18 December 2014

Dubai: Shocks, Shifts & a Return to First Principle


Recent exogenous shocks in the oil and currency markets have led to concerns about the resultant ripple effects that already have and will continue to reverberate throughout the real estate market. Undoubtedly, there has been a correlation between the oil and real estate markets as well as the stock markets. This correlation implies that the recent sell off will have an adverse impact on real estate prices, especially in the trophy segment as Russian buyers were predominantly purchasing at the higher end of the spectrum.

A longer term correlation between oil and real estate prices is much lower, implying that there have historically been very little impacts of oil prices taken place. On the other hand, the long term correlation remains high with the equity markets. This high correlation indicates that there is likely going to be a softening at the higher-end of price range in the real estate market (by approximately 15-20%), unless equity prices recover in the near term.

Correlations between real estate and other currencies (Euro and GBP) have also been high. Especially Euro and recent Dollar strength reaffirms our analysis that cash returns from real estate will dominate over capital gains as the market has entered “The New Normal”.

A return analysis of major asset classes over an 8 year cycle reveals that real estate has significantly outperformed other asset classes, including gold. Given the recent turmoil and the correction that is already underway, investors would be well advised to return to first principles by looking at the longer term fundamentals that remain firmly in place.

Note: Unitas is the author for these research reports and REIDIN is the sole data provider for these research reports.

To read the full report click here: http://www.reidin.com/news/showNews/ae_reidin-reidincompnews-20141219-1/dubai-shocks-shifts-amp-a-return-to-first-principle.html

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