The Dubai stock market has increased by 52% so far during 2014 with the vast majority of this increase associated with property/real estate companies. Despite the fact that tensions in the Ukraine are causing major problems for emerging markets, it seems that the Dubai stock market is currently immune from this with real estate shares certainly in demand.
When we say “currently immune” this is beginning to sound like the 2008/09 Dubai real estate crash which was initially prompted by the US mortgage crisis. During that difficult period a number of overseas investors ploughed enormous amounts of cash into the Dubai real estate market as other real estate markets around the world collapsed. However, this so-called “immunity” from the worldwide situation did not last long and when the collapse finally came it was catastrophic, very quick and left many investors and companies financially destitute.
What is pushing Dubai real estate today?
It would be wrong to suggest that the current valuation of Dubai real estate is anywhere near as stretched as that seen in 2008/09. We have a more stable financial sector, new regulations to control speculative investment and the area itself is stronger in an economic sense than it was in the recent past. However, perhaps one of the most worrying aspects of the ongoing rise in Dubai real estate shares is the talk of takeovers, mergers and amalgamations in the sector.
Quote from PropertyForum.com : “The Dubai real estate market has been on something of a rollercoaster since the turn of the century. How you see the market performing in the short, medium and long-term and what will be the major influences?”
When companies consider using their “stock-market paper” to take over their competitors and their competitors are looking to sell up, perhaps this is a sign that the market is beginning to move into stretched territory?
Should we be concerned?
At this moment in time with around $8 billion of infrastructure spending planned ahead of the World Expo 2020 there is certainly enough in the pipeline to justify the current buoyancy of the market. Indeed Emaar recently announced that it expects to triple profits by 2018 due to the buoyant market and the fact there seem to be so many real estate/infrastructure projects in the pipeline.
While it is difficult and dangerous to depend upon one particular income stream, i.e. the Dubai authorities investing in infrastructure, this improvement in infrastructure will also attract new businesses. As you might expect, the more new businesses in the region the more real estate required for employees and business premises. There is every chance that the infrastructure investment ahead of World Expo 2020 could be yet another catalyst for a move forward for the Dubai real estate market.
Tread with caution
As we have seen in many real estate markets around the world, when everybody is positive and nobody is seeing any short to medium-term downside, this can sometimes mean people are overconfident. Against this background it is easy to push valuations to the higher end of “reality” which could prompt some investors to take a profit in the not too distant future.
Sometimes this small wave of short-term profit takers can grow and become a tsunami in investment terms. If you have investments in Dubai and you are not necessarily looking on a long-term basis then it would be best to monitor your investments and the market very closely in the foreseeable future.