World markets witnessed a crash in March 2008, but we in Dubai felt it only by October 2008. Everyone finally agreed that world’s economies are inter-dependent.
That logic prevails in the long run. Everything that goes up, comes down and nothing can trend up infinitely. The pace at which this happened here surprised everyone.
During the fourth quarter of 2008, the demand-supply equation took over and ensured that economics prevails in the long run.
Healthy and steady growth is cherished in every asset class. Over the last six to nine months, Dubai’s property prices have started trending upwards. Market watchers are suggesting that the bottom is finally in place. Real estate prices are higher by 10-15 per cent year-on-year across most freehold projects.
Some leading developers have timed their new project launches as part of this trending market in the last couple of months. Investors are queuing up to grab newly launched units, which will be ready in couple of years.
Does this signal that demand exceeds supply? Or are Investors back with the aim to make quick bucks?
For end-users, there are ready residential units waiting to be occupied in nearly all the developments. Pessimism is parked away and investors only have smiles for this price improvement.
Does this point towards irrational exuberance or is it a definite case of behavioural finance? Behavioural finance seeks to combine behavioural and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.
Herd behaviour is the tendency for individuals to mimic the actions of a larger group. Individually, however, most people would not necessarily make the same choice.
Let’s not build up the spiral which lead into the 2008 meltdown. The world is struggling with macro-economic issues.
The euro zone has the potential to drag the global economy lower. Trillions have been pumped across the globe — to stave off recession and billions are being requested to keep economies and financial system afloat. India, Russia and Iran are being hit with their currency tracking new lows to the dollar.
The Brent is below $100 and that’s impacting GDP of all oil-exporting countries. The UAE’s economy minister cut his forecast for the country’s GDP growth this year, predicting expansion of around 3 per cent, after a sharp fall in global oil prices over the last several weeks.
Predominant factors behind the recent price improvement in Dubai real estate are:
• Buyers looking for a home away from their home country.
• Mortgage Finance is easily available in 2012 than it was until last year
Price improvements are sustainable if it they have a solid foundation. It’s healthy to see prices grow at a trotting pace, but a grave concern when they are in gallop mode.
Dubai is a great place for investors and has always rewarded those with foresight and patience. While it’s tempting to follow the trends, an investor is generally better off steering clear of the herd.
Just because everyone is jumping on a certain investment bandwagon doesn’t necessarily mean the strategy is correct. Always do your own homework before following any trend.
— The writer is an independent market analyst.
