Warren Buffett doubling up on Dubai real estate exposure

Billionaire investor Warren Buffett is expanding his exposure to Dubai and the emirate states. A near tripling of the current advisor count in Dubai is a clear sign that he believes the current slump, which began back in 2014, will soon come to an end. There are also plans to open a second office in Abu Dhabi within 12 months which has made many real estate investors sit up and listen. Could the much heralded recovery in Dubai property prices be just around the corner?

S&P Global Ratings for Dubai

While real estate investors are bemused as to why the Dubai real estate market has yet to rebound from the slump which began in 2014 peak, S&P Global Ratings is predicting a further fall of 10% for Dubai real estate in 2019. When you bear in mind that Dubai real estate was initially one of the few markets which held up in the immediate aftermath of the 2008 US mortgage crisis, this is something of a turnaround. However, could the increased exposure for Berkshire Hathaway indicate a turning market?

Overseas buyers and Dubai real estate

Dubai real estate has been very popular amongst overseas investors for many years now. Since the market opened this area of the world has intrigued investors. It is safe to say that the regulatory structure was not strong enough in the immediate aftermath of the US mortgage crisis. That said, there have been some significant changes and there is more protection for investors and developers going forward.

Phil Sheridan, CEO of the Berkshire Hathaway Dubai office has already been talking positive about the prospects for Dubai real estate. Indeed, he went on to say:-

“There were 16,000 overseas buyers acquiring property in Dubai in January to June 2018 for $10 billion. There will be more of them and that’s whom we will target.”

Dubai real estate brokers

There is a general opinion that Dubai is an “over-brokered” market with consolidation seen by many as inevitable. In the short term the level of business is likely to fall while the number of brokers will remain constant or even rise. By the laws of business, falling transaction numbers will hit some of the smaller brokers extremely hard and may encourage mergers, acquisitions or a simple withdrawal from the market. When you consider that the likes of Warren Buffett are now targeting the Dubai real estate market it will be interesting to see what happens in the short to medium term.

Some other interesting factors to take in the consideration include:-

• An increase in brokerage commissions from 2% up to 5%
• The removal of developer sales teams, bringing business back to brokers
• The return of exclusive listings targeting particular groups of investors

When the market started to hit a rocky patch in 2014 we saw many property developers expand their services to include finance (effectively taking the place of banks). There is no doubt these services have enhanced sales in recent years although there may be a risk of defaults in the longer term.

Will traditional banking finance become the norm again? Has Warren Buffett timed his move to perfection? Time will tell……………….

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