Augmented organisations attempt to maximize this synergy by ensuring high utilization, efficiency and effectiveness of resources deployed within the framework. Leadership provides the necessary traction for synergy maximization and culture weaves all the said dimensions into a uniform thread, hence strengthening the alignment. ROLE, RISKS AND OPPORTUNITIES FOR REAL ESTATE INVESTORS WHILE INTEGRATING CLIMATE CHANGE RISKS...4/25/2016 The buildings sector consumes around 40% of the world’s energy and contributes up to 30% of global annual GHG emissions. At the same time, the global universe of investable real estate is worth about US$50 trillion. For institutional investors and investment managers, the core principle of real estate investment is to create and sustain long-term value.
The key step is to understand the market – occupier preferences and changing behavior, as well as the regulatory framework and legal requirements. It is equally important to adapt and respond to these emerging trends within real estate market cycles. Growing climate and sustainability regulatory pressure increased market demand for green buildings, and heightened risks from physical impacts on buildings associated with climate change, are changing real estate market conditions. These trends are impacting occupier demand and investor practices and in order to protect the long-term value of their real estate investments, it is part of institutional investors and their investment managers’ fiduciary duty to understand and address these changes and new risks and to take advantage of new market opportunities. There is a growing consensus among market professionals that demand for buildings with green characteristics will continue to increase and that such characteristics are already influencing investment fundamentals including client demand, void lengths, obsolescence, rate of depreciation, operational costs, and liquidity. In turn they agree that investment decisions made today will impact the value and financial returns of GCC and ASIA PACIFIC real estate investments and investors in the coming years. Investors are no longer awaiting empirical evidence of impact to financial performance from valuation analysis; rather they have already started to embed green building programmes in their real estate investment and asset management practices. Fiduciary duty dictates that investors should understand and actively manage such market shifts. The way forward is to embed sustainability in standard risk assessment methods and, through selection and monitoring processes, to ensure that investment managers and consultants are fully integrating sustainability and climate change considerations into investment and asset management practices. Institutional investors also have a role to engage with policy makers to encourage policies that support scaling up investments in sustainable buildings. Therefore; 1 Supporting the real estate sector to accelerate the integration of environmental, social, governance (ESG) and climate risks into investment decisions and to scale up energy and climate-related investments, including retrofitting, is thus a key factor in ensuring global temperature increase is limited to 2°C. 2,3 Climate change poses clear and material risks to the real estate sector. In addition to the physical and social impacts of extreme weather, 4 growing regulatory pressures and changes in market preferences are impacting investment performance. 5 However, there is growing evidence across geographies that a climate-friendly and sustainable real estate sector can both preserve and increase asset value. Data from the US, Australia, France, the Netherlands and Singapore make a convincing case that the financial performance of green and energy certified office and residential buildings is superior and the risk of mortgage default is lower compared to that of non-certified properties. 6 Technology and operating processes are currently being used to improve energy efficiency of existing building portfolios by a further 2-4% each year and are estimated to continue to do so for the foreseeable future. Over the long-term, these efficiency gains drive reduced operating costs of commercial and residential buildings, resulting in enhanced asset values. Indeed, new buildings can readily be built to use 30-50% less energy than required by most energy codes dating back to 2005, 7 and in growing instances can achieve zero net energy consumption. With growing evidence an increasing number of institutional investors and their stakeholders have started to recognize it as their fiduciary duty to manage climate risk in their investment portfolios, with leaders in commercial real estate systematically integrating climate risks and opportunities into existing investment, valuation and asset management processes. In summary, Key real estate investment risks and opportunities from climate change and sustainability Climate, energy and building regulations bring about obsolescence and depreciation faster than anticipated. Investment in operation, maintenance and refurbishment need to be in tune with these changes.
My next blog will focus on the Energy Performance of Buildings Directive (EPBD); and associated directive requirement for all new buildings to be nearly zero-energy buildings by December 2020.. The property market bust in most of the Middle East and North Africa (MENA) region exposed deep structural problems in the sector. If the leading real estate developers are to recover and deliver sustainable risk-adjusted returns to shareholders, executives will need to focus more on creating value than on simply erecting buildings. They will need to learn from their three most common mistakes—errors that became apparent during the downturn. First, developers grew in all directions with unfocused business models targeting a wide range of assets in different countries, as well as multiple segments and classes. Second, not having to worry about commercial capabilities and profits given the buoyant market, developers concentrated on iconic assets and rushed to deliver. Third, most regional players had volatile revenue streams and managed risk poorly—depending excessively on property sales, as opposed to recurring income from leasing and other operations.
