Danielle Smith: Property prices and markets

Historically, the property market has a six-month time lag on the stock market. Property as an asset class usually performs defensively in comparison to the equity market during periods of short-term volatility. An investor can buy or sell a share within a matter of minutes. This makes it easy for bad or good market news to have an impact on the equity market very quickly. This kind of panic buying or selling is not possible with property and by the time that an investor has the chance to complete a purchase or sale of a property, the period of volatility has often already passed.

Like the bond and equity market, it is possible to create an income from a property investment in the form of a rental yield. This income needs to be taken into consideration when comparing an investment's ‘real' rate of return, which is the capital gain plus income. Often, my clients here in the UAE will purchase a property in order to "save" the money that they would usually allocate to rent. Again, this should be taken into consideration when evaluating a property as a potential investment opportunity. Most portfolio managers would suggest between five and 10 per cent of your investment weighting should be allocated to property. This doesn't take into consideration a property purchased as a home.

Property is, however, most often an emotionally driven purchase. Prices of properties don't necessarily reflect the price that the majority of people would deem a fair price. An example would be that of a property priced for sale at Dh5million. Many potential buyers could view the property and most of them may believe the property is overpriced; it takes only one buyer to commit to paying Dh5million for the price to be confirmed, even though this was not the feeling of the market majority. This means that property can often buck general market trends, particularly when it is located in a desirable area or demonstrates unique selling points.

Large construction companies are often listed on stock exchanges. The success or failure of these construction companies will impact the property market as it will influence that company's financial ability to invest in new projects or complete existing projects, thus directly affecting the supply and demand chain. This was very apparent throughout 2009 in the UAE.

Like markets worldwide, Mena (Middle East & North Africa) too has had a bad time. This market correction is a great opportunity for investors with the ability to buy at low prices. We work with some of the world's top fund managers, many of whom are managing portfolios based around Mena that are significantly outperforming underlying indices. Emirates NBD Mena FIF has returned 6.18 per cent year-to-date. For clients wishing to make the most of this buying opportunity, there are almost 5,000 such funds available, covering everything from Mena-specific funds to global property.