19 August 2016
Dubai: A Tale in Three Markets
An analysis of the relationship between the Dubai real estate market, Financial Markets, and global oil price reveals certain trends are underway. Historically there has been a low correlation between oil and real estate price action. However, in the last 6 months the relationship has dramatically increased as concerns have amplified of the impact of oil prices on real estate activity.
Similarly, there has been a moderately positive correlation between the equity and real estate market. This relationship has inverted in the last 6-12 month, as the equity market rebounded by more than 25% from its lows. Mean reversion suggests again that the relationship is expected to normalize, suggesting an imminent rise in real estate prices.
A lagged correlation between the number of units launched and the subsequent impact on real estate prices confirms an intuitively understood relationship. Given a two to three-year lag, there is a strong negative correlation between the number of units launched and the level of price activity.
This relationship has been empirically observed to be stable for over a decade, implying that part of the subdued price performance has been attributable to the number of launches that have been witnessed. Given the stronger relationship that exists between the ready supply and price levels, however, an internally consistent paradigm implies a gradual increase in price levels, something that has already started to be observed in select communities.