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After 12 days, the war between Israel and Iran halted on Tuesday, but geopolitical tensions in the Middle East remain high. This signals potential shifts in real estate investment dynamics, especially evident over the medium and long term. In our analysis, we rule out the demographic factor, since this war is unlikely to trigger a mass refugee influx into most of Middle Eastern countries, because political sensitivities lead many nations to restrict Iranian refugees, and also as some countries like Turkey, Jordan and Lebanon have taken strict policy measures after the influx of more than six million people during the civil war in Syria. In a populous country like Iran with around 92 million people, a refugee crisis will be most likely happen in countries like Armenia, Pakistan, and Afghanistan, where real estate dynamics, chiefly supply and demand, will be mainly influenced by the demographic factor. But we are focusing in our analysis on the real estate sector in the Middle East including the Gulf Cooperation Council countries. 
How the War Reshapes the Price-to-Rent Balance
While real estate projects typically unfold over months or even years due to their scale and complexity, conflicts in the short term could prompt some investors in the region to lower their asking prices by up to 30% (as it happened in similar war scenarios in European cities after the Russian invasion in 2022) to accelerate sales due to uncertainty. This creates a window of opportunity for savvy investors who seize on these temporary disruptions to purchase undervalued properties, betting on a rebound and capital appreciation once geopolitical tensions ease. Understanding this aspect of the rise and fall of house prices during times of war is critical when considering the price-to-rent ratio, a key indicator that compares property purchase prices to the annual rental income they generate. In volatile conflict-affected markets, a significant drop in property prices without a corresponding fall in rents can lower the price-to-rent ratio, signaling potential value. In other words, it’s a financial metric used to assess whether it's more cost-effective to buy or rent a property. It's calculated by dividing the median home price by the median annual rent in a specific area. A high ratio ((above 20 points) generally suggests renting is more affordable, while a low ratio (below 15) indicates buying might be more favorable. The cost of buying and renting may be comparable, (Ratio around 15-20) and other factors may influence the decision, such as personal preferences and interest rate on mortgage.
House-price-to-rent ratio in Middle East countries.
Our prediction for a country like Israel, given direct involvement in conflict, buyer demand for homes may fall sharply, leading to pressured or falling home prices. At the same time, rents may increase or stabilize due to limited supply Therefore, the P/R ratio is expected to decline as the gap between home prices and rental costs will narrow because housing prices are likely to decrease while rents remain steady or increase. Also directly involved in the war, Iran’s housing market could see price volatility. Economic sanctions and war costs may constrain investment and credit availability. Rents may increase with inflation (currently at around 31%), while home prices may stagnate or decline, possibly lowering the P/R ratio. Other countries in our chart, though regionally close to the warring parties Iran and Israel, may see different effects according to their economic resilience and exposure: Likely, home prices could decline moderately or stagnate due to lowered investor confidence and higher financing costs. Rental prices may increase in some areas because of expected rise in inflation. This would tend to reduce or moderately decrease the P/R ratios in these countries, especially in Qatar and Egypt where the ratio was already borderline high, signaling that renting could become relatively more favorable compared to buying. 
Strong Foundations
Showing sustained GDP growth and diversified economies mainly help the real estate market withstand external shocks and geopolitical tensions. For example, the Gulf Cooperation Council countries are leading the GDP growth forecasts in the Middle East with %3.5 in 2025, according to the latest estimates of the International Monetary Fund.
Led by Saudi Arabia, several GCC countries have been actively diversifying their economies away from oil dependence toward sectors such as manufacturing, mining, real estate and technology, which helps sustain growth even during geopolitical instability. The presence of substantial sovereign wealth funds in the GCC region and significant currency reserves provide financial resources to cushion the economy against external shocks. Several GCC countries maintain strong political and diplomatic relations with the warring parties – Iran, Israel and the US --- that help greatly mitigate the risks of from direct conflict impacts. Together, these factors contribute to resilient real estate markets characterized by steady demand, stable prices, and ongoing development despite regional instability. 
Slow shifts but big effects
When it comes to large-scale, ongoing construction projects, the impact on real estate markets usually unfolds more gradually and slowly, influenced by factors such as inflation, shifts in capital availability, and changes in mortgage interest rates that affect buyers' purchasing power. Central banks may respond to inflationary pressures from war-induced supply shocks (oil prices, commodities) by raising interest rates to curb inflation or maintain currency stability. Increased mortgage rates reduce affordability, dampening demand for property purchases and putting downward pressure on home prices.
Rising interest rates and escalating construction costs, often driven by supply chain disruptions if Iran carried out its threat to close the strategic Hormuz Strait, put significant pressure on developers' cash flow and profitability. Increased debt servicing costs on construction loans, coupled with unexpected expenses not covered by the original financing, create a funding gap. As a result, developers are forced to either secure additional capital through increased borrowing or equity investment, or absorb the extra costs themselves, which directly reduces their profit margins.
When Property Becomes Politics
Ownership of real estate by foreign nationals closely tied to either Israeli or Iranian interests could become politically sensitive or contested in some countries depending on their political views of the war. Properties owned by investors considered hostile might be subject to seizures, forced sales, or legal challenges, transforming real estate ownership into a domain of geopolitical contestation. Following geopolitical tensions, several Western countries have targeted Russian oligarchs’ overseas properties through sanctions and asset seizures. For example, in response to the Ukraine crisis and subsequently in 2022 with the invasion, luxury real estate in the UK and France owned by Russians close to the Kremlin was targeted for freezing and potential forced sales, illustrating how real estate becomes a contested geopolitical asset. France has seized more than 20 billion euros worth of cash and property belonging to Russian oligarchs. Chief among them was Chelsea’s previous owner Roman Abramovich who used to own 12 of these properties. In conclusion, the analysis demonstrates that war profoundly reshapes the real estate sector by transforming property ownership into a geopolitical arena fraught with political sensitivities and contestations. Real estate also transcends its traditional economic function to become a conduit of soft power, dependency, and state influence. |
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