11 May 2018

Dubai: Arbitrage

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Over the last 6-12 months there has been a reversal of trends from off-plan to ready units as money flows switch from the former to the latter. There has been a slump in off-plan sales, while ready transactions remain relatively stable. This phenomenon has already been highlighted in our previous report entitled, “Dubai: Reversal of Fortune”.

The above graph reveals that investors have already re-allocated monies where there has been a discount and in certain cases have started to “arbitrage” away the difference (i.e. Sports city). By the same extension of logic, we opine that there will be a similar move over the course of the year in communities like Downtown and Dubai Marina.

In a city that is rapidly urbanizing, the majority of activity is expected to be in the off plan segment. However, as the city matures, in “microstructure” markets, (each community), the gap between ready and off plan prices becomes one of paramount importance in determining asset allocations.

Despite the incentives offered in the off plan space, investors will gravitate to areas where there is a relative price advantage. This “arbitrage” effect is the overriding factor as investors continue to switch from primary to secondary markets.

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