Going forward, developers should adjust their strategies in four steps. They must first decide what kind of developer they want to be and where to operate on the real estate value chain. Second, developers should master their chosen markets, and understand all components of the real estate ecosystem so that they can identify and pursue attainable growth opportunities and create sustainable value. Third, developers should manage their exposure to market risk better by seeking more balanced revenue sources, and elaborating clearer investment and development guidelines. Finally, real estate players should start developing a set of core capabilities (e.g., opportunity identification, development, asset management) to deliver sustainable value. Real estate developers can prepare for the next property cycle by building key commercial capabilities and re configuring their market-facing approach. With the correct ingredients, property companies can better position themselves to capture emerging opportunities and enter undeserved parts of the market as the regional recovery accelerates. KEY HIGHLIGHTS : Real estate developers in the Middle East grew very fast into multiple real estate segments and adjacent businesses, often neglecting commercial capabilities and profits in favor of prestige projects, and failed to manage risk and revenue streams properly. Comparable developers in more mature markets have been growing at a more balanced pace, building a balanced business model with more recurring revenues focusing on specific segments and classes of the market in which they can excel. To position themselves for the upswing, developers need to choose where they want to be on the value chain, be firmly rooted in their target market, formulate robust risk and investment guidelines, and develop their capabilities to ensure value creation and success through differentiation. Rushing to Deliver, Neglecting Value Creation The intensity of the UAE real estate boom provided developers with only limited opportunities to build commercially driven capabilities, the essential source of competitive advantage. Most companies were not structured to allow them to maintain focus on commercial aspects of their activities throughout the development cycle, and many firms did not possess development and asset management capabilities sufficient for maximizing value creation. A number of real estate companies have gone through two cultural evolution phases since their inception. Design-driven organizations. The property development sector was initially defined by iconic properties that would shape the new urban skyline, and make names for companies, cities, and nations. In this initial stage, developers focused mainly on their architectural and design capabilities, placed less priority on costs and budgets, and ventured mainly into developing landmarks—the dream of every architect. Delivery-driven organizations. In their next organizational phase, and as markets started to cool down, real estate developers shifted their focus to delivery capabilities such as project management, procurement, and cost control. Governments, which had provided generous support, now wanted results and imposed challenging completion deadlines. Some developers also faced tighter-than-expected budgets. Within organizations, influence shifted away from the designers and architects (who valued aesthetics and functionality), to project managers, engineers, and accountants (whose mission was to deliver on time and on budget). Project directors, now in charge of delivery, started making significant trade-offs, sometimes putting delivery and cost before design, occasionally harming the ultimate product and its commercial potential. Some new delivery-driven organizations pushed “value engineering” too far, eliminating important aspects of the design on the basis of cost and delivery difficulties. This had a deleterious impact on some completed assets in the market and their potential for income generation. For example, a developer would cut corners on the recreational facilities for a five-star hotel, putting in a mediocre pool and a spa that was smaller than planned. Yet it was precisely the installation of such luxury features that would have allowed the hotel to charge top prices. Once the crisis hit, developers were unable to generate the returns that they had expected. Potential clients and buyers, some of whom had purchased properties in advance, were disappointed to receive a product different from that promised by glossy marketing brochures. Investors and financiers were similarly crestfallen, having extended backing on the understanding that the completed asset would be able to charge premium rates. Having Volatile Revenue Streams and Insufficient Risk Management Weak risk management capabilities also had a significant impact on the sector in general. UAE developers targeted quick, high-margin returns from developing and selling mostly residential assets. The result was that UAE developers became highly dependent on asset disposals, which are one-off transactions involving considerable risk. More than 90 