7 January 2016

Dubai: Building Cycles

Real estate price cycles have four distinctive phases (i) recovery, (ii) expansion, (iii) hyper supply and (iv) recession. Given the supply/demand metrics at play, we opine that Dubai is currently in the recession phase of its second cycle and is expected to enter its recovery phase by late 2016. Although, real estate price cycles are an indication of future price movements, they are governed by underlying fundamentals of supply and demand, capital flows, and business activity.

When measuring price falls and rises, indices are a good indication of the general direction and health of the market; however, they fail to reflect the realities on the ground. Using a Min-Max analysis, although having its own limitations, helps showing the highs and lows of the market. A comparison between two indicators across communities reveals that the drop using the Min-Max analysis is more than twice relative to the indices. This drop is not a reflection of the entire market, but helps showing new levels of price discovery in the form of distress sales.

The strength of the US Dollar has had a significant impact on real estate prices; this has been natural given that non-dollar currency related inflows into the market accounted for nearly half of all investments made in the last three years. The tapering off of foreign inflows has had an impact on declining prices.

Given the shape of shifting dynamics of the current price cycle, alongside the demand for affordable housing against the backdrop of an expansionary fiscal policy, further price declines may be nearing to end, with an inflection point on the horizon. 

To download the full report click here: http://blog.reidin.com/PublicReports/UAE160108.pdf