Altitude sickness


Over the last month, I have been travelling to visit investors across the Middle East and Southeast Asia. One question has cropped up in conversations across all eight countries and that is whether we are at the bottom of the real estate market or perhaps slightly awkwardly for Islamic investors, whether we are at the top of the interest rate curve.

I need to confess at this point that I am no mountaineer but having watched many films and read a number of books on alpine adventures over the years, I would consider myself an armchair enthusiast. And looking at interest rate curves for the US, UK and Euro area since the global financial crisis, it is no wonder that investors are suffering from altitude sickness.

More than a decade of life in the lowlands did not provide the training needed for the steep ascent of the last 18 months or so. To make matters worse, there has been no chance for acclimatisation, with almost relentless increases at every rate-setting meeting. Enough movie-watching over the years has warned me that such a climb will take its toll on the participants involved.

It is these persistent rate increases that remain unnerving to Islamic investors, as the benchmark interest rates have a fairly direct impact on real estate pricing either from the cost of finance or encouraging would-be participants in the market to continue to enjoy the returns of keeping their cash on deposit, whether that is in Bahrain or Brunei.

A mountaintop plateau would work, perhaps not dissimilar to the one we experienced in Argentina as a family back in 2019, as having climbed and climbed (or at least the car did!) up into the Andes, we were rewarded with wonderous views at the top and some respite for the woefully underpowered hire car.

Forward curves have been promising an imminent peak for the last six months, but it still remains not quite here, with the latest graphs predicting a New Year gift of at least no further increases. Time will of course tell, and coming back to the initial question of whether this is the bottom of the market, my response has been that it could be within the next six months, but we will only know it when it has gone.

The downhill run is always fun, frequently fast, with gravity on our side and markets breathing in the luxuriously thicker air. Not wanting to finish on a downer (pun intended), I will ignore the inconvenient truth that more climbers die on the descent from Everest as do on the ascent. Let us consider ourselves by now mountain-fit and look forward to lower altitudes ahead.

Written by Philip Churchill, first published in Islamic Finance news Volume 20, Issue 42 dated 18th October 2023.