The next decade is expected to witness a major growth in private debt as an alternative to commercial bank lending in the Middle East, according to the new Financing Bricks and Mortar; Opportunities for Private Real Estate Debt in UAE and KSA report by JLL in conjunction with Clifford Chance. This diversification of capital sources is set to boost the development of the real estate market.

Until now, the Middle East has typically relied on commercial banks as the primary lending source for real estate developers and investors, despite continued growth in the size of the global private debt market.

The report outlines how alternative financing structures and diversified debt sources will boost lending competition and in turn introduce new capital into the real estate market, in both the UAE and Saudi Arabia, the two largest capital markets in the region. 

While debt should be an integral part of real estate investment and development, the Middle East has historically seen less use of debt than the more mature overseas markets, primarily due to cultural beliefs, challenges related to lack of mortgage and bankruptcy laws, and the transparency of risk and reward metrics. The report indicates that steady improvements in market transparency and regulations are providing a more supportive environment for private funding sources to contribute to debt stack and subsequent growth in the real estate market.

Two major benefits of private debt are recognised in the report; more flexible loan terms for all, and the accessibility of finance to smaller and less well-established borrowers who currently struggle to secure traditional bank debt without providing a high level of collateral as security.

"Developers and investors continue to seek flexible debt terms for the development and acquisition of real estate assets," said Gaurav Shivpuri, Head of Capital Markets for JLL in MENA. "With historical limitation in terms of lending from the commercial banks, it is not unreasonable to assume that up to 10% of the total real estate debt market could come from private debt providers within the next decade. Collective investment vehicles will also emerge as debt providers, as investors see debt as an attractive capital stack for taking real estate exposure, especially given the interest rate cycle we are entering in," he added. 

In 2017, a total of US $81 billion (AED300 billion) of bank debt was lent to the real estate and construction sector in the UAE. JLL estimated that around 10% of the $51 billion of private debt that was raised outside of the three main global markets of USA, Europe and Asia Pacific in 2017 could have been lent to the real estate sector in the GCC.

Click here to view JLL's Financing Bricks and Mortar; Opportunities for Private Real Estate Debt in UAE and KSA report. 

For more information or to discuss the report phone or email Craig Plumb of JLL MENA via the contact details listed below. 

See also:

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