MIDDLE EAST - Experts are predicting the Middle Eastern real estate markets will significantly outperform all other regions yet the latest data from a central bank suggests real estate valuations in the region have already been hit by the credit crunch.

A survey carried out by Jones Lang LaSalle in association with Cityscape Dubai, and known as the 2008 Investor Sentiment Survey, suggests over 50% of its 350 respondents believe the Middle East real estate markets will do better than any other market worldwide over the next two years.

Almost half of the respondents predicted the United Arab Emirates will be the strongest performing market, although the Kingdom of Saudi Arabia, Qatar and Abu Dhabi were also expected to be among the top performers.

Ian Ohan, head of Investment Transactions MENA at Jones Lang LaSalle, said: "The principal reasons are because of the amount of capital available in the region. There is still financing available here but is more likely to do better because of market economic factors like population and gross domestic product."

The survey gathered the view of 350 developers, sovereign wealth funds and high net worth investors and the vast majority of investors sampled for the survey came from Middle Eastern countries, although some international players were included.

"We had a handful of international investors because they either had bases here in the Middle East or had offices in the region; certain funds in the UK and Germany that we know are interested in investing in the region." said Ohan,

Over 40% of investors claimed the current economic climate is having little or no affect on their approaches toward real estate investments in the region - though that still leaves 60% who say it could affect their investment potential.

"The Gulf Region offers strong relative international value with active buyers in the region generally looking to transact at 8 - 8.5% yields for prime commercial operating assets and slightly higher for hospitality product," said Ohan.

However, Islamic banks claim the Gulf real estate markets are sure to suffer from the global credit crunch and fear the property market boom is coming to an end.

Khaled Al Kamda, the group head of the Dubai Islamic Bank, yesterday said banks in the region were becoming more selective about the projects they chose to finance and warned real estate projects were likely to be reviewed.

This comes after the Dubai stock market dropped by 6.86% earlier this month and triggered a 11.1% slump in the real estate sector. Shares in Emaar, the Dubai-based property firm, have also fallen by 60% this year.

Few investors expect Bahrain, Kuwait and Oman real estate markets to perform the strongest, according to the Cityscape study, yet this again contradicts a report issued by real state advisers, DTZ , on the Bahrain real estate market, as it suggests significant growth in commercial and residential real estate sectors in the next four years.

Robert Addison, DTZ's country manager of Bahrain and director of EMEA Retail, claimed: "The Bahrain residential market still represents an excellent opportunity for investors. With a number of high-end mega-projects currently in development, those looking to buy a luxury property can still do so in Bahrain at a fraction of the price currently being recorded in other markets such as the UAE."

Just 3% of investors sampled in the Investor Sentiment Survey think Western Europe will be the strongest performing region, and the majority of respondents are said to be confident the US and European markets will not witness a significant improvement in performance in the near future.

Blair Hagskull, managing director of Jones Lang LaSalle MENA, suggested the report would provide a ‘critical benchmark' for evaluating the sector in the future.

"Sentiment is a critical component when considering the health of any market. It is an important barometer, a key assessment criteria for any investor and the ideal gauge for considering future prosperity," said Hagskull.

The full Cityscape report is due to be released shortly.