16 February 2018

Dubai: Back to First Principles

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As Dubai housing stock continues to grow we have witnessed a greater demand in the off-plan market compared to ready. The below graph highlights the off-plan launches by quarter from 2013 to date. However, in the last quarter of 2017 we have seen a drastic fall in launches followed by a slow start in 2018. We expect the pace of launches to continue to taper over the next few quarters especially as the flurry of incentives that developers have given has been exhausted; consequently, it is likely that focus will now start to shift on deliveries and that the pace of launches will slow down from its torrid pace in 2017.

Given the outperformance of the off-plan market in most observed communities in 2017, the amount of monies that were allocated to the ready space was less than 1/4th of the overall monies invested. Predictably, this led to a widening of the gap between off plan and ready prices (a phenomena witnessed globally).

We opine that mean reversion will occur as investible monies start to rotate into the ready space, to a point where the price gap reaches mean historical levels. This implies an upward trend in the secondary market.

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