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Tim, clearly the property market in Dubai presents some bargains but the same could be true for the stock market too. Which one is likely to be the best bet going forward?
–Steve

 

Read on for Tim's response.

Steve, clearly this is crystal ball stuff you are referring to here and I will not be drawn into a definitive answer as to which one should befit your investment buck. Most of us recognise that the recent downturn, while tragic for some, has presented opportunities for others.

Let’s debate both scenarios using the United Kingdom as a benchmark since we have some historical statistics there. Once again, the great “get out” in the classic adage that past performance is no indication of future returns; at least it does give us a start.

The FTSE 100 has jumped 35 per cent since its March lows and investor confidence remains high. The FTSE had its best monthly performance for six years in July, and with dividends reinvested, shares have made 1,474 per cent in real terms over 50 years (or 5.7 per cent a year).

Over the long term, equities have greatly outperformed property. Over 30 years, equities outstripped property more than six times – returning 692 per cent against 108 per cent (or 7.1 per cent and 2.5 per cent per year respectively).

Over 20 years shares are up 145 per cent (or 4.6 per cent a year), against 34 per cent for bricks and mortar (1.5 per cent a year).  If you had pocketed dividends, instead of reinvesting them, you would have outperformed property only over 30 years – with a return of 144 per cent, against 108 per cent for property. The investors who made the biggest returns over the long term have been those willing to back the market in turbulent times. Is that not where we are right now?

Conversely, Warren Buffett has dumped stocks in the belief that the rally has run out of steam. His spending on shares has fallen to its lowest level in more than five years. His firm spent just $350 million (Dh1.2bn) on equities in the three months to the end of June, compared with $2.6 billion on bonds.

However, the Royal Institution of Chartered Surveyors (RICS) said recently that the balance of surveyors reporting a rise in prices against those reporting a fall rose to –8.1 last month from –17.6 in June. That’s the highest since August 2007 – when the credit crunch first hit world markets – and marks a run of improving figures since the start of the year. Price performance data released by Nationwide shows prices have risen 1.3 per cent since the start of 2009 and the building society feels there is a “reasonable chance” they will end the year higher than where they started.

Steve, go with what you are comfortable with and don’t over-extend yourself. I tend to find that property purchase is very emotive, and you will have challenges sourcing finance if needed. If you are not comfortable picking (and more importantly continually monitoring) stocks then get professional help.

Notwithstanding all the above, I agree, there are opportunities aplenty and the UAE has its unique offerings.