The mid-income segment of the Dubai property market took the brunt of price declines since the onset of COVID-19, mirroring the job losses and the subsequent rental declines experienced.
COVID-19 was supposed to have been a great “wealth leveler” - instead it has exacerbated the wealth disparity with the levels rising in the last year-and-a-half as asset price bubbles appeared at the top end around the globe, whether with tech companies in stock markets to high-end real estate.
Even as the spectre of inflation threatens to rear its ugly head after being somnambulant for over a decade, the question is: What are policymakers to do to get economies back on their feet as well as restore some semblance of equality in wealth distribution?
For there to be a revival in economic fortunes, the scourge of deflation must be conquered. That conquest cannot take place through austerity measures, but rather through a targeted programme of stimulus measures that revive economic activity and restart the job creation engine. As Lord Keynes remarked: “Were the Seven Wonders of the world built by thrift? I deem it doubtful”...
Need is for more
So it is today. The need to build for the future is not through Victorian self-denial or waiting for deliverance, but by taking action today. To be sure, there has been plenty of incentives announced and implemented, the most recent one being the opening up of citizenship opportunities for expatriates.
However, the process by which the economic engine revives under this formula will take some time. In the meantime, there remains issues that continue to pile up in the medium term, whether through the non-payment of service fees, that then ricochet onto the quality of upkeep of the asset, or the default on offplan instalments for purchases made two to three years ago.
For these issues to be disentangled, solutions required involve a combination of targeted relief and/or expansionary programmes that continue to build for the future and attract talent to utilize the existing infrastructure as well as capitalize on opportunities. These could include simple ideas such as continued mortgage/salary loan relief to more targeted measures such as further reductions in the cost of business/visa setup.
On the expansionary front, incentives such as increasing builtup area allowed for developers on their under-construction projects as well as waiving service fees facilitates the revival of activity.
Brace for correction
The pandemic continues to wreak havoc on the world economy in the background, yet the stimulus measures that have been provided thus far have meant that asset prices have surged, in many cases to absurd levels. It is inevitable that this will spill over to consumer price inflation, which will worsen the situation economically.
An asset price correction will also likely ensue but neither scenario provides for the capital reformation that is so desperately needed at this critical hour. At the top end of the market, there has been a flurry of activity where older houses have been bought such that they could be demolished and constructed again.
Optimism that is needed at this hour is because it is the magic ingredient that propels us forward in the face of seemingly insurmountable obstacles
This indicates multiple variables operating: 1) there is no shortage of capital and risk taking capacity 2) the luxury end is seeing a resurgence where the asset is being valued purely on the land itself, indicating an optimistic overview and 3) this revival is likely going to be time bound as asking prices in many cases have already gotten ahead of themselves.
In a broader sense, the optimism that is needed at this hour is because it is the magic ingredient that propels us forward in the face of seemingly insurmountable obstacles. These optimists may succeed or fail, but in advocating the expansionary and targeted stimulus measures, there is an explicit acknowledgement of Keynes’ vision, which in its simplest form is an expression of radical optimism.
“Down with those who declare we are dumped and damned,” he declared in 1903. For the kind of broadbased recovery that is needed, that statement needs to be imbibed into the very fabric of economic policy.
- Sameer Lakhani is Managing Director at Global Capital Partners.