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Glass half full? Real Estate Outlook May Weigh On UAE

Glass half full? Real Estate Outlook May Weigh On UAE

Gulf markets could rise if an Oct. 23 summit by European leaders makes major progress in addressing the euro zone debt crisis, but many investors are doubtful.

October 20, 2011 12:00 by



The United Arab Emirates’ stock markets may be in for a rocky few weeks as third-quarter earnings from real estate companies and banks reveal the extent to which the property market continues to slump, despite stronger economic growth this year.

Shares in Aldar Properties and Sorouh Real Estate , Abu Dhabi’s two main developers, sank to all-time lows this week as retail investors dumped the stocks on fears that the quarterly numbers will disappoint.

A lack of participation by institutional investors has left UAE markets vulnerable to sentiment-driven trade and volatility. Abu Dhabi’s benchmark index slumped this week to lows last seen in early 2009, when a global liquidity crunch was hitting Gulf Arab countries. Dubai’s index is at a seven-month low.

Analysts polled by Reuters expect Aldar to post a 119 percent rise in quarterly profit to 139.8 million dirhams and Sorouh to post a 129.6 million dirhams profit. But those profits would still be well below those seen in the boom years, and investors are concerned about the outlook for next year.

“There is no discrimination between Aldar and Sorouh — people are losing faith,” said Sebastien Henin, portfolio manager at Abu Dhabi-based The National Investor.

“Visibility in Abu Dhabi is not good; all the signals you see in terms of new (property development) deliveries are not good. We know the sector is not doing well and there will be more pressure in coming months.”

With big property projects nearing completion in Abu Dhabi, the housing market will be oversupplied in the fourth quarter with 11,000 new homes, according to a report this week by consultants Jones Lange LaSalle. These will add to pressure on rents.

“Over the past few quarters, you continue to see disappointing results both in Dubaiand in Abu Dhabi,” said Ibrahim Masood, senior investment officer at Dubai-based Mashreq bank.

“If the delivery situation has improved in Abu Dhabi, it should show up in the results. But if their stock performances are any indicator, I won’t be holding my breath waiting for the numbers to come out.”

BANKS

Bank earnings may be stronger; analysts polled by Reuters on average predicted an 83 percent third-quarter net profit jump for Emirates NBD , the UAE’s largest lender by assets. But without a recovery in the real estate sector, it may be hard for bank shares to stage an extended rebound.

“Abu Dhabi banks have done well and will continue to be reasonable but I think investors are now coming to grips with a lower growth environment,” Mashreq’s Masood said.

“I will be surprised to see attraction in the banking sector. A lot of banks are not seeing volumes growth and competition remains stiff.”

Emirates NBD shares were pushed down to multi-month lows last week when the bank was ordered by the government to take over debt-laden Dubai Bank, although analysts said they believed ENBD was large enough to cope with the deal and that it did not signal widespread problems in the UAE banking sector.

Gulf markets could rise if an Oct. 23 summit by European leaders makes major progress in addressing the euro zone debt crisis, but many investors are doubtful.

“I don’t know if we can put a lot of hopes in European leaders to fix their problems quickly. The best strategy right now is to increase your cash — to be cash-rich,” TNI’s Henin said.

By Nadia Saleem



2 Comments

  1. Real Istikus on October 21, 2011 10:36 pm

    Why is Kippreport surprised by the bad performance of RE market? it was written in the stars. No transparency, bad developers business practices, no Laws to protect investors, Laws in limbo since many years, no HOA’s registred so far, unclear visa laws, oversupply, expensive SC’s and utilities, etc… every single motivating factor to purchase in UAE is in the red. Contract breaches by developers are the norme. RERA…. what is their job? they made so many announcements and delivered nothing,… it went from bad to worst and all decision makers still have their heads in the sand, delusional, untrustworthy, lost all credinility and i am being nice here. There is nothing attractive anymore in UAE property market and the fault is Dubai developers who (let face it) cheated on investors big time and RERA has not addressed any of the issues. Forget the property market for the next 10 to 15 years. Get the issues sorted for 5 years to come before investors will trust this market again.

     
  2. ABC on October 23, 2011 9:38 am

    Dubai – up the creek
    In the last 2 years, the following group of people/activity has lost money big time and losing even now every day but the pity is people are living in denial – investors in real estate, trading business, banks lending to these companies, loss making government companies, large shopping malls (where foot falls is only 20%), large newly built office towers where the average occupancy rate is 30% and in Dubai one needs to have 50% occupancy level just to meet expenses. Time cut losses asap and to pack up.

     

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