Iftar feedback: real estate and share booms to end

How long can these booms last? This is the question that dominates the festive season, and the feedback from around the Iftar and Sukoor tables is pretty illuminating. There is almost a consensus view.

The most level-headed observers say they think the GCC stock markets will be buoyed a little higher into the New Year thanks to the abundant oil revenues flowing in the region.

Unsustainable bank profits

But then there will be quite a sharp correction because the profit levels of 2005 will be unsustainable. For one thing, bank profits will dwindle in 2006 due to the slowdown in IPOs, and as banks often comprise half the value of local markets, the impact on stocks will be unavoidable.

Of course, when stock markets go through a 'correction' phase during an economic boom, this process is not nearly as painful as during an economic downturn. That said, fingers will get burned, the indebted will be in trouble and consumer spending might dip.

However, the outlook in real estate is more difficult to read. The immediate impact of a stock market 'correction', for example, might be a rise in real estate prices, or at least for completed properties. Investors will need to park their money somewhere.

On the other hand, the gossip from the Iftar tents about the state of the market for apartments under construction in Dubai was more sanguine.

Off-plan buyers vanish

It appears many speculators who put down 10% in the hope of a quick re-sale are facing the choice of giving up their 10% deposit and 'handing back' their apartments, or paying up second installments, because the aftermarket for off-plan apartments has vanished.

Eventually the developers are going to have to put this newly un-sold property back on to the open market, presumably when the apartments are actually finished, and this tends to suggest that at this moment a large supply of property will be dumped on to the market.

That would imply a 'correction' in property prices in say 18 months to two years' time when the major apartment developments come to completion in Dubai, although other GCC markets are generally on a slightly later real estate cycle.

Interestingly both the stock market and real estate 'correction' predictions do not depend on the oil price, and are independent phenomena related to market conditions.

Clearly a cooling in oil prices would exacerbate any correction, but thus far falling oil prices do not look likely in 2006. Indeed oil prices may well go higher, or so the pundits suggest this Ramadan.