Dubai property market: New Fitch report needs a deeper look

The recent report on Dubai real estate published by rating agency Fitch was met with a flurry of rebuttals by the sell-side community.

Despite the fact that it has become obvious that not only has price growth levels moderated and in some instances fallen, but even accounting for lower ‘actualization rates’ in deliveries, supply now looms large over the horizon.

This goes back to the old adage of ‘there has never been a shortage that has not been followed by a surplus’.

In Business Bay, for example, prices have been essentially flat for more than a year-and-a-half, even as new launches have been snapped up at increasingly high prices. This has not been confined to Business Bay alone, but has been witnessed in areas such as JLT, Al Jadaf and, more recently, in Arjan and JVC as well.

But the real question perhaps to ask is whether a price correction is actually a bad thing in the current environment. If we were to accept Fitch’s analysis, there is no talk of a crash, but rather a moderate correction, that would in fact allow a new category of buyers entering into the market that have been hitherto ‘locked out’ given the runaway prices.

Allowing this increased subset of buyers into the marketplace surely should be part of the focus of regulations. (Increased homeownership paves the foundation for increased wealth.) And if, as the Fitch report indicates, developers and banks are well capitalized to account for these anticipated price declines, then surely the recommended course of action would be to capitalize on such price action to entice the resident population base rather than rely on the influx of new expatriates that hitherto have been skewed towards the luxury end (which is incidentally the most vulnerable to the downside price action, especially since an increasing percentage of new builds is focused on catering to this subset).

Instead, the response from analysts and influencers have been that sales remain unaffected, launches continue at a blistering pace, and some have gone even as far as to suggest that real estate is ‘safer’ than capital markets given its lower price volatility. And that is the reason why the rich have been buying more homes rather than less.

Each of these points can be scrutinized, but the underlying dynamics are essentially:

All of this is to say that the debate should not be focusing on the denying the analysis (we have plenty of naysayers already). But rather offer a more nuanced analysis on a community-wide approach by looking at where the supply/demand mismatch is greater, and where there could be opportunities for investors to rotate into as attractive pricing opens up.

This is true for retail as well as institutional investors. (In as much as there is a surge in demand for retail and hospitality assets, there is also a ‘dutch auction’ process underway for some luxury hotel properties.) The rapid expansion of the market size has entailed that there are a myriad number of ways to dissect the data. In that light, the Fitch analysis is merely the first in a series of international reports that should be debated on its merits and for the opportunities that are implied therein.