25 January 2018

Dubai: Survival of the Fittest

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Typically, the emergence of a new technology or opening of a new market results in the rapid increase in prices or valuations. This causes a flurry of new players, dominated by the private sector, entering the market in order to capitalize on the supernormal returns. During the Dotcom bubble there was a surge of tech IPO’s as many investors were eager to invest (301 IPO’s at its Peak). However, soon after the bubble burst the number of IPO’s contracted to low double digits in the subsequent years. The development sector in Dubai had a similar outcome in terms of survival rate of private sector developers between its first and second cycle, which is common in the nascent stage of any new market.

In the private sector landscape, developers rushed to launch projects during the peaks of both the cycles. However, the overlap between common developers in both cycles was only 8%. In the second cycle we can witness that the top 5 private sector developers launched more than double the units compared to the first cycle. This highlights that this time around the private sector developers are better capitalized to take on large scale projects (ala Azizi and Damac).

We opine as the Dubai market continues to mature the private sector landscape will be dominated by a few big players (ala Damac and Azizi).

However, investor concerns on purchasing private sector stock have clearly abated especially with regards to developers that have survived both boom-bust cycles in Dubai.

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