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Oil-producing countries step up investment in real estate

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Middle East investment in commercial real estate rises in line with oil prices, as more surplus funds become available. So you would expect investment to fall with oil prices, but the opposite is true.


While a sharp drop in oil prices may indeed lead to a drop in real estate investment by the Middle Eastern oil producing countries in the short term, the knock-on effect of such a drop on GDP serves as an important reminder of the need to diversify revenue sources away from non-renewal energy. This, in turn, is likely to lead to an increase in overseas investment in real estate in the medium to long term.

It could also mean a greater allocation of funds into emerging markets in pursuit of greater return on investment - we have already seen increased focus on Asian markets.

Mat Oakley, director of Savills research, comments: "Middle Eastern investors accounted for 11 per cent of the Central London market last year at around £2.4bn. We would expect their spend to increase over the next year in line with previous falls in oil prices."

However, the picture is more nuanced as far as private investors are concerned. This type of investor will be affected by oil price variations in a number of ways, and their appetite for overseas investment is likely to be influenced by other, country, specific factors.

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