Buy low, sell high is a logical strategy. Although difficult to implement, especially in Dubai’s volatile market, it is relatively easy to achieve with capital, patience and a balanced perspective. Finding the exact absolute trough/peak is futile; instead a more effective target is acquisition/disposition within a 5-10 per cent range around the respective extremes. Short cycles, quick pivots and extreme price swings mean for investors the opportunity to acquire at a discount or exit at a premium is usually nigh in Dubai.
Now, we start a new investment season and the question remains: have Dubai real estate prices bottomed out yet? Our analysis: this is unlikely. Some key industries are showing signs of relative stability — available business activity indicators are still down compared to two-to-three years ago, yet seasonally adjusted, they are relatively stable over the past couple of months.
Job creation and net job growth are the key challenges and barometers of market prospects. More specifically, the relevant indicators are medium-high to high income job growth. The average investor buys individual units in investment zones, which are primarily affordable to the mid-high to high income segments.
Middle and mid-low income housing are still undersupplied — households in these brackets often live in crowded, rapidly depreciating homes or commute from other emirates. Development of mid-low and middle income homes is challenging and often financially unfeasible. Instead, supply for mid-high and high income households drives trends. Indicators are limited, but the available evidence does not support price stabilisation yet.
Low oil prices and a strong US dollar are barriers for regional economic and job growth. Although Dubai’s economy derives minimal GDP from oil, it is the region’s hub and will not significantly decouple from the industry until the region does. The strong US dollar creates challenges for tourism-linked industries such as hospitality and retail.
In July, property prices were still 34 per cent above 2011 trough prices, according to Phidar’s House Price Apartment Index. Prices are roughly back to mid-2013 levels, during the last upturn, when the oil price was about $100 (Dh367) per barrel. Prices are similar to those in the second quarter of 2009, hit in the previous downturn, when oil was around $50-60 a barrel, a premium to current oil prices. Similarly, the US dollar is stronger than in either period, increasing relative price for foreign buyers in their home currencies.
In the absence of an irrational market run, prices should decline, which will help the market reach the 5-10 per cent range around the trough, a fruitful investment zone.
— The writer is Managing Director, Phidar Advisory
