Billions of dollars flowing out of stock markets in the Gulf Arab region are heading into real estate, with markets in China and India a key focus, the head of real estate investment at a leading Kuwaiti bank said.
Markets in the wealthy, energy exporting region are among the worst performing in the world this year after rising on average 92 percent last year, and burned retail investors are still scrambling to get out.
Real estate funds, considered an easy fit with Islamic law, where interest is banned and income must be derived from a fundamental economic transaction, are benefiting as retail investors in the Gulf migrate toward what they consider a more comfortable asset class.
"When we went to these investors six months ago and said, for example, that we are creating a US real estate fund that will give you an average of 8 percent per annum they said we're getting 8 percent per month on the local stock markets," Rakesh Patnaik of Kuwait-based Global Investment House told Reuters.
"Now our funds are becoming the flavour of the month for investors in the Middle East," he said on the sidelines of a two-day funds conference in Dubai on Monday.
Patnaik, whose bank manages total funds of $6.5 billion, manages real estate funds in the United States, the Gulf region and Asia. He plans to launch an Asian fund next week, which he said is poised to raise twice its $100 million target.
"The response is fantastic," he said. "The appetite of investors for these projects is very high, from family offices, investment banks, endowments, and large traders."
An increasing amount of money, he said, is being directed towards India and China with returns in the US market not as high as they once were.
"The kind of returns we get here in the Middle East is in the teens so the decision the investors have is to invest in the US at 6 to 7 percent returns, or 12 to 13 here or venture into Asia where the market is right and you can easily get a 20 percent return," Patnaik said.
Investors in the Gulf region have long been drawn to US investments, he said, because most Gulf countries peg their currencies to the US dollar.
After the Gulf emirate of Dubai unleashed a property boom by allowing foreign investment in property in 2002, Patnaik said investors have kept more money in the region to take advantage of rapid growth.
The next frontier, he said, is Asia, where Gulf investors are attracted by a growth in demand, upside currency risk, large populations, and a belief that they can eliminate risk with the right local partners.
Aside from China and India, majority-Muslim Malaysia is also a favourite of Gulf investors because of cultural similarities, he said.