By Staff writer
New report says Dubai's economy and real estate market fundamental are stronger now than during global financial crash
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.
When is the repayment of the $20 billion bailout (loan and bonds) received by Dubai from Abu Dhabi back in late 2009 due? It was rolled over in March 2014 for five years, however with Abu Dhabi in a phase of serious financial belt tightening, could there be a requirement for shorter term pay back?
Which would certainly change the equilibrium described in the article. Although the debt at state firms has been reduced.
The next credit crisis is only just beginning to form. Anyone who thinks it has already been side stepped is not very well read.
Look outside of Dubai to see what is happening. It will hit outside before it comes here...as happened last time around. It is impossible for Dubai to be insulated because Dubai relies on NEW international money to make it work.
Every facet of Dubais 'new-economy' is modeled on the rest of the world being financially stable.
I concur with Red-Snapper on the points he raised.
All that has happened in the last 8yrs is that debt has increased and has been piled onto the previous debt, hence the advent of Tax in this region...to service the historic and newly created debt.
Talk of Tax, SME financial issues, drop in tourism, Credit Card debt surveys, Expat debt, increase in Bounced Chq figures etc have been concerns way before the Oil price drop and have been openly reported on this very site going back 1-2yrs.
The worst is definitely yet to come...
@Simon. So let me get this straight. If someone doesn't believe there's another credit crisis coming it means they're not well read? Interesting..
Dubai's debt that RedSnapper referred to was rolled over at only 1%. There's no news of any "short term payback" before the 2019 maturity date. In the meantime, Dubai's GDP continues to be in growth mode.
So, when do you expect the collapse of the world financial system to take place? While you're at it, how near is the end of the world?
Yes WHJ, if a person cannot see that another credit crisis is forming in the world economy, then yes, such a person(s) are not very well read. I believe it is a 'just' statement to make.
With regards Dubai's growth mode' I feel you to be a 'headline data' reader. Nowhere 'on the ground' is it being felt...not in wages, job security or cost of living.
As for your final two lines, deary, deary me (said as i shake my head)...you lose all credibilty with such a comment. It is forming, any well read person can understand that...and even if not well read, they feel it in their pockets. This very site produces enough economic news to shed light on these facts.
@Simon, things like ECB charging 0.40% to banks to hold their money?
Yep does not look too good. Interesting times ahead I guess.
@WHJ...haven't seen you for a while...you may like to catch up with the news on this site...this being just one example:
You might like to adjust or reposition your own narrative. Granted, this is just one story but you may like to read through all the comments and get feed-back from the 'ground' and maybe not so much from the headline data you appear to rely so heavily on.
If you read more and more from this site and then read further international economic stories, background and undertones...you will find things are not like you would like to think.