Falling equity markets to echo in UAE real estate sector

Falling equity markets to echo in UAE real estate sectorImage Credit: Supplied

The tumble in the UAE's equity markets is expected to echo in the real estate sector, particularly in the sales segment of residential units, analysts said.

According to reports by Knight Frank, a real estate agency, there has been historically a strong correlation between the Dubai Financial Market (DFM) index and residential property prices. If the relationship holds, home prices could trend down.

As many of those that invest in equity markets also purchase residential units, losses in stocks will mean investors are short on liquidity, which may translate to lower demand for property.

''At the moment, the market is quiet. There isn't a huge amount of activity. There has been a slight pick-up since the end of the last year when it was very quiet. In fact, at that time, it was the quietest since the end of 2012. Prices have been fairly resilient despite the lower levels of demand, but that's also due to the fact that there isn't a huge amount of supply,'' said Khawar Khan, research manager at Knight Frank.

Khan added that he expected to see a 10 per cent decline in residential sales prices in 2015 compared to 2014.

Similarly, Ismail Al Hammadi, managing director at Al Ruwad Real Estate Consultant, said that many investors may start selling their residential assets in order to buy more shares and recover losses in equity.

''The performance in the financial markets has a direct impact on real estate because the majority of investors in DFM, for example, also have assets in the property sector. Transactions in the sales market are going to be very slow now because the investors' liquidity is not there,'' he said.

However, other analysts thought that plunging share prices could be good news for the real estate sector.

''One way to look at it is that if the stock market is going down, investors don't have as much money to spend on real estate.

But the other way of looking at it is that the two markets might work in the opposite direction because if the stock market is going down, people might want to put their money somewhere else,'' said Craig Plumb, head of research in the Middle East and North Africa at Jones Lang LaSelle, a real estate company.

Low levels

Discussing performance in the sales market over the past few months, Plumb described it as ''static''.

''Compared to 2013, the number of sales in 2014 was down by about 30 per cent. We don't have any number for this quarter (Q1 2015) yet, but I suspect it stayed at fairly low levels,'' he said.

Speaking to Gulf News via phone, Plumb said that he expected sales prices to continue falling in 2015 at a 10 per cent rate, with demand predicted to remain stable.

Meanwhile, Jeremy Oates, general manager of Asteco Property Management in Abu Dhabi, said investors may perceive property as a lower risk market compared to equity. Traditionally, falling share prices lead to stronger demand for gold and real estate as they are seen as safer, he added.

Share prices have plunged since oil prices start falling in the last quarter of 2014. Just one day ahead of the Opec (Organisation of Petroleum Exporting Countries) meeting in Vienna where world leaders decided against reducing oil supply, the DFM index was at 4,443.

Four months later, the DFM index stood at 3,614.7 on Thursday, having reached a low of 3,232 in March. Trade values have also been chopped on the back of a lack of foreign investors and negative sentiment.

Read about the change in course in Dubai real estate market

Source: Sarah Diaa, Staff Reporter, gulfnews.com


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