By- Elsayed Solyman

* Dubai’s index slump 4%, the steepest decline since May 20

* Arabtec records worst daily loss since October 2008

* Abu Dhabi’s index drop 1% in a thin trade

* Aldar serves as the main drag

* Markets seen by analysts extending decline Tuesday

Stock markets in the United Arab Emirates dived Monday, as UAE Central Bank warned over a new possible bubble in the real estate sector in both Dubai and Abu Dhabi, sparking what was already a pretty steep stock market selloff into high gear.

The Dubai benchmark stock index ringed up its worst daily loss since May 20, falling 4.06% to 4771.1 points, a three-week low level.

“Investors were worry about the future of their investment in this vital sector after the central bank warned over a new property bubble, which is similar to what happened in 2008,” said Nabil Hyder, head of Gulf Research in Al Madina Investment.

On Sunday, the UAE central Bank issued the first official warning about soaring prices, citing low rental yields by historical standards.

“Low residential rental yields in Dubai and Abu Dhabi may indicate growing imbalances and overheating in the real estate sector,” the United Arab Emirates central bank said.

The bank added in an annual financial stability report that there was no build-up of vulnerabilities in the banking system, and it did not indicate that it planned to take any concrete action towards the real estate market.

"Current average rental yields in Dubai and Abu Dhabi are approximately 70 and 130 basis points below historical averages, which could indicate growing imbalances - (an) overheating real estate market," the central bank said.

"Monitoring developments in the UAE real estate markets and the banks' exposure to it remains a core financial stability priority," it added.

When the property crunch hit UAE markets in 2008, the prices had fallen more than 50%, but now they are rising again in a higher pace when compared to era before the crisis, according to Jones Lang LaSalle.

Shares in Arabtec tumbled 9.66%, recording its worst daily loss since October 2008, and its lowest close since late April 21.

Shares in Emaar dipped 3.72%, dragging lower the real estate sector index 5.28%. Drake&Skull shed 2.92%, while Deyyar Development lost 5.34%.

Banks stocks were never better, with the banking sector index losing 4.06%. Shares in heavyweights Dubai Islamic Bank and Emirates NBD retreated 3.04% and 3.66% respectively.

“It was very normal that we see another plunge in banks stocks, as these lenders are already exposed to the property market,” said Nedal Khouly, head of Gulf Research in Nemma Investment.

“We could see the market extending loss Tuesday, awaiting calmness to come back to the market,” he added.

Turnover hit AED 1.66 billion, while volume stood at 465.7 million shares.

Elsewhere, shares on the Abu Dhabi bourse were smacked by blue-chips stock in the real estate sector.

ADX, the main benchmark stock index, fell 1% or 49.76 points to 4948.1 points.

“UAE central bank statements has sent shiver in both market, but we noticed that the pace of drop in Abu Dhabi was slower than Dubai, as the emirate’s government follows a strict measures to prevent any speculations inside the property market,” said Rami Sidani, head of Gulf Research at Schroders.

Shares in heavyweight Aldar dropped 4.29%, while Eshraq lost 7.59%, dragging the real estate sector index 4.61%.

Meanwhile, the banking sector index edged 0.44% lower, as share in Abu Dhabi Islamic Bank and Abu Dhabi Commercial Bank dipped 2.77% and 2.57% in a row.

Shares in First Gulf Bank and National Bank of Abu Dhabi bucked the downtrend and closed higher 0.3% and 1.02%, limiting the market’s losses.

Dana Gas fell 2.35%, while heavyweight Etisalat closed unchanged.

Turnover came in AED 508.9 million, through the trade of 174.7 million shares.

“I think the market could record another loss Tuesday, tracking what may happen in Dubai,” Sidani added.