3 August 2018

Dubai: Spread Indicators

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An analysis of the spreads between prime and general real estate properties in the apartment and villa segment reveals a compression after peaking in 2014. In the apartment segment the spread has narrowed by 340 psf, while in the villa space by 265 psf. In this cycle, the demand of affordable housing has been higher, consequently narrowing the spread between both segments. However, in the last 12 months, we have started to see a reversal in this trend as the spreads have begun to widen, indicating that on a relative basis there is increasing demand for higher end properties. This widening of spreads is an indicator of a bull market, as was witnessed in the 2012 cycle.

An inter-community analysis between prime and general spreads reveals a dichotomy between Dubai Marina and Palm Jumeirah. In the Marina, there has been a continuing narrowing of price differences between the prime segment relative to the overall market, suggesting that developers have aggregated towards a mean price. In Palm Jumeirah however, the luxury apartment market has outperformed systematically, indicating that there has been greater variability in building quality as well as location, in addition to the “gentrification” effect. We opine that a similar effect will manifest itself in the Marina as well, as luxury demand continues to revive.

A spread analysis on an overall basis indicates that luxury segment is headed for a rebound, as spreads start to widen after the compression that started in 2014 as the mid income housing phenomena started.

Spread widening was witnessed at the inception of the 2012 bull market cycle, suggesting the onset of another general price rise, similar to the phenomena that is witnessed in the global real estate markets.

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