Trust in solid foundations
When it comes to investing, Abdulhakim Binherz, like many Emiratis, has a fondness for property.
As the US dollar, which is pegged to the UAE dirham, strengthens against all the world’s currencies, this has made investing in emerging markets such as Egypt much more attractive, says Mr Binherz, a banker turned lawyer.
The Egyptian pound has dropped nearly 6.5 per cent in the past month versus the US dollar as the central bank of the Arab world’s most populous nation moves to stamp out a thriving black market trade in hard currencies.
“Egypt is my favourite place,” says Mr Binherz, 53, at his Dubai law firm, named after him, in Deira. “Egypt real estate is always going up because of the population and the currency. With the currency devaluing, now is a good time to buy in Egypt. One dirham now equals two Egyptian pounds. It’s very good because we have the dollar linked with the dirham.”
Egyptian real estate is considered a safe bet by many, especially Egyptians themselves. The country boasts a population of more than 90 million and is growing at a rate of about 1.66 per cent (the global average is 1.15 per cent, according to the World Bank).
And each year there is also a shortage of at least 350,000 units to meet demand of newlywed couples, analysts say. Most Egyptians also pay for property in cash or instalments and the mortgage market is negligible. That makes real estate much more resilient to downturns in the economy, especially since the investment can also be used as a hedge against inflation.
It’s not just the Egyptian pound that has weakened against the dollar, however, but almost every other global currency. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, gained 11 per cent last year, the biggest annual gain since 2004 as the US economy outperformed its peers. That has made it attractive for holders of the US dollar or those currencies that are pegged to the greenback to invest almost anywhere in the world. Mr Binherz says he also likes Hungarian and Jordanian property and is always on the lookout for new opportunities.
“I would say most UAE nationals only believe in real estate investment — local and international real estate — because they feel it’s more secure,” says Mr Binherz. “Even if the real estate market drops, it will not drop substantially. That’s what they believe in.”
It is hard to generalise about where wealthy Emiratis invest their money. The country has one of the top 10 per capita incomes in the world at $63,181 and has one the highest concentrations of wealth, especially in Abu Dhabi. The emirate is home to the Abu Dhabi Investment Authority, one of the largest sovereign wealth funds in the world with an estimated pot of more than $700 billion in diversified assets. But bankers say that, traditionally, Emiratis prefer property as an investment, judging it as a less volatile asset class than stocks.
“Real estate has proven to be successful for them over the past couple of decades, so it has a positive track record and it generates good yields,” says Khaled Sifri, the chief executive of the Dubai-based Emirates Investment Bank. “So it’s an important component of their investment profile. Real estate is probably more prevalent in their portfolios than stocks. That’s just a general sense but there are no reliable statistics.”
That has not stopped some from trying to figure it out. According to a recent survey by Abu Dhabi Islamic Bank of 1,213 residents holding accounts of more than Dh10,000, 54 per cent of Emirati respondents said they would invest their money in property, followed by 31 per cent who said cash and deposits and 27 per cent in gold, silver and oil.
Some bankers, however, such as Gary Dugan, the chief investment officer at National Bank of Abu Dhabi’s wealth management division, say they are beginning to see a willingness within the local population to diversify away from real estate.
Mr Dugan has been telling his Emirati clients that investing in Indian stocks and bonds is a good hedge because while the UAE may suffer from lower oil prices, India, a net importer of energy, is benefiting.
The price of crude has plunged by about 60 per cent since June. The UAE, which relies on oil to fund more than 60 per cent of its federal budget, is the world’s eighth-largest producer of crude. Oil makes up 39 per cent of the UAE’s GDP, according to Moody’s Investor Service. Those statistics have made the rich more willing diversify their investments, bankers say.
“I found that people had a better balance in 2014 than they have had for some time,” says Mr Dugan. “Although you do get challenged sometimes when I say buy this or buy that, like India, and I’m told: I can make so much money in the real estate market.
“I was having less of those conversations last year. And I was saying that you diversify risk with India because they benefit from lower oil prices, unlike this region. In 2015, we’re definitely seeing that people are more interested in investing in the bond market, they definitely have some appetite for gold.”
Mr Binherz says that before the emergence of local stock markets in the late 1990s, most Emiratis tended to invest in property.
But when a spate of initial offerings began to hit the market 15 years ago, local investors turned to equities with gusto, he says.
However, when equities took a turn for the worse in 2008, many retreated back to the safety of property, Mr Binherz recalls. Now they are much more cautious when it comes to stocks and prefer structured products offered by banks that guarantee capital protection.
He should know. The former banker left Emirates NBD last May after 33 years to launch Abdulhakim Binherz Advocates and Legal Consultants, which provides general legal services, including civil, criminal, family law, marriage, Sharia law and real estate, among others. He previously led the merger of Emirates Bank and National Bank of Dubai in 2009.
He adds that bonds have never been popular among Emiratis because of an Islamic proscription against interest. The rise of sukuk, or Islamic bonds, which offer a profit rate instead of interest, are becoming popular among investors, Mr Binherz says.
Still, many bond fund managers complain that local investors are not diversified enough.
“For investors in the region, they should really start thinking about allocating much more to fixed income,” says Mohieddine Kronfol, the chief investment officer for fixed income and global sukuk at the Dubai-based Franklin Templeton Investments Middle East.
“Generally, we live in an environment where people are fond of equities, fond of real estate,” he adds. “They’re not that aware of fixed income. They don’t have a habit of investing in it. It would do them a world of good in diversifying their portfolios and reducing their risk.”
When it comes to how to invest, Mr Binherz says most Emiratis, with the exception of the super-rich, prefer to invest on their own, bypassing the need for a private banker.
Undeterred, private bankers have been opening offices in Dubai at a pace not matched since before the financial crash of 2008 and there are now more than 60 private banks based in Dubai. Banque de Luxembourg and La Cloche Wealth Management, a Swiss private bank, have been among asset managers that have opened up shop in the Dubai International Financial Centre in the past 12 months.
But Mr Binherz says he does his investments on his own, using the internet to look for real estate around the world. He says that UAE property is no longer a bargain after prices more than doubled since the financial crash.
“I manage my own investments, maybe because I was a banker,” he says. “To be honest, I cut out the middle man.”
So what are his preferred investments?
“Frankly speaking, I would trust only real estate. Although I am a banker, I have full belief in real estate. Thank God I have never burnt my fingers. This year, I will be investing in more real estate. You have to look in the international markets.”
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Updated: February 13, 2015 04:00 AM