percent of UAE developers’ revenues at the peak of the cycle in 2008 came from sales, while developers in more stable, more mature markets took in around 60 percent from selling assets . When the market fell, sales revenues dried up and some developers faced difficulties covering financing costs and other overhead expenses. Some UAE developers did start to show interest in income-producing assets just before the market began to slow. Property developers had not previously put much effort into continuous income streams from retail, commercial, or hospitality assets because of relatively lower returns. However, their interest in recurring income proved to be “too little, too late” in most cases. Furthermore, cheap financing, a seemingly ever rising market, and weak risk management capabilities left most UAE developers with high debtto-equity ratios. Industry averages are around 0.5, but most major UAE developers had significantly higher ratios. Immersed in a booming market, developers had no reason to consider more sophisticated financing schemes, which are typically used to balance financial risks and returns. The result, in some cases, was that developers were forced to seek debt restructuring. Know the Market; Identify Attainable Areas of Growth Developers have to acquire an intimate knowledge of their core market and a realistic sense of what opportunities are within reach. This knowledge will help them comprehend where they are in terms of the real estate cycle, the long-term waxing and waning of property prices, which in turn should allow them to calibrate their strategy and resource allocation accordingly . They should then follow three strategic imperatives in determining their geographic, property segment, and property class strategy: • Do not expand prematurely beyond the local market. • Start narrowing segment coverage and specialize in one or two segment types over the long term. Knowing the home market involves conducting periodic in-depth analyses that go well beyond monitoring market prices and volumes, but that also examine the underlying drivers of the real estate cycle, spanning demographic, economic, regulatory, and political dimensions. Demographic factors shape demand because of population growth, internal migration, household size, age distribution, and changes in family structure. Economic factors affect demand and supply because of household purchasing power, the macroeconomy (growth and inflation), fiscal and monetary policies (government spending on housing, liquidity, and the cost of borrowing), foreign investment, and the attractiveness of real estate compared to other asset classes. Regulatory factors also have an impact on demand and supply because legislation and regulations can either provide more transparency and confidence to investors or increase the number of players and buyers by allowing the entrance of foreigners. One such measure for buyers is Saudi Arabia’s mortgage law. Examples from the UAE include easier residency visas and ownership rights for expatriates, strata laws, escrow regulations, and leasehold laws, as well as regulations on sales and leasing pricing. Political factors such as domestic or regional instability can make developers shun troubled markets and induce buyers to put their money into more liquid investments. IN SUMMERY: The rise, and apparent fall, of the MENA real estate development sector is not the end, but the beginning of the story. For all the problems following the latest downturn, real estate remains one of the sectors with the highest expected growth within the MENA region, because property remains the preferred asset class for investors. Developers still have substantial opportunities to attract capital, create value, and win a bigger share of the pie. Moreover, there are still gaps in the market, with under served segments and classes in every geography. The cyclical nature of the property business means that the next surge, and the next bust, are both inevitable. For developers, now is the time to reconsider business models and value creation strategies. As the MENA region proceeds through the real estate cycle, wise developers will identify the core and differentiating capabilities they need to develop to be able to play and win in their respective markets. These capabilities will allow developers to grow successfully through the cycle’s coming phases. I have been reviewing the global financial markets since November 2014 apart from Geo Political impacts sue to low oil pricing and eventually researched few reports; describing the “IMPACT OF LOW OIL PRICES AND HUMAN COST. Following four years of relative stability at around $105 per barrel (bbl), oil prices have declined sharply since June 2014 and are expected to remain low for a considerable period of time. The drop in prices likely marks the end of the commodity super cycle that began in the early 2000s. Since the past episodes of such sharp declines coincided with substantial fluctuations in activity and inflation, the causes and consequences of and policy responses to the recent plunge in oil prices have led to intensive debates.
