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Reuters Summit-Crisis may end Gulf speculation, ease inflation

Published 11/04/2008, 10:34 AM
Updated 11/04/2008, 10:40 AM
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(For other news from the Reuters Middle East Investment Summit, click on http://www.reuters.com/summit/MiddleEastInvestment08?pid=500)

By Lin Noueihed

DUBAI, Nov 4 (Reuters) - Global financial turmoil may be painful for Gulf Arab economies but top executives said on Tuesday it could also weed out property and bourse speculators looking for a quick buck and help curb spiralling inflation.

While few expect to escape unscathed from the worst financial crisis in 80 years, Gulf executives told a Reuters Middle East Investment Summit the region would continue to grow, albeit at a steadier, and perhaps more sustainable, rate than the giddy days of $150 oil.

"Demand is still there and will continue to be there. Any responsible investor or developer going into a project is going into it the long-term," said Mohammed al-Hashimi, executive chairman of Dubai's Zabeel Investments.

"Someone playing a dangerous cash-flow kind of game or ones that don't have the funds in place and try to go in and do the off-plan kind of sales, book the ballroom in a hotel, a couple of ad spaces, a couple of designs... those guys are finished."

Dubai prompted a real estate boom across the Gulf when it opened up its property sector to foreign investment in 2002.

From the world's tallest tower to man-made islands in the shape of palms, ever more extravegant developments have been launched in Dubai and the buzz has attracted a growing number of residents and firms in need of homes and offices.

Residential property prices in Dubai rose 42 percent in the first quarter alone, according to Colliers International, and property costs have been the leading driver of inflation that has hit double digits around the fast-growing region.

"The unrealistic returns people were getting on speculative products, putting the minimum downpayment on a project that had yet to see the light of day then ... flipping it on for 50-100 percent on your equity in a short period of time, that has gone out of the window, which is not a bad thing," Hashimi said.

COOLING DOWN?

Even before the global crisis, analysts were warning the economies were overheating and inflation was becoming a political hot potato as food and rental prices soared.

Some developers have already begun to scale back or delay major expansion as credit lines close but slower growth means inflation in the region has also begun to show signs of cooling.

Inflation in the biggest Arab economy, Saudi Arabia, eased to 10.35 percent in September from 10.9 percent in August. In Kuwait, inflation eased to 11.1 percent in July from 11.35 percent in June.

"Where you've got projects that are consumer-related and they are still really on the drawing board, that is where they may be delayed or cancelled and that may not be a bad thing," said Richard Webster, head of investment at Burgan Bank.

"Things which are not really well thought out in the next 12 months, it will be harder for them to start ground-breaking activities. A slowdown would probably bring some of these factors back into balance."

Even amid tighter credit and lower oil prices, executives said economic fundamentals in the Gulf remained strong. The Middle East is a region of growing and youthful populations and the onus is on governments to invest in infrastructure and productive industries to create jobs.

Investors shying away from the troubled markets of the West are looking to the world's top oil-exporting region as one that is likely to recover faster and emerge stronger as cowboy developers and speculators are pushed out and markets mature.

"There is definitely an increased interest in investment in the region. For many this is the one bright spot," said Tom Speechley, executive director of Abraaj Capital.

"Capital markets are definitely affected by the global crisis, but the underlying economies is much less so. There are growing economies in this part of the world. (Additional reporting by John Irish, Thomas Atkins, Amran Abocar and Jason Benham in Dubai, Daliah Merzaban, Ulf Laessing, Rania El Gamal and Will Rasmussen in Kuwait; Editing by David Cowell)

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