Dubai: The Signal and the Noise

A supply/demand analysis of Dubai’s real estate shows that price action has followed periods of imbalance between the two. In 2008, as supply exceeded demand, prices adjusted dramatically lower, and remained on a downward trajectory, until demand started to exceed supply in 2011. The upward price incline continued till 2014, at which point it appeared as if another inflection point had been reached; this coincided with expectations of supply once again outpacing demand for the year.

However, the fears of a huge amount of oversupply this time around maybe over exaggerated as the completion rate of projects has been 61% in the last 3 years. This lag could possibly lower the surplus pushing prices upwards.

A micro structure price analysis reveals that prime properties have had the greatest correction (26%), whereas the affordable segment had fallen the least (13%). The different rates of price decreases can be correlated to the degree of mismatch of supply/demand in each individual strata. This corresponds to the hypothesis that the real estate market had become top heavy.

The price action of Dubai’s real estate market will be greatly influenced by the rate of completion of on-going projects. If the rate falls below 60% we opine that the lopsidedness will cause prices to trend upwards. However, if developers stay on course and deliver projects as per schedule, the variety of options for buyers and rents will force prices/rents to fall further. This trend will be varying in each individual strata according to its individual supply/demand dynamics. 

To download the full report click here: http://blog.reidin.com/PublicReports/THESIGNALANDTHENOISE.PDF