UAE investors need to check out business models of what they are putting money into

When asset prices rise, they attract people to invest - for reasons that have nothing to do with the asset, but with its movement.

It is a sense of some curiosity then, that the behavior is somewhat asymmetric. The rise unleashes a flood of buyers, but a fall, especially into undervalued territory, takes time to wok its ‘magic’.

This is true especially in the case of real estate, where distressed assets often are mired in litigation, and require patience and resources to reach to the finish line. We have seen that in the case of projects such as the Pentominium, Marina 106, Marina 101, Al Saqran Tower in JLT, and others, but nothing has quite caught the zeitgeist as the Palazzo Versace Hotel, which has been periodically on the auction block for the better part of a year.

The long gestation period these deals require to get over the line make intrigue look like child’s play. But it is exactly this nature of deal that shows the twin-sided nature of the property market:

The increasing sophistry implies a degree of maturity that involves greater expertise, but also greater levels of involvement. In markets that are generally efficient, this kind of specialization is required for investors to capitalize on the opportunities in real estate markets that are otherwise exhibiting signs of being extended.

Of course, in capital markets, the corollary is that businesses that have monopoly pricing power such as Salik and Parkin - the latter’s results continue to exhibit returns that would make any business owner salivate - have continued to do well. As capital markets mature, the symbiosis between capital and real estate markets will increase, suggesting a new kind of investor.

In the final analysis, it is always the valuations that speak to the investor. And despite (or perhaps because of) the geopolitical volatility, there will be an increased focus on the specifics of the value proposition that each deal brings to the table as ticket sizes increase.

Whilst the sheer size and scale of the US equity markets imply that most of the money flows will continue to be on the technology side of the spectrum, there is little doubt that the focus has shifted to cash flows and the yields the asset generates. And that after years of bringing returns ‘forward’, there is momentum as retail and institutional investors focus on the individual value-centric propositions.

The kind of volatility that has been exhibited thus far pales in comparison to what has been seen in the past. It is inevitable that there will be another period where money will be there for the taking for those temperamentally patient.

It is this patience that will be rewarded for the idea of grabbing on to the no-brainer investment will certainly materialize, be it through the auction markets, secondary markets, or the IPO.

Sentiments will continue to fluctuate, moving the prices of the assets along with it, but the maturation of GCC markets indicate that there is a growing realization of the advantages that being fully invested in the local and regional markets mean.

Investors feeling bombarded with a plethora of opportunities need to realize that they only need to pick a handful (and understand these businesses) to stay ahead of the game. That realization is becoming increasingly apparent.