Pros and cons of Arabic investments in Balkan real estate

From a controversial $3bn scheme to transform Belgrade to contentious gated developments in Bosnia and gleaming resorts in the tourist destination of Montenegro, Middle Eastern investments in the Balkans are hitting the headlines.

While they are getting attention — not all of it positive — these projects make up a relatively small part of the regional property market. Nonetheless, they are indicative both of the strengths of the Balkans as an investment destination and the challenges the sector faces.

While some argue darkly that Gulf investors’ interest in the Balkans is driven by strategic or religious motives, Ivan Cakarevic, managing director of Rooftop Capital, a property investment and brokerage company, believes the underlying attraction of the Balkans is more prosaic. “It is a favourable crossroads location, a cost-competitive labour force and aspirations to EU membership make this region an attractive investment case,” he says.

Montenegro is not the only country in the region looking to make up for lost time by drawing in Arab investment. Since it was unveiled in 2014, Belgrade Waterfront has been the most high-profile Gulf real estate investment in the western Balkans.

The $3bn project on a 1m sq m site by the River Sava in the Serbian capital is backed by Abu Dhabi-based developer Eagle Hills, headed by Mohamed Alabbar, the billionaire founder of Emaar, a big property company based in Dubai. Belgrade Waterfront’s backers say it will finally allow the city to “reclaim the river” after decades of neglect and make the Serbian capital once again the locus of investment and business in the region. But the project is shrouded in controversy focusing on how Eagle Hills was selected without tender and the way the government changed laws to permit the development.

Campaigners also question whether a Gulf-style design is suited to a district with so many historic buildings. Overnight demolition of buildings standing in the way of plans did not improve the project’s image, especially when they were reportedly at the hands of masked men with baseball bats. While construction on the first phase of development is nearing completion, the project seems to be progressing more slowly than expected. Eagle Hills did not respond to requests to comment. The attention lavished on Belgrade Waterfront means that many have overlooked significant investments from another Middle Eastern source — Israel. Srdjan Vujicic, director of real estate operations at property company Coreside, estimates that 80 per cent of Middle Eastern real estate investment in the region is from Israel.

Israeli investors in the country include retail-focused developers BIG CEE and Aviv Arlon, as well as AFI Group and Shikun & Binui. “Israeli investors have focused on the development of retail parks and shopping centres,” says James Gunn, director of Poseidon Group, a property investor with 10 years’ experience in the region. “Recently, new investors from China and the Middle East have been attracted by good quality assets that are now more realistically priced.

But we can also expect an increase in interest from western European institutional investors.” Mr Gunn also notes a high level of demand from South African businesses facing currency risk and economic instability at home. In February 2016, the Johannesburg-based investor Reit Hyprop acquired a 60 per cent stake in Belgrade’s landmark Delta City mall, as well as a mall of the same name in Podgorica, Montenegro’s capital. The remaining 40 per cent stakes were bought by one of Hyprop’s non-executive directors. In October, Hyprop followed this with the acquisition of a mall in Skopje, Macedonia. New Europe Property Investments, another South African investor, recently acquired Zagreb’s Arena Centar mall.

By Andrew MacDowall

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(The FInancial Times, 26.04.2017)

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