2 September 2016

Dubai: Advocatus Diaboli

The recent discourse within the Dubai analyst community on the direction of the market has left potential first time buyers and investors perplexed. The optimists have taken recent data on transactional activity and price action to illustrate that the market has reached an inflection point. However, the case against any such bull rally is put down by fears of an over-supply and layoffs in certain sectors. These factors are instrumental in putting pressure on demand, consequently causing prices to slip further.

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For instance, the estimates of supply forecast by analyst have harvested fear in the market, as investors and end-users hold of purchases. However, a closer look into the completion rates reveals that the realized units are well below expectations. In 2016, a total of 27,000 units were expected to be handover. However, in the first seven months only 18% (4,769 units) has been handed-over. This is pivotal as the fears of an oversupply are alleviated, eventually causing a shortage of supply pushing prices higher. On the other hand, new off-plan launches with discounted rates and extended payment plans are keeping the market well supplied and prices subdued. Any price rise will be immediately met by developers increasing supply, implying that the best case scenario is for real estate prices to move within a narrow band.

Although, the short-term view between analyst remain in flux, the long term view of the economy remains buyout and dynamic. The consistent rise in population and business activities will counter balance any short-term detrimental effects caused by the oil price crash.

New avenues of tourism (i.e. theme parks), infrastructure, and developments in the run up to the World Expo event will be the key demand drivers for the city’s population. Although, this time around an escalation in prices is expected to be gradual and more consistent compared to the last two bull rallies as the market has begun to mature.

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