Dubai stocks declined, led by construction and property companies, as a United Arab Emirates Central Bank report signaled the country’s real estate market may be overheating. Shares in Abu Dhabi also retreated.
The DFM General Index slid 2.5 percent, the biggest drop since May 28, to 4,972.78 at the close in Dubai. Arabtec Holding Co. (ARTC), the largest listed building contractor in the country, tumbled 6.7 percent, and Emaar Properties PJSC, developer of the world’s tallest tower, slumped 2 percent. Abu Dhabi’s ADX General Index retreated 1.1 percent to 4,997.86, the lowest since May 28.
The U.A.E. central bank said that average rental yields in Dubai and Abu Dhabi had fallen below historical averages as real estate prices rose, indicating that the market may be imbalanced. Property and construction companies have led an equities rally in Dubai, where the benchmark index has increased more than three-fold since the start of last year, data compiled by Bloomberg show.
“The central bank report is what drove the market lower as most of the names that have gone down are related to properties and construction,” Montasser Khelifi, senior manager for global markets at Quantum Investment Bank Ltd. in Dubai, said by phone today. “It’s a confirmation that growth in the real estate market is slowing down and if the prices go up further, it would enter the overheating phase.”
Emaar shares, which increased 43 percent this year, fell to 9.95 dirhams. Arabtec shares fell to 6 dirhams today and are up almost 200 percent since the start of 2014.
“The central bank report could be a catalyst for profit taking, but the main driver is that valuations are on the generous side, and fundamentals need to catch up,” Yaser Abushaban, executive director of asset management at Emirates Investment Bank PJSC in Dubai, said by phone. “As a result the market is susceptible to short term volatility or negative news.”
The average rental yield in Dubai, a measure that reflects the return on property investment, is about 70 basis points below the historical average, the U.A.E. central bank said in its 2013 financial stability report published today. Average residential sale prices rose 24 percent last year in the emirate. The yield in Abu Dhabi is about 130 basis points below the average after residential real estate prices rose 21 percent in 2013, according to the report.
Kuwait’s SE Price Index (KWSEIDX) dropped 1.4 percent before a planned protest by the country’s political opposition. Tuesday’s rally will be the first in more than a year by the movement, which has vowed to expose more alleged cases of corruption in the state.
“People are being negative with regards to the political situation and that’s what’s driving the markets down right now,” Jasem Al Zeraei, head of institutional sales at NBK Capital in Kuwait, said by phone.
Saudi Arabia’s Tadawul All Share Index closed 0.1 percent lower, Bahrain’s BB All Share Index lost 0.5 percent, Oman’s MSM 30 Index slid 0.1 percent and Qatar’s QE Index retreated 0.6 percent.
Israel’s TA-25 index advanced 1 percent to 1,414.38 at the close in Tel Aviv, the highest since April 7. Opko Health Inc., Perrigo Co. Plc and Teva Pharmaceutical Industries Ltd. led the gains, tracking their U.S.-traded shares.
“There is a broad rally in line with global markets,” Steven Shein, a trader at Psagot Investment House Ltd. in Tel Aviv, said by phone.
Teva gained 2.2 percent to 178.90 shekels, Perrigo climbed 1.7 percent to 483.60 shekels, and Opko added 4 percent to 32.35 shekels. The yield on Israel’s benchmark 3.75 percent government bond due March 2024 declined 4 basis points, or 0.04 of a percentage point, to 2.93 percent.
Stock markets in Egypt are closed for President Abdel-Fattah El-Sisi’s oath-taking ceremony.
To contact the reporter on this story: Sarmad Khan in Dubai at email@example.com
To contact the editors responsible for this story: Samuel Potter at firstname.lastname@example.orgJames Doran, Dana El Baltaji