6 January 2017

Dubai: The Course of Asymmetry

An income approach valuation reveals that Dubai property is systematically undervalued to its peers in other emerging markets. Using a basket of 5 cities (Moscow, Sao Paulo, Manila, Shanghai, and Hanoi), we can see that Dubai is the only city that has consistently provided yields above the 7% mark, whereas the average of other cities have trended downwards towards 4.5% level. Using this metric for valuation, we can infer that Dubai is relatively undervalued.

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Dubai has the highest risk premium (2.45%) above the US 10 year treasury, highlighting its relative discount. This reveals that markets rarely trade in a “fair value zone”; instead what transpires is a systemic period of “over and under shooting” around fair valuation levels; periods that persist over elongated periods of time.

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