Oil prices a factor undermining realty and stocks

Turmoil in the UAE’s stock markets need not necessarily mean it has a direct say in what happens in the property markets. At least that has been the case until now, with the correlation being skewed by multiple factors.

“While there is historical evidence of real estate being inversely proportional to equities in mature markets, the same is not true for the Gulf,” said Gaurav Shivpuri, Head of Capital Markets at JLL Mena, the consultancy.

“This is due to many reasons including the high proportion of real estate in regional portfolios as compared to mature markets, the relatively small equities markets in the region and the lack of transparency in mid/large-size investment deal volume.

“These don’t allow for an accurate assessment of the impact of the fall or rise in equity markets on real estate deal volumes.”

As for the current situation, investor sentiments for property have already cooled off considerably over low oil prices and what it could mean for local/Gulf economies.

“Additionally, there is a high likelihood that some investors may have been burnt in the equity market correction, which could reduce their appetite for any investment in the short term,” said Shivpuri. “I don’t think the equity losses last week will change the deal volumes in real estate in the short term.

“Having said that, if some investors have suffered equity losses and have margin calls, they may put some real estate assets on the market at attractive pricing, generating demand from others. Only time will tell.”

According to Rohit Chawdhry, Head of Asset Management at Muscat-based Gulf Baader Capital Markets, “Given the recent trend of diminished demand in UAE real estate and weak oil prices, realty stocks could be avoided at this juncture … notwithstanding short-term pullbacks. This weak trend in real estate is perhaps a region-wide phenomenon.”

Source: Manoj Nair, Associate Editor, gulfnews.com


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