A wave of IPOs is creating a new investor audience, and those numbers will only be growing
A recent report in ‘Wall Street Journal’ found Americans typically pay 5-6 per cent for a home sale, and that this was unusually high when compared to most other countries.
A jury last month found the National Association of Realtors had conspired to keep commissions high and that these would most likely be lowered in years ahead. For the average UAE homebuyer, the figure was likely met with some sort of incredulity: ‘6 per cent is high?’
In the offplan selling space, we know commissions offered by developers have run into the low double-digits, which is partly an explanation of why offplan sales have accounted for as much as 80 per cent of overall sales at times over the last two years.
It probably explains why nearly everyone you run into is selling real estate these days, implying that there will likely be some sort of consolidation as the number of brokers reduce in coming years. There can be no doubt that the amount of commissions and incentives offered by developers are a significant transfer of wealth to intermediaries, which likely should accrue to the buyers. (Market practice does suggest that more than half does end up in the pockets of buyers in any case, as purchasers wisen up.)
Yet these practices continue to be ratcheted up, to the point where it makes more sense for owners to represent themselves and use lawyers for the closing. Clearly, there is more that needs to be done to reduce commissions (especially in the offplan space) such that the practice of price discovery tilts in favor of buyers.
More market-makers can help
At the other end of the capital allocation and asset manufacturing spectrum, we know there are more registered investors in the domestic capital markets. Yet, even with a stellar performance, this appears to be an underserved market with regards to intermediaries, despite the transparency of commissions and price discovery.
IPOs (analogous to new real estate launches) allow investors to deploy their hard-earned savings towards productive assets. And yet, in the battle for capital in this space, expatriate investors for the most part have historically preferred their ‘home markets’ (or even the American markets) rather than the UAE bourses.
This has started to change and it is not surprising why. Stocks like Salik have been up more than 60 per cent since their IPO, Burjeel by more than 35 per cent, and Empower 22 per cent (not accounting for the dividends that have been paid out) against the backdrop of regional and global turbulence.-
This has been because of superior valuations, their market share (in some cases monopolistic due to the government concessions), and the attractive dividend policies that ensure investors will be well rewarded for their patience, regardless of the direction of oil prices.
UAE’s stock markets seize the moment
In the way real estate assets captured the imagination of the world, so too is a process underway with capital market activity.
As UAE IPOs (most of which trade above their launch price, compared to more than 85 per cent of US IPOs from 2020 that trade below nearly three years later) proliferate, there has been a clamor for increase in advice for domestic advisors and intermediaries.
What we will not see is a spike in commissions in this space. Such is the vibrancy that we have seen private sector companies capitalizing on the surge in demand, with Investcorp Capital just listing and to be followed by Phoenix Group (the region’s first crypto listing). These – and the IPOs from Dubai Taxi and Pure Health – indicate a variety of demand as investors look for all kinds of assets to express their interest in. And companies are showing various levels of innovative techniques as talent continues to come in droves.
Intermediaries play a crucial role in the stability of markets. In the capital markets (with market stabilizers, advisors, fund managers, and brokers rushing to fulfil demand), the stage is set for a quantum increase in volumes and values as DFM and ADX march towards the next global financial market status.
Sameer Lakhani
The writer is Managing Director at Global Capital Partners.
