Syria is Primed to Become a Major Regional Real Estate Player
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Syria's real estate market has been making steady headway in the building of mega developments and attracting real estate interest from foreign investors. After relaxing ownership laws and infusing investment incentives in property development, estimates are putting the real estate industry's growth average at 8.88%, outpacing the country's GDP. Suffice to say that the sector now employs 15% of the active population.
The construction and real estate sectors in Syria are going through a growth period since 2006. During four of the past five years, growth in the real-estate industry in Syria has outpaced the GDP growth in the country, rising by an estimated average of 8.88% per annum. According to the Central Bureau of Statistics, the sector's contribution to the labor market is also far more substantial, as 15% of the active population is employed in the real estate and construction sectors.
According to a Bank Audi report, the main drivers behind this growth remain the large population, the number of business executives flowing in and demanding high-end real estate, the focus on tourism and the upgrading of the related infrastructure. Other experts also mention the inflow of Iraqi nationals into Syria as a factor contributing to the real estate boom in the country, consequently raising demand for real estate and boosting its prices.
In order to additionally bolster investments in the real estate sector, the Syrian government has lowered the tax rate on real estate sales and rentals, and the tax structure was simplified. Law no. 15 was issued to set up the General Commission for Real Estate Development and Investment (GCREDI). The rule of the commission is to organize and encourage investments in this sector. Laws were also introduced to reorganize the informal housing areas, which are estimated to host nearly 40% of the Syrian population, in addition to the right of property ownership for foreign individuals. In June 2008, the Syrian government permitted foreign individuals to purchase property for the purpose of residence provided the buyers did not conduct any sale or rent activity for five years. Later, Syria opened the door for foreign firms to establish subsidiaries in the country and benefit from nondiscriminatory tax rates. All such laws have helped increase the sector’s visibility for developers, investors, and homeowners alike.
Moreover, almost all private banks operating in Syria have started offering housing loans. Loans, which reach up to SP10 million, used to run for short periods of time, but now, can last up to 25 years, and the required down payments are getting smaller, although few banks would accept deposits of less than 25% of the total property cost. Requirements for collateral were also being eased with the property itself serving more and more as the only collateral required. At the same time, a draft mortgage finance law is being prepared and should ensure a much sounder regulatory framework for the market and help ease access to finance.
These reforms encouraged Arab and international investors to invest in the Syrian real estate market. Within this context, many large scale projects are currently under joint ventures between locals, Arabs and foreigners.
According to a report published by Bank Audi, starting 2007-2008, most of the real estate investments continuously flowing into Syria are Arab-Syrian partnerships, such as the already-started mega $4 billion Emaar projects (Damascus Hills and the Eighth Gate) and the ongoing $15 billion Syria Bonyan City project. Many other smaller size projects comprise the Syrian-Jordanian $50 million Shahba Mall, the $25 million Palm Village resort developed by the Saudi BinLadin group, and the $120 million Yaafour Gardens. The Bin Hani Project is being developed by Qatari Diar, and the development value is approximately $230 million. It is located in the coastal city of Latakia, and includes hotels, villas and shopping centers extending over 270,000 m2.
Diar Damascus is another project launched by Qatari Diar. It is a 550,000 m2 residential and commercial complex, located in Damascus. The development comprises a mix of luxury hotels, residential apartments, high-end retail facilities, offices, restaurants and cafes. A joint venture between Emaar (60%) and Investment Group Overseas (40%) is developing the 'Eight Gate' project in Damascus. The total investment in the project is $500 million. The project is divided into main three segments: A Commercial Center, Waterfront, and a Furnished Apartments Zone. The commercial center will host the Damascus Stock Exchange (DSE), and the center will include a 35-storey building in addition to low rise buildings, and 450,000 ft2 of a retail mall, all centered around a piazza. The waterfront will comprise low-rise furnished apartment buildings, and the last section of the project will also consist of furnished flats. Kiwan is a tourism and commercial project carried out by Al Kharafi Group. The development stretches over 50 thousands m2 of land in the heart of Damascus (Omaweyine Square). The project includes the InterContinental Hotel with a capacity of 361 rooms & suites, and 25 furnished apartments. The development also includes a shopping mall with 26 thousands m2.. The development of Kiwan project is estimated to cost $217 million.
