Introduction
Welcome to the Two Fat Brokers podcast. Barney from Dubai and Ben from Abu Dhabi discuss a recent report from Fitch, the ratings agency, suggesting a potential decline in Dubai real estate. This episode dives into the details of the report, the factors influencing the market, and the hosts' perspectives on the future of Dubai's property landscape.
Fitch Report: A 15% Decline?
Over Supply Concerns
Fitch predicts Dubai real estate will decline by not more than 15% in the next year and a half due to oversupply. They estimate 210,000 new units will enter the market during this period. Barney finds the report's lack of detailed supporting information noteworthy. Several figures like Lewis Alop and Faras Madi have also commented on this prediction.
The Counter Argument: Visa Issuance
Despite the concerns, there's an argument against a significant downturn. Approximately 15,000 new visas are being issued in Dubai each month. Annually, this equates to roughly 170,000 new residents. Considering an average occupancy of 2.2 people per unit, a continued influx of this magnitude could offset the oversupply.
Population Growth and Market Dynamics
Slowing Growth Rate
While population growth has been rapid, it's unlikely to continue at the same pace. Many who were eager to relocate to Dubai may have already done so. The "breaking point" that pushed people from Europe, the UK, and parts of the US may have passed, leading to a potential stabilization.
The Scale of New Construction
Jones Lang LaSalle estimates there are approximately 800,000 units in Dubai. An additional 210,000 units would represent around a 20% increase in supply. Anecdotal evidence suggests substantial construction activity, with roughly one new tower being handed over for every four existing towers in areas like Dubai Hills, JLT, and the Marina.
Apartments vs. Villas
Different Market Segments
The hosts emphasize a distinction between apartments and villas. While apartment values may be more susceptible to decline, they believe ready houses, particularly those in prime locations, are more likely to maintain their value.
Location, Location, Location
While new housing complexes are being built further out in areas like Damac Hills 2 and Dubai Lagoons, prime locations closer to the city center should fare better. Location is critical when navigating potential market fluctuations.
The "Dead Cat Bounce"
Understanding Market Correction
The hosts discuss the concept of a "dead cat bounce" to illustrate the potential market correction. A seller's market pushes prices up, but at some point, buyers become hesitant. This leads to price reductions and a temporary standstill in transactions. The concern is that widespread hesitancy can exacerbate any necessary correction in the Dubai real estate market.
Supply-Driven vs. Economy-Driven
The Fitch report suggests a supply-driven drop, which is unusual. Most housing crashes are linked to economic downturns. It's surprising that projects coming online now were likely launched in 2022 when the market was already booming.
Conclusion
The future of Dubai real estate remains uncertain. While oversupply is a valid concern, ongoing population growth and the distinction between apartment and villa markets add complexity. Predicting the future is a risky business. The Two Fat Brokers will continue to cover these developments as they unfold. Don't forget to like and subscribe to the podcast.