The Dubai Financial Market plunged to a 10-month low yesterday following massive losses in real estate, banking and investments.

The 5,200-mark was supposed to provide strong support, but the DFM's General Index crashed through this within the first 30 minutes of trading, prompting a sustained decline to send it down 2.97 per cent to 5,095 points. This was its largest one-day reverse for almost seven months and analysts forecast further losses today.

"Yesterday's fall was expected," said Ayman El Saheb, Darahem Financial Brokerage director of operations.

"Real estate stocks were targeted following the Morgan Stanley report saying the UAE's realty sector was slowing down and may see a correction.

"This report couldn't have come at a worse time. Real estate has been the engine of the UAE economy and stocks related to this sector have been among the most promising prospects. The MS report has devastated stocks in the one sector that was most able to lead an index recovery."

Turnover was down on Thursday's total, with Dh766m of shares changing hands, but this fall is more a reflection of the dwindling interest in Dubai's Takaful companies than any slowdown in selling pressure.

Arabtec, formerly Dubai's star stock of 2008, plummeted 9.91 per cent to Dh15.45, which takes its losses 20 per cent over the past week. Emaar also succumbed, falling 3.82 per cent to a 19-day low of Dh10.05.

Yesterday's casualties were numerous as losers outnumbered gainers by 12 to one.

Dubai's four largest stocks all declined. Emaar was one, followed by DFM Company down 6.6 per cent, and Dubai Islamic Bank and Emirates NBD down 3.64 and 3.36 per cent respectively.

These latest declines mean the blue chips have all slumped to milestone lows. For DIB, yesterday's finish of Dh7.67 is the worst since August 22 last year, while DFM ended on Dh4.11, a finish not seen since late October 2007. The decline of Emirates NBD is slight in comparison, with the UAE's largest lender now at a three week low.

Du, Dubai's fifth largest firm, was one of only two gainers and edged it up an inconsequential 0.36 per cent.

"Quite a few stocks are close to psychological supports, including Emaar, which should see some buying to try to keep it above Dh10," said Julian Bruce, EFG-Hermes director of institutional equity sales. "These key stocks, therefore, shouldn't see too much more of a down trend."

The DFM's newest members, Takaful House and Takaful Emarat, crashed as they both fell by more than five per cent.

Mortgage providers Tamweel and Amlak Finance lost 4.43 and 2.4 per cent respectively, while the latter has fallen by more than a fifth in the past two months.

Saheb says the DFM may fall to 4,800 points, although such a decline would prompt a rebound of up to 400 points, which would leave it around 5,200 points and close to where it started yesterday.

A fall to 4,800 points would represent a further decline of 5.8 per cent and its major stocks would suffer a similar fate, Saheb believes, with Emaar slipping to around Dh9.65, DFM Company to Dh3.80 and DIB to Dh6.50. Saheb said: "I would advise investors holding stocks to wait and see what happens – at the moment these losses are only on paper until they sell. The market is bound to recover sooner or later. For people who have liquidity, but are out of the market I would watch closely and slowly accumulate select stocks.

"People may wonder why I say this when the market will probably fall to 4,800, but if it does slip to this level they can buy more at cheaper prices and if it recovers quicker than expected then at least they would have accumulated some bargain stocks."


New real estate regulations

Morgan Stanley's downbeat forecast is not the only reason for the slump in UAE real estate stocks.

"Investors are starting to realise that Middle East property is not necessarily the one-way bet they thought it was," said Julian Bruce, EFG-Hermes director of institutional equity sales.

Media reports the UAE authorities may bring in new regulations to restrict multiple 'flipping' of off-plan properties has also frightened investors. Speculators have pumped cash into new real estate projects, buying properties on the day of sale before quickly selling or 'flipping' the property for a quick profit. The practice has been highly lucrative, with some units changing hands more than a dozen times before completion.

In the short term, restrictions on flipping will have a negative effect on real estate because it will reduce demand and, therefore, prices, but in the longer term equities could benefit because investors would be more likely to instead invest in stock markets.

"In the long term, the market will rally but it's a question of staving off uncertainty," said Bruce.

"If the likes of Emaar or Nakheel release some new projects and these sell well and show that demand for Dubai property remains strong, then investors will be reassured and stocks should move up again."