Real estate investments are also being made by local investors such as Cham Holding’s 'Cham', the largest private consortium of Syrian businessmen. Cham is developing the $100 million Hijaz Station estate, which spreads over 11,000 m2 with a built-up area of 133,000 m2 and includes mainly commercial and office real estate as well as an underground rail station to link with the Damascus Airport. Cham is also building three tourism resorts, of which a $70 million five-star hotel with 250 rooms accompanied by 90 furnished apartments in the Mazzeh district of Damascus that will be managed by Marriott. The two other resorts are two four-star hotels: one in Palmyra, and a $20 million 4-star hotel in Latakia.
Towards the end of 2008 and early in 2009, and despite the spillovers of the economic and financial crisis also becoming felt on Syria's construction and property estate sectors, no project cancellations were announced. According to 'The Syria Report', quoting many bankers, remittances from Syrian expatriates in the Gulf region have fallen and transfers from Gulf investors to finance new projects have decreased, resulting in the delay of several development projects. Nevertheless, the real-estate sector is still assuming a growing role in the Syrian economy, but better planning and an improved regulatory framework will be necessary for this expansion to continue unabated, says the report.
A number of sizeable real estate developments were announced in 2009 that are still under planning or about to start this year. Among these projects, a bank Audi report unveils is the $1 billion Majid Al Futtaim project in the trendy Yaafour area in Damascus, by far thelargest mixed-use real estate project in the country. The development is planned to serve as a new town center for local residents. It will spread over an area of 1.5 million square meters, next to Emaar's Eighth Gate venture. The first phase of the project would be completed in 2012. Abraj Souria is another offices and commercial space project scheduled to start this year at a cost $319 million. The project should be completed in 2014. In the residential segment, the Naser Gardens is a $168 million upscale residential compound spanning over 452,000 m2 in Kafar Qouq area, 30 kilometers away from Damascus. Aleppo Gate is a $ 64 million project on 300,000 m2, expected to start this year as well, and completion is scheduled for the year 2011.
Liberalization offers new retail opportunities
According to a report published by Datamonitor, until 2008, the Syrian retail sector lacked big malls and associated hypermarket chains because the importation of foreign consumer goods and electronic items was banned. However, the Syrian government has gradually liberalized import restrictions and many foreign goods have been removed from the list of banned items, leading a number of Gulf retail groups to consider entering the country. The opening of Syria's economy is attracting Gulf retail investors and hypermarket chains, underlines the report. Unlike the UAE - and increasingly the rest of the Middle East – where a plethora of malls and supermarket chains exist, Syria currently only has a handful of sizable department stores. Historically, a significant proportion of Syrian consumers went to Lebanon to do their shopping. Now, however, the market dynamic has changed. With significantly fewer restrictions on many foreign goods, Lebanese shoppers are increasingly looking to travel to Syria to buy goods - particularly non-luxury items which are now significantly cheaper in Syria. Because of the changed market fundamentals, a number of mega-malls and hypermarkets are reportedly in the pipeline, with Gulf groups including Al Futtaim, Emaar and Saudi Binladin inclined to be considering the development of large shopping mall complexes across Syria.
Nevertheless, there are emerging prospects in Syria and Datamonitor feels that competition to gain first mover advantage in the mall retail and hypermarket sectors will become increasingly intense. Syria has a large population - 20.4 million according to 2008 UN estimates - and has been largely unaffected by the global financial meltdown. Unquestionably, Syrian economic liberalization presents significant opportunities that well-connected developers and retailers, implementing realistic expansion plans, can exploit over the coming years, concludes the Datamonitor report.
Conclusion
The outbreak of the global crisis has definitely left a negative impact on some of projects in Syria. But there is still a great shortage in housing, office and retail space in that country, amidst a continuously growing demand. All market segments seem to be far from saturation and the momentum should pick up again as soon as the overall regional conditions improve and more reforms are introduced. Overall, real estate is still attracting the private sector, especially with favorable new laws and with the high profitability prospects it offers, in a situation of a supply bottleneck and persistent demand growth.
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| Read full story in REAL's September issue |
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