ABU DHABI // The Middle East has overtaken the rest of the world to become the largest foreign property investor in North America this year, according to research from the US. Multimillion-dollar deals like the Abu Dhabi Investment Council's 90 per cent purchase of Manhattan's Chrysler Building for US$800 million (Dh2.9 billion), and Istithmar's $750m purchase of the Fontainebleau Hilton on Miami Beach have seen the Middle East - and the Gulf in particular - overtaking more developed countries to become the largest foreign investor in the US property market, amid the country's ongoing housing slump.
Middle Eastern buyers have already toted up at least $2bn in US property purchases so far this year, putting the region ahead of once heavy-hitting foreign buyers from Australia and Europe, according to the latest data from the US consultancy, Real Capital Analytics (RCA) in New York. Far from signalling a major shift of Middle Eastern funds into the beleaguered US market, however, the trend is more a reflection of who has been hit hardest by the global credit crisis - and who has not.
"The credit crunch has been very democratic in affecting most buyers worldwide," said Dan Fasulo, the managing director of RCA. "The lack of available debt has given cash-rich buyers an advantage in winning deals." And that, he said, played to the strengths of oil-rich investors from the Middle East. High oil prices are funnelling a steady stream of dollars into the region, many of which are re-invested by governments, companies and individuals back into the West, including US properties.
"Even if crude prices fall temporarily, they have huge surpluses," said Hany Genena, the senior economist at Gulf Finance House Investment Bank in Manama. But with banks loath to lend amid diving property prices, foreign net purchases of US property have fallen almost across the board, and the Middle East is no exception. Net purchases by Middle Eastern investors in the US are on track to fall by more than half this year from last year amid the deepening gloom.
That decline is nothing next to the roughly 75 per cent decline in projected foreign investment in US property so far this year, as global credit dries up. Australian investors, who last year bought a net $12bn in US property, sold off $116m worth of properties in the first six months of this year, according to RCA. Investment from European investors is on track to fall by almost 80 per cent compared with last year, when Europeans chalked up $9bn in net purchases.
RCA's statistics reveal some interesting trends in Middle Eastern buying patterns. After a few years of relatively low purchasing levels at the beginning of this decade, Middle Eastern investors jumped aboard America's property boom along with other foreign investors, beginning in 2003. They continued to gobble up US property for the next four years, buying up an additional $12bn worth of assets. Even in 2006, when foreign buying from everywhere but Asia slowed, and investors from Germany sold off about $8bn in property, Middle Eastern investors were snapping up US property and office buildings in particular.
In fact, Middle Eastern investors have remained net buyers of US property for the past seven years, even as investors from elsewhere have chosen to reduce their holdings, demonstrating the long-term support Middle Eastern oil revenues provide to the US market. "A lot of money is flowing into this region that needs to find a home outside the region," said Craig Plumb, the head of research at Jones Lang Lasalle in Dubai. "Their attitude toward overseas investment is as a long-term play, as opposed to home, where they might trade properties."
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