Impact of Financial Crises in the UAE - Research Paper Example

?   Impact of Financial Crises in the UAE           Impact of Financial Crises in the UAE The worldwide financial disasters have made a number of nations go into a profound recession. The impact of the financial crises seems to have gone past the imagination of leaders of foremost economies. The administrations of various countries have taken and continue to adopt unseen, significant actions, but we need to watch and wait for the results. Moreover, real estate investment is an essential contributor to household welfare, urban development, and growth of an economy. Also, construction highly contributes to the economy of a country. These sectors intensify and make the financial structures extra adequate by assisting in lessening informal sources of finance, enhancing access, and assisting in mobilizing savings. In addition, real estate lending, including development and commercial investments have the capacity to make the financial system to be unstable, predominantly if connected to speculative and recurring market dangers, as highlighted by the continued worldwide financial calamities (Fried, 2012). This paper will look at the effects of financial predicaments in the real estate investment sector of United Arab Emirates. Growth of Companies  At the start, the companies which were affected were those which were engaged in mortgage lending and home construction in a direct way. This is because the companies could not get financial support through the credit sector. Almost one hundred corporations became bankrupt in the recent recessions. The growth of companies has been slowing down after the recent recessions. House building companies, despite the tremendous discounts they have been giving on their works, have found it difficult to make sales. This is because a large number of companies cannot contend with the mark down in value in the largely suffering resale sector (Fried, 2012). A large part of house sales made by real estate companies now incorporate foreclosure. This is an indication of persistent market failure. Moreover, foreclosures are becoming a prominent component of the limited market situation that they are increasingly being used as the standard. Also, manufacturing companies have sharply decreased their activities thus lessening their growth (Fried, 2012). Individuals are no longer able to buy new residences, which mean that house constructing companies are compelled to desert construction assignments. Think of all the materials that are employed in furnishing and constructing a household; all the companies that develop these materials, in general, have suffered decreased sales to create market value. Manufacturing companies, already suffering deterioration, are falling in a dramatic manner. These companies are also filing for bankruptcy after shutting down a number of their dealerships and factories, despite unparalleled economic assistance from the United Arab Emirates governments. Also, a number of chief companies have crashed, taken over by the different governments, or attained under constraint. Growth of Investment The financial crises have also had an impact on the growth of investment in the United Arab Emirates. The financial predicaments have caused a spectacular alteration in the purchasing decisions of home owners and have had a tremendous effect on the revival of the property markets in the United Arab Emirates. The financial crises have caused a decline in the growth of investment. Several studies conducted in the United Arab Emirates indicate that the financial issues have had a significant impact on the purchasing decisions which are made by home owners. The outcomes indicate that over 50% of home owners have a feeling that the financial problems have had an impact on their property purchasing resolutions. In addition, almost 33% of homeowners are waiting for the property values to stabilize before they can take part in the real estate market (Schweizer, 2009). It has also been highlighted that prior to the financial crises there was a common swing away from purchasing real estate as assets and properties continued to go up at their quickest speed in recent times. In this case, properties were not being sold as home owners were being priced out. After the recent economic turmoil, declining real estate value has made home owners feel financially insecure because residents have become a prime of perceptions of wealth or basis of wealth (Brunnermeier, 2009). In addition, a cruel circle of financial problems coupled by diminishing real estate markets have corroded the demand for real estate further. Nonetheless, more careful companies and investors have attempted to move to other Gulf countries. In reassessing their investment techniques, the owners and management of a number of companies feel secure investing in different Gulf areas. This is because they are in a similar area, can serve similar customers, and are assured of a stable economic environment due to consistent laws and a conservative approach. Creation of Employment Opportunities  The financial crises have also caused a reduction in the creation of unemployment opportunities. A number of companies have retrenched a section of their workers. The United Arab Emirates’ financial market has lost almost 70% of its economic value following the recent financial predicaments. In addition, the real estate and construction sector has slashed almost 15% of its labor force during these financial problems. Also, job losses and lack of employment opportunities have extended to other sectors, including the financial sector. In addition, employment opportunities have been further hampered by construction projects that have been delayed or cancelled in the United Arab Emirates (Schweizer, 2009). Moreover, surveys indicate that a large number of people are demanding that their residency permits should be revoked due to inefficient or lack of employment, and loss of jobs. Also, an extended financial deceleration has had a negative effect on the existence of susceptible employees in the area, including tourism, remittance flow, and the sizeable population of migrant employees. Growth of Listed Companies in the Stock Markets The economic crises have also caused remarkable turnaround of affluence for stock markets in the United Arab Emirates region. The decrease in equity assets in the United Arab Emirates region is astounding, and in large sums of money. This has caused a slowdown in the growth of listed companies in the stock markets. Studies indicate that the stock market markets have declined by almost 40% since the beginning of the financial crises. Prior to the financial crisis period, the United Arab Emirates markets had a tremendous growth feat, facilitating the thought that it existed away from the series of more developed regions. The region had initially survived the previous economic crises. Nonetheless, it also was affected by the worldwide financial crisis (Brunnermeier, 2009). Studies have shown that the growth of listed companies in the stock market fell by over 50% during the crises. This is because of the fear by the companies and investors losing money. Share Price Trends and Details of the Trends The most noticeable indicator of a probable financial problem to appear in any region is a slump in equity markets. The financial crises have had a negative effect on the share price trends. The United Arab Emirates stock market has been on the rise since the inception of the region. Many of the asset classes, including real estate have been performing satisfactorily during this time. These extended asset success periods blurred threat awareness with a notion that things will continue to improve. Nevertheless, large component of the asset classes dropped when the region got hit by the financial crisis. The financial crisis has caused tremendous declines of value for stock markets all over the world, thus also affecting the share price of companies in the United Arab Emirates (Schweizer, 2009). The share prices drop after stakeholders start losing confidence in the market and then there is less trading for different companies in the stock market, resulting in the decrease in the share prices. Share prices have dropped for more than 50% during the financial crises. References Brunnermeier, M. (2009). Deciphering the liquidity and credit crunch 2007–2008. Journal of Economic Perspectives, 23 (1), 77-100. Fried, J. (2012). Who really drove the economy into the ditch? New York: Algora Publishing. Schweizer, P. (2009). Architects of ruin. New York:  HarperCollins. Read More