Fund flows will reset Dubai property values
Despite Dubai’s property transactions rising for the first five months, the literature on real estate is still replete about prices falling … and of an unquantifiable supply pipeline. It is absurd that this issue still dominates the zeitgeist given the fact that actualisation rates have been nearly half of what has been forecast for the last five years.
But these create a toxic cocktail and cloud the investment outlook. As brokers continue to struggle to come up with inventive methods of selling, the analyst community (whatever little remains of them) has stated that for now there appears to be no end in sight to the downturn. Instead of focusing on precedents in other markets where prices fell below replacement value and observing how long it took for a recovery to take place.
The rise in transactional activity implies that Dubai is going through such a cycle right now, where the amount of long-term funding is rising on expectations of higher future profits. This hypothesis (first postulated by Hyman Minsky) states that as risk premia for asset prices increase, along with liquidity preference, stable longer term finance starts to appear on the horizon. At some point, it leads to a revival in asset prices.