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Thursday, March 21, 2019

S&P’s flawed guesstimates on Dubai property

by Khalaf Ahmad Al Habtoor

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I was amazed to read a recently released report issued by the credit ratings agency Standard & Poor’s to the effect Dubai’s residential property is likely to see a price fall between 10-20 per cent in 2015 based on the agency’s prediction that “slightly lesser demand will come from non-residents” in particular, Russia and other Gulf States – and a fall in Dubai’s stock index would likely impact investor views.

In reality, the only thing that could have a negative effect on investors is this report based on unreliable guesstimates and unfounded speculation. Ironically, “General investor sentiment is key to Dubai real estate because a large majority of buyers are investors,” reads the report.

No one can argue with that. However, such negativity from this ratings agency risks denting investor confidence and becoming a self-fulfilling prophecy, unless it is challenged by people who are deeply involved in the sector and have a real understanding of trends, rather than scaremongering desk jockeys without hands-on experience, keen to justify their existence. Predictably, the lemming-like media is running with this hyped-up baseless assessment.

I would have expected a credible ratings agency to behave more responsibly. Instead, it harks back to the 2008 property slump that, first of all, was not of the UAE’s doing and, secondly, resulted from a worldwide loss of confidence due to a global downturn triggered by the unprincipled, if not criminal, actions of certain international banks and financial institutions. The Emirates was caught on the hop then, but has since implemented policies to cushion the sector against outside shocks, which Standard & Poor’s acknowledges. In addition, the UAE – and particularly the emirate of Dubai that was hit hard - was one of very few countries that recovered at breakneck speed following the 2008 worldwide recession.

I can say with absolute confidence that demand for Dubai real estate remains quite healthy because, in my experience, as soon as a new project is announced, it is often sold within the first few hours of its launch. And, moreover, if the project is sited in a sought-after location and built by a reputable developer, sales revenues are usually as anticipated and very often more.

Moody’s view is more realistic, than its competitor S&P. Its Investors Service has announced that government spending on infrastructure and its encouragement of foreign investment will support the real estate sector over the coming five years.

A far more balanced report on the country’s real estate market was released by the property portal Bayut in the last week of June. It quotes Dubai’s Real Estate Regulatory Agency (RERA) explaining that “a heightened demand over the last two years did drive up prices rampantly, but as usually happens in demand driven markets, the values correct themselves in the coming periods of stabilisation.”

“Secondly, the regulations by Dubai government imposed last year to ease speculation and avoid market overheating have started to bear fruit. The effects of a mortgage cap and hike in registration fees have now become pronounced and are pushing the market towards stabilisation, while helping it lose some of the excess weight it put on earlier. ”

Another factor cited by the RERA includes slow global growth predicted by the International Monetary Fund (IMF); it nevertheless highlights the fact that “global power houses like New York and Singapore lost 4. 4 per cent and 12.6 per cent of value, respectively” between March 2014 and March this year, compared to only 1.1 per cent in Dubai.

The above translates to investing in the Emirates is still a better bet than many of the world’s wealthiest metropolises. And as a bonus for prospective owner-renters, the Global Property Guide believes that rents in Dubai are among the world’s highest yielding an income of 7. 21 per cent as compared to 2. 72-3.20 per cent in London and 2. 83 per cent in Singapore.

If the market is, indeed, stabilising over time then that is a positive. And rather than erode investor confidence that will increase it because investors tend to be very wary of over-heated markets. If certain sectors have come down off their highs, this signals great investment opportunities and a chance for would-be homeowners to find more affordable residences.

Another reason given by Standard & Poor’s for its gloomy outlook for Dubai is its expectation that weakened oil prices will endure until the end of 2016. That is truly poor analysis. Fact is Dubai’ s economy is diverse and non-oil based and as rightly highlighted by Bayut, “The on-going price crunch has had little or no effect on a government spending that no more relies exclusively on petro dollars”. Dubai’s economy is expected to grow by approximately five per cent this year, according to IMF projections, which shows that oil price fluctuations are not a significant factor.

One of the most upbeat projections for 2015 is found in “The Europe, Middle East and Africa Luxury Residential Real Estate Report” compiled by Sotheby’s International Realty partnered with Wealth-X. Researchers have pinpointed Dubai’s potential to emerge as the fastest growing hub for the mega wealthy, lured by the Emirate’s cosmopolitan lifestyle and competitively priced luxury properties, and hold-up Dubai’s property market as one of the best performing in the world.

I still recall how the foreign media gloated over Dubai’s misfortunes in 2008 predicting near to apocalyptic scenarios centred upon Dubai crumbling into the desert sands. The proof is there for all to see and marvel at. Not only has this incredible city recovered, it recovered boldly, reinventing itself to stand tall again with an economy that is more vigorous and diverse than ever, offering investors solid gold-standard opportunities unavailable elsewhere.

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