9 March 2018

Dubai: Come Undone


It is a known fact that most new industries are fragmented and consolidate as they mature. Most new industries follow the Consolidation Curve which can be explained in four stages (i) Opening (ii) Scale (iii) Focus (iv) Balance and Alliance. This trend has been witnessed throughout the world, and we have seen this to be no different in Dubai as well, whether the change is due to an innovation, or, as is the case of freehold real estate, whether it is due to legislative changes.

In the United States, in the first decade after the invention of the automobile in 1885 there were only 30 companies. However, soon after this number increased exponentially to 253 companies as demand continued to increase and by 1929 the number of players had contracted to 44 companies. Likewise, it appears in Dubai as if a similar trajectory is being followed, where the number of real estate developers in freehold has jumped from slightly more than 100 in 2009 to more than 1200 currently (the active number of developers are likely a lot lower). We opine that as the consolidation phase kicks in, the number of developers will shrink significantly (going by the automobile example and others, the shrinkage could be upwards of 75%).

Developer concentration in the real estate market has been evidenced in the off-plan market. Given the fact that the off-plan market accounted for 65% of the transactions in 2017, the market share that the top 3 developers enjoy has not been witnessed in other parts of the world.

We opine that as the market rebalances towards the ready market, over time, there will be a greater breadth of market activity; however, given the supply pipeline, it is likely that concentration will continue to be witnessed in the transaction volumes as smaller developers continue to consolidate.

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