(MENAFN- Arab Times) The sudden decline in Gulf equity markets could impact prices of residential property in some regional real estate markets but infrastructure spending will continue to support overall sector growth, according to report. Most Gulf governments are expected to maintain spending over the next few years, particularly on infrastructure construction, but weaker investor sentiment may act "as a drag" on residential prices in the near-term, said London-based real estate consultant Knight Frank.
It said that historically, there has been a strong correlation between the Dubai Financial Market index and residential property prices, and if this relationship holds, home prices in the emirate could continue to trend down in the fourth quarter of 2014.
The dramatic drop in oil prices to five-year lows has sparked a wave of panic selling on Gulf stock markets, wiping more than USD 150 billion of value off regional bourses since the end of October, according to Reuters.
The DFM fell 5.8% in November, while other regional markets also saw a decline: Saudi Tadawul shaved 14.1% of its market cap last month while the Qatari index dipped 4.3%, while Kuwait Stock Exchange Price Index fell 8.3%.
Analysts say that most oil-exporting Gulf Arab states, including Saudi Arabia and the United Arab Emirates, have deep pockets and fiscal reserves to tide over any discomfort from low commodity prices.
Bank of America Merrill Lynch analysts say Saudi Arabia will see a 9% decline to the current account balance - the highest among oil exporters; meanwhile Abu Dhabi will take a 8.6% hit.
"The 2015 Saudi budget announcement will be an important signal. Bahrain is most vulnerable due to existing fiscal strains," according to Jean-Michel Saliba, analyst at BAML.
"We expect Qatari macro to continue outperforming GCC peers, as World Cup capex spending appears set to continue. Despite large fiscal room or wealth, the 2008-2009 experience shows Kuwait and UAE were more restrained in their use of countercyclical policy, unlike Qatar."
Investors fearing a repeat of 2008 real estate crash in Dubai that saw prices plunge 60-70%, may take comfort from the self-correction in real estate prices under way since the end of the first half.
"Following a market slowdown and stabilisation in the first half of 2014, Q3 2014 saw the first reduction of both rental rates and sales prices since 2012 in the residential sector," notes Asteco real estate consultancy in its November report.
It said that on average, rental rates were down by 2% and 3% for apartments and villas respectively from the previous quarter, while sales prices dropped by 1%.
"In the medium term, a price reduction will be beneficial for the real estate market as it will assist in unlocking demand from the middle income segments of the population," Asteco said.
The consultancy counted 27 new real estate projects announced in the third quarter alone, suggesting high investor confidence.
However, the oil price decline may already be casting its shadow on some real estate markets.
Kuwait saw a 12% decline in its residential real estate sales in October; the number of residential property transactions declined 8.3%. While investment and commercial property segments posted double-digit growth, the residential segment makes up more than 50% of the sector in terms of value and around 82% of transaction volumes.
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