17 December 2015
Dubai: The Tautology of Supply
During 2014, there was a plethora of supply estimations that analysts put forward for the number of completed units in 2015. This number ranged from 22,000 to 25,000 units. However, when measuring the actual completed units in 2015 (Q1-Q3), there were only 9,397 units completed with approximately another 3,000 units expected to be handed over by the end of the year in monitored areas. The gap between expected and realized units is due to developers slowing down the rate of handover in response to declining prices, and this trend is expected to continue as markets adjust to lower demand; implying that concerns of oversupply are exaggerated.
Given the low completion rate of approximately 40% by the end of the year of 2015, we opine a deficit of approximately 10,000 units had occurred in 2015 compared to a projected surplus of 5605 units. If completion rates continue at this pace, demand will continue to outstrip supply causing prices to move higher, especially on account of a continuing expansionary fiscal policy in the run up to World Expo 2020.
In 2016, the projected supply has increased to more than 25,000 units due to the delays of various projects in 2015. However, an analysis of completion rates for various 2016 projects leads us to believe that only 31% of the stipulated supply will be completed causing a ripple effect in coming years. If demand continues to outstrip supply, we opine that prices will begin to accelerate again (albeit at a modest pace), making today’s price points an attractive buy given the factors at play.
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