The sharp fall in oil prices since June 2014 is a significant but not unprecedented event. Over the past three decades, five other episodes of oil price declines of 30 percent or more in a seven-month period occurred, coinciding with major changes in the global economy and oil markets. The latest episode has some significant parallels with the price collapse in 1985-86, which followed a period of strong expansion of supply from non-OPEC countries and the eventual decision by OPEC to forgo price targeting and increase production. Multiple causes. The recent plunge in oil prices has been driven by a number of factors: several years of upward surprises in the production of unconventional oil; weakening global demand; a significant shift in OPEC policy; unwinding of some geopolitical risks; and an appreciation of the U.S. dollar. Although the relative importance of each factor is difficult to pin down, OPEC’s renouncement of price support and rapid expansion of oil supply from unconventional sources appear to have played a crucial role since mid-2014. Empirical estimates also indicate that supply (much more than demand) factors have accounted for the lion’s share of the latest plunge in oil prices. Although the supply capacity of relatively high-cost and flexible producers, such as the shale oil industry in the United States, will need to adjust to lower prices, most of the underlying factors point to lower oil prices persisting over the medium-term, with considerable volatility in global oil markets. Wide ranging consequences. The decline in oil prices will lead to significant real income shifts from oil exporters to oil importers, likely resulting in a net positive effect for global activity over the medium term. A supply-driven decline of 45 percent in oil prices could be associated with a 0.7-0.8 percent increase in global GDP over the medium term and a temporary decline in global inflation of around 1 percentage point in the short term. Activity in oil importers should benefit from lower oil prices since a drop in oil prices raises household and corporate real incomes in a 4 manner similar to a tax cut. While the positive impact for oil importers could be more diffuse and take some time to materialize, the negative impact on exporters is immediate and in some cases accentuated by financial market pressures. However, several factors could counteract the global growth and inflation implications of the lower oil prices. These include weak global demand and limited scope for additional monetary policy easing in many countries. The dis inflationary implications of falling oil prices may be muted by sharp adjustments in currencies and effects of taxes, subsidies, and regulations on prices. While falling oil prices would support activity and reduce inflation globally, some oil-exporting countries may come under stress as falling oil-related revenues put fiscal balances under pressure and exchange rates depreciate on deteriorating growth prospects. Oil price developments may also add to volatility in financial and currency markets and affect capital flows. Investment in the oil industry may fall sharply, not just in oil-exporting countries but also in currently oil-importing countries with potential for oil extraction. Since food production tends to be energy intensive, falling oil prices would likely be accompanied by declining agricultural prices. A 45 percent decline in oil prices could be expected to reduce agricultural commodity prices by about 10 percent. Passed through into domestic food prices, the decline in commodity prices would benefit the majority of the poor. Policy challenges and opportunities. Falling oil prices affect monetary and fiscal policies differently depending on whether a country is an oil importer or exporter. For importers, the pass-through into slowing inflation may ease pressure on central banks and could provide in some cases room for policy accommodation. However, in a generally weak global growth environment and with policy interest rates constrained by the zero lower bound in major economies, monetary policy might need to respond to deflation risks. In the Euro Area and in Japan, several months of outright deflation could contribute to inflation expectations becoming de-anchored from policy objectives. For exporters, central banks will have to balance the need to support growth against the need to contain inflation and currency pressures. Regarding fiscal policy, the loss in oil revenues for exporters will strain public finances, while savings among oil importers could help rebuild fiscal space. Lower oil prices also present a window of opportunity to implement structural reforms. These include, in particular, comprehensive and lasting reforms of fuel subsidies—which tend to have adverse distributional effects and tilt consumption and production toward energy-intensive activities and less environmentally-friendly energy sources—as well as energy taxes more broadly. Fiscal resources released by lower fuel subsidies could either be saved to rebuild fiscal space lost after the global financial crisis or reallocated towards better-targeted programs to assist poor households and support critical infrastructure and human capital investments. In oil-exporting economies, low oil prices reinforce the need to redouble efforts to diversify activity. The pace of the recovery in prices will largely depend on the speed at which supply will adjust to weaker demand conditions. Given that OPEC, for now, appears to have relinquished to its role as swing producer, US shale oil producers, with their relatively short production cycles and low sunk costs, may see the greatest adjustments in the short term. In the longer term, adjustment will take place from both conventional and unconventional sources through cancellation of projects. While supply is likely to be curtailed, demand is expected to pick up, along with the expected recovery in global activity and in line with broader demographic trends. However, predictions on the evolution of oil markets remain highly uncertain. Commodity prices, including oil, tend to be volatile, making forecasting prone to errors. For oil, the unpredictability is further amplified by the possibility of heightened geopolitical tensions and a sudden change in expectations regarding OPEC’s policy objectives. Over the long run, physical (geological) constraints should put upward pressure on the real price of oil, although technological advances could slow the increase. Sharply diverging judgments on recoverable reserves and on future price elasticizes of oil demand and supply imply that oil price forecasts over the long run are subject to wide error bands. |
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April 2016
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