Dubai Land Department recently announced its transaction statistics for 2015 which indicate an increase of 8% in overall transactions compared to the previous period.
Based on those facts some commentators have claimed that the previous price decline was now a thing of the past, which is – in plain terms – nonsense. We all know that the trading volume says nothing about the direction of the market and a more thorough investigation is necessary to get a clearer picture.
South: Dollar-Strength, Oil Price
The risks are clearly to be seen in the macro-economic factors. With the UAE-Dirham pegged to the US-Dollar, the greenback`s appreciation against most other currencies keeps demand from abroad subdued. Furthermore, the oil-price slump and negative cash-flows into Emerging Markets amplify those effects or complement them. Last but not least, the gloomy outlook on worldwide (and especially Chinese) economic growth and correcting financial markets is surely not conducive to boost international investor appetite for Dubai real estate.
North: Multipliers, Supply/Demand Fundamentals
However, most of the relevant market metrics (as well as „soft indicators“) indeed suggest that the market is back to healthy levels again, possibly building the foundation for the next cycle.
- Overall stable, in some areas increasing rents yield returns of up to ten percent
- Residential demand over the coming five years estimated at 6,5% CAGR, whereas the forthcoming supply is assumed to be a mere 3,6% CAGR (Source: Phidar Advisory).
The latter aspect seems even more compelling if we consider the fact that delivery of 25,000 units was projected to be delivered within the first and third quarters of 2015, allegedly leading to a supply surplus of more than 5,000 units. Reality however shows that only 9,397 units have been handed over, thereby coming short of the estimated demand by more than 10,000 units (Source: REIDIN).
With the approach to World Expo 2020 fueling an increased end-user demand for the years to come, a new price hike becomes increasingly likely, also considering the massive fiscal policy boost of a projected 8 bn US-Dollars to be invested into infrastructure by 2020 (not including federal UAE infrastructure investment into projects such as roads, railroads etc.).
To sum it up I see prices possibly declining further slightly on the back of the weak global fundamentals for a good part of 2016. Looking beyond however, the local market metrics and fundamentals ought to prevail, likely to kick the market off into its next upward trend.
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The author advises institutional investors about property transactions and handles property portfolios in Dubai since the year 2007. Should you have comments or inquiries, please contact the author on firstname.lastname@example.org.