|
Ahmad Saeed (not his real name), remembers the days he lost Dh1.2 million in the Dubai stock market crash of 2006. Like most investors during the regional stock market euphoria of 2004-05, he had been hanging out at the Dubai Financial Market (DFM) in World Trade Centre, picking up gossip and news and investing accordingly. The strategy had worked until early 2006 when market fundamentals fought back with a vengeance.
Since then he has little time for the stock exchange and its rumour mill. Instead, he has found a new alternative - the promised land of Dubai's real estate sector.
Saeed is not alone. Many expatriates and Gulf citizens have been shunning the equity markets to focus on the great property boom that is under way. Talk of property projects has replaced stock market speculation in majlises and drawing rooms across the region. And "flipping" has replaced "day trading" as the operative term for most punters.
Few analysts deny the long-term viability of investing in either the regional property market or the stock markets, but it is the speculative streak of investors in the short-term that is a cause for concern.
"I am a long-term bull, but these are short-term dynamics which are excessive and cannot be ignored," says Marios Maratheftis, Standard Chartered's regional head of research.
Majid Azzam, a real estate analyst at HSBC, argues that investors took solace in the property market primarily because they were severely burnt in the equity market crash of 2005-06. "But so far nobody has lost money betting on real estate and people perceive it as a safe investment."
Mayhem
One key reason why investors are piling into the property market is the easy payment plans it offers. "It's almost like margin trading, they pay 10 per cent and if the market goes up 10 per cent, they have actually made a 100 per cent profit," says Maratheftis. "It is easy to leverage in property markets than equity markets. But it is not something to aspire to."
According to reports, Abu Dhabi property prices have risen 60 per cent to date, while the Dubai property market has grown as much as 40 per cent this year. Meanwhile, the Dubai stock market has tripped over itself repeatedly this year, falling by nearly 17 per cent by mid-August. The Abu Dhabi index has remained somewhat steady, but a two per cent return to date this year is hardly a lucrative proposition for those looking for a quick, double-digit return.
It is too early to determine the impact of the recent scandals on Dubai's real estate sector, but its reverberations have already been felt on the DFM with most property-related stocks in a tailspin.
In a clear case of denial, investors are taking this opportunity to dump stocks and invest in real estate, even though it is the property sector that's been the root cause of the DFM index's decline.
But such is the euphoria in the sector that naysayers are being shouted down.
One example is the furore over the Morgan Stanley report on the Gulf's property market, which suggested that a slight downturn in Dubai was in order. Developers dismissed the report and many investors poked holes in the study. Such exuberance about the sector, some of it irrational as Alan Greenspan might say, should make any seasoned observer nervous.
Standard Chartered Bank itself was criticised - by developers and investors - for recommending a capital gains tax for any property that's sold within one year of purchase.
"The desire to leverage up in the off-plan housing market and the premia it has invoked is a significant sign of speculative activity," Standard Chartered noted in its report. "It is very common to see investors taking positions in the market with the intention to flip it before further payments are due ... Dubai needs direct measures to tackle short term speculation. Introducing a capital gains tax on properties could be such a measure."
Developers and investors were not amused by the suggestion, with the somewhat worrying retort: "Foreign investment banks don't know that Dubai market is different."
U-turn
Despite the recent decline in stock markets, anyone who feels equities are no longer part of the investment mix may have another surprise waiting. Most analysts suggest a cooling off in the property market, which should drive speculators back into the cozy arms of the stock markets.
"Our guess is that property prices will reach a stage where return on investment will become less attractive and this should happen very soon," says HSBC's Azzam, who remains bullish on the long-term prospects of Dubai's real estate market.
"At the same time, the equity markets are becoming increasingly cheap, so investors will start to think twice before they invest in the property market. Affordability will become difficult for some people and they will not be able to enter the property market with equity markets the only alternative left. This will happen naturally and equity markets cannot do much about it."
Equally significant is the fact that other Gulf property and equity markets will imitate this correlation that Dubai's economy is currently experiencing. "It is bound to happen - it is a trend that all the GCC markets will go through," says Maratheftis.
Qatar and Abu Dhabi are the most likely candidates to mirror this correlation, as both have quickly expanding property sectors and relatively bullish sentiment in equity markets. "The most negative real interest rates are in the UAE, then Qatar, followed by Saudi Arabia and they are impacting on the housing market," argues Maratheftis.
With such short-term property prospects available, it will take a while for investors such as Ahmad Saeed to return to equity markets.
The writer is managing editor, Zawya.com.
Send us your comments
TERMS AND CONDITIONS
Gulf News may edit comments for length and clarity but will not change the tone of the message. Comments will only be accepted if all fields (including name) are filled correctly and the message isn't abusive, defamatory or offensive. The Gulf News website will only print your first name along with your comment. Please state in the message if you wish to remain anonymous. All comments sent may be forwarded for use in the Gulf News newspaper.
|
