Stock DFM Dubai stock market traders
Investors is taking a risk-off attitude with real estate stocks, and which belies the fundamentals of some of the companies involved. Image Credit: Antonin Kelian Kallouche/Gulf News

Stocks worldwide are suffering a bout of risk aversion, and UAE markets too seem to be in the same boat. The last trading session of the week saw ADX decline 0.35 per cent and DFM in the red by 1.07 per cent.

The recent tightening of lockdowns in Germany, France, Denmark and the Netherlands and the new restrictions in China and Japan have reignited fears of a double-dip recession. The second wave has stressed the healthcare infrastructure and wreaked havoc with a nascent economic recovery.

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Fraught real estate

In the UAE, the economy-sensitive real estate sector shares got sold off heavily. The week saw Emaar Properties fall 7.19 per cent, Emaar Malls (7.14 per cent), RAK Properties ( 6.20 per cent), Damac (3.52 per cent) and Aldar (0.83 per cent). Emaar Properties derives almost one-fourth of the revenue from outside UAE, so it's quite sensitive to international developments.

The resurgence in pandemic obviously impacts Emaar Malls, which has hedged some of its risks since nearly 30 per cent of its revenue comes from online sales. The decline in Damac, RAK Properties and Aldarare more due to investors taking off risk from the table.

Cash in hand

Damac has cash of Dh4.94 billion when compared to Dh3.41 billion in debt. And the first three quarters of 2020 saw Damac post double-digit growth in sales. RAK Properties also exhibited sales growth during the period.

As is often mentioned, the real estate sector is plagued by oversupply. Yet if one parses through Dubai Land Department data, we will get some interesting information snippets.

In 2015, total sales were Dh46.79 billion, in 2016 it was Dh39.53 billion) and 2017 had Dh46.86 billion. Then in 2018 sales were at Dh32.72 billion and for 2019 it was Dh41.82 billion. In 2020, Dubai property sales saw 35393 transactions leading to Dh72.41 billion.

The surge in the number of transactions last year indicates that investors are finding bargains, which shows that a bottom might be near. From a macro perspective, central banks' easy money policies are set to continue, and this could fuel risk-on bets on UAE real estate...

- Vijay Valecha is Chief Investment Officer at Century Financial.