Understanding the inventory cycle of Dubai realty market

Compared to a year ago the inventory of real estate offerings in Dubai is not, seemingly, being picked up as rapidly as it seemed a year ago. Is this an assumption that is true?

In reality the volume of purchases has actually been more than the past, but given a huge inventory available the impression one gets is that the pace might be slower.

The inventory cycle and the offering need to be better understood to see what is on the market and how it is going to affect market conditions in the future.

The base level of offerings has always been plots for sale for developers, followed by units for sale, and within that scope there has also been raw land for development and eventual master planning into real estate and business proposition.

The flow of projects, whether by intent or a coincidence, has been rather sequential and there has not been too much crowding of the market. Indeed the early projects of Dubai Marina and Jumeirah Lakes, have been in the limelight for a number of years as the master plan build out takes shape. Some of the early developers, and in a sense the trendsetters, have since moved on and are on to the next range of their projects.

Interestingly, the offerings that Emaar Properties and Nakheel have been making are programmed not to crowd the market place, and while announcements of the Business Bay and the Dubai Airport City have been made the inventory in the case of the former is in the shape of plots and not yet released in the case of the latter.

This allows the supply side of the curve to extend well into the future and I would suspect even in their case the offerings of the individual units would happen in time and extend well into the next five year horizon. Thus one can actually visualise a circle of development where as older projects mature and go onto the market with their completions the new projects come in to replace them.

Indeed, the cycle cannot always be assured as new projects do pop up as a surprise, the reality is that a steady stream of real estate is increasing and impression it creates is that there is a pause, on the contrary the dirham value of the purchases has been more but it has been more a steady stream rather than spurts of activity.

The other aspect to consider is the correlation of the real estate market to the stock market.

Traditionally, whenever stock markets have reached their peaks, the corrections in stock market values through profit taking has created the liquidity of cash to invest in the real estate market. In the old days the money from stock market sales used to flow into gold holdings, and in a way Dubai has created an alternate in the form of real estate.

Added to the fact is that a great deal of the construction of these projects is based on cash flows rather than on debt, and even the cash flows are supported by a wide spectrum of end buyers or investors with healthy appetites for longer horizons on their property holdings.

There is no doubt in my mind that there will be adjustments in values and for some the idea of some erosion in prices will be expected. However, one has to see property values over the long run and I would argue that while property may go sick from time to time, it does not die.

The adjustments in values could well be a shifting of portfolios from the early real estate offerings to the more recent ones, as one would expect that more developers are entering the market and their offerings are based on learning from the lessons of the earlier developers. In addition, the bigger players are also adjusting their offerings in the real estate market to a higher end product.

Of course, the trouble is when one shows a high end product to, say, a tier buyer and the impression that the project is expensive develops. It is essential that we weigh the market conditions and see that in various categories there are different buyers.

Finally, I see the possible enactment of a property law to be the most important catalyst for the market, and this is perhaps where the real boost will come to the real estate market. It will clear away any anxieties about freeholds and leaseholds and indeed set the house in order.

Given the overall levels of investments in real estate in the country the question is not if the law will be enacted but more a question of when. My guess is that it is perhaps around the corner.

The writer is the UAE-based president of Sher Consulting.