Fears of a 2008-type crash in Dubai's economy and real estate market are unlikely to materialise, according to a new report by Reidin/Global Capital Partners.
The report, Dubai: This time it’s Different, analysed the factors at play during both crash scenarios, and concludes that the health of Dubai economy and markets are in a much better position today compared to 2008.
It said the current fall in rental rates is the last leg of the real estate price cycle, implying that a third bull cycle could be approaching, barring any exogenous events in the global markets.
"Given the differences in the price action underpinned by the contrasting macroeconomic fundamentals, we opine that there is a base effect in prices that are underway, which will likely presage a rebound," the report added.
On a macro-economic level, the report said that Dubai posted 4.1 percent growth in 2015, compared to negative growth of 4.3 percent during the global economic crisis of 2008-09.
It said that while in 2008/09, company formations remained stagnant in Dubai, in 2014/15 they grew by 7 percent, adding that Dubai was forced to cut back on spending leading to flurry of stalled and cancelled projects in 2008, a scenario yet to play out this time around.
The report also looked at the performance of Dubai Financial Market which fell by 77 percent in the 2008 crash, compared to this time where the decline was nearly half.
"The lower volatility in the markets suggests that investor confidence and future growth remains positive, relative to the outlook in 2008," the report added.
Looking at Dubai's real estate market, the report said city-wide prices fell by 31 percent in the first 22 months of the global financial crisis while prices have fallen by nearly 13 percent in the same time frame over the past couple of years.
Similarly, the report said rents slumped in the range of 40-50 percent over two years from the peak in 2008, where as now it is still within single digit declines.
"As Dubai continues to push foreword with a continuation of project launches and infrastructural developments, it seem as if the market is ripe for a rebound. Unlike crashes, bull rallies transpire over longer period of time with a slower rate of incline. We opine if Dubai continues to expand with this momentum, a base effect (which we believe is underway) will soon precede a price recovery," the report noted.
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