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Flip The Script

September 2016

A review of the stock performance of UAE-listed real estate companies vis-à-vis the actual property market trends reveals the worst is over

The fundamentals of the global economy have changed rapidly over the last one-and-a-half years. After signs of a sustained recovery for most part of 2015, 2016 began on a tumultuous note with asset classes tanking. With oil touching multi-year lows in February, the Gulf region came under close scrutiny with parallels being drawn to the crisis witnessed a few years earlier. Again a sector in focus within the UAE was real estate, particularly after it had borne the brunt following the 2007-08 global crisis.

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Tracing these fundamentals, the Dubai Real Estate & Construction index and ADX Real Estate Index plunged sharply in January. However, the recovery since has been significant. From the closing lows of 4789 and 2856 recorded in the month of January 2016, the Dubai Real Estate & Construction index and ADX Real Estate Index have returned 51% and 53% respectively (based on closing levels as on 18th August 2016). For the same period, the DFM General Index has returned 38% while the ADX General returned 21%.

Based on data available, most stocks within the real estate sector have delivered double digit returns for the year to date. Eshraq Properties Co., listed on the Abu Dhabi exchange has returned 38%, the highest amongst the lot. It is followed by Emaar Properties listed on the Dubai stock market.

We traced the longer term path of the indices considered. As seen, the drop during the crisis was significant. The Dubai Real Estate & Construction index fell from a level of nearly 14000 to 2000. The drop was even more pronounced for the ADX Real Estate Index, which fell from levels over 16000. The next few years was met with a sideways move as the sector found its feet.

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Subsequently, the indices moved upwards following a revival in the economy and thus a pick-up in real estate transactions. For instance, the chart below traces the government statistics around real estate transactions within Dubai. As seen in the year 2013, the total amount of real estate transactions in Dubai exceeded Dhs 236 billion, according to statistics maintained by the Dubai Land Department (DLD). This was a 53% YoY jump in value terms with the emirate recording 63,652 deals.

The 1H 2016 has recorded 28,251 deals worth AED 113 bn. This period though has seen a dip in price trends – as noted in a report by S&P published earlier in the year, average house prices in Dubai are likely to fall by another 10% this year following a decline of 10-13% over the previous year.

Reviewing the stock performances though, which are generally considered a precedence to fundamentals, it would be prudent to say the market has most certainly moved away from the doomsday predictions which echoed in the beginning of the year and investors would probably be seeing value within the sector post the pull back of the last 2 years.

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