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Dubai: A Cabinet of Real Estate Curiosities

UNITASCONSULTANCY

A GLOBAL CAPITAL PARTNERS GROUP COMPANY

Q2 2017

Executive Summary

Supply and Demand in Dubai?: Fears of an over-supply have continued to capture the zeitgeist of Dubai real estate investors. However a closerlook into the population and housings stock growth rates reveals that in 2016 former exceeded the latter by more than 2:1. Dubai population incurreda 10% increase between 2015 and 2016 (2.44m vs 2.69m) according to Dubai Statistics Center. Despite headline announcements of “layoffs" acrossvarious sectors in the Dubai economy the population has continued to rise, doubling its historical average of 5%. An analysis between the incomebrackets of Dubai population between 2016 and 2015, reveals a shift upwards towards creation of high value jobs.

Transactions has gone up. Why haven’t prices?: Volumes have been a leading indicator for prices across various market, including real estate.High volumes suggest a price rise is on the horizon, whereas a decline in volumes imply a decline. In the first five months of 2017 activity has risenby more than 20% in Dubai compared to the same period last year, however price indices have remained flat-lined. A bi-variate analysis oftransactional activity and prices reveals that the strength of the correlation increases substantially with a lag. If transactional activity continues toratchet higher we can expect city wide price escalation in the coming months. A similar trend has been witnessed in other property market such asLondon in the past.

What’s Happening with the Dollar?: Analysts have been quick to attribute the softness in domestic asset markets to the strength of the USD.Given this diagnosis, it is puzzling to note that the recent decline of the USD (a decline of more than 6.5% since the start of the year) has not beenhighlighted. By the same logic, the recent weakness of the USD (which now apparently is expected to continue by the same analysts who wereforecasting further strength in the beginning of the year) should point to strength of the asset markets to complete the symmetry of the argument.

Conclusions: Over the last 12 months, there has been a sustained firming of sentiment. First expressed through the equity markets, there has been asteady increase in transactional activity across real estate communities in Dubai, followed by green shoots in prices in selected communities. Weopine that the resilience and the subsequent rebound in sentiment, activity, and prices will continue to rise.

Content

01

03

02

04What’s Happening with the Dollar?

Conclusions

Supply and Demand in Dubai?

Transactions have Gone up. Why haven’t Prices?

Supply and Demand in Dubai?

“Thepriceofabilitydoesnotdependonmeritbutonsupplyanddemand”

GeorgeBernardShaw

Population and Housing Growth Trends

DubaiPopulationandHousingStock(2011– 2016)

Since the beginning of the 2015 fears of an ‘over supply’ have captured the zeitgeist of investors. Recent data published from the DubaiStatistics Center reveals that in 2016 population growth exceeded the housing stock growth by more than 2:1. Whilst this comparison isspurious as it does not account for occupancy levels on the supply side, the outpacing of supply growth relative to population growth washighlighted as one of the concerns to look out for.

However, in 2016, despite headline announcements of “layoffs" across various sectors in the Dubai economy the population has continuedto rise, doubling its historical average of 5%. The job creation in other sectors such as entertainment and tourism have over-compensatedfor the loss of jobs in sectors such as Banking and Finance.

DubaiPopulationandHousingGrowthRates(2011– 2016)

300,000

350,000

400,000

450,000

500,000

550,000

1500000

1700000

1900000

2100000

2300000

2500000

2700000

2900000

2010 2011 2012 2013 2014 2015 2016

HousingStock Population

0%

2%

4%

6%

8%

10%

12%

2011-2015Average 2016

HousingStock Population

Source:DubaiStatisticsCenter

Dubai Population gets Richer (2015 vs 2016)

DubaiPopulation(2011– 2016)

An analysis between the income brackets of Dubai population between 2016 and 2015, reveals a shift upwards towards creation of highvalue jobs. In the higher spectrum of the income bracket, in 2015 only 3.1% of the population was earning above 35,000 AED, however in2016 it has increased by 45% to 4.5%. Whereas the lower-end of the income bracket (less than 2,500) has fallen from 51.8% to 48.2%.These changes are part of an incremental change in job creation that has been underway for more than two decades now. This upwardtrajectory in job creation has been the main growth driver in demand for end user accommodation.

Source:DubaiStatisticsCenter

DubaiPopulationGrowthRates(2011– 2016)

0%

10%

20%

30%

40%

50%

60%

Above35,000 34,999-20,000 19,999-10,000 9,999-5,000 4,999-2,500 Lessthan2,499

2016 2015

-10% 0% 10% 20% 30% 40% 50%

Above35,000

34,999-20,000

19,999-10,000

9,999-5,000

4,999-2,500

Lessthan2,499

Transaction Volumes has Gone up. Why Haven’t Prices?

“Itisthesoothingthingabouthistorythatitdoesrepeatitself”

GertrudeStein

0lag +0.04

6monthlag +0.22

9monthlag +0.31

12monthlag +0.45

Transactional Volumes Continue to Ratchet Higher. Why haven’t prices?

Prices,TransactionsandCorrelations

Transactional activity has been a leading indicator for price direction; high volumes suggest a price rise is on the horizon. In the first fivemonths of 2017 activity has risen by more than 20% compared to the same period last year. A bi-variate analysis of transactional activityand prices reveals that the strength of the correlation increases substantially with a lag. Over a 12 month lag the correlation between bothvariable is +0.45, suggesting that if transactional activity continues to ratchet higher we can expect city wide price escalation in the comingmonths (prices of various communities have already risen since the beginning of the year).

Source:Reidin

650.00

750.00

850.00

950.00

1,050.00

1,150.00

1,250.00

1,350.00

1,450.00

1,550.00

0

500

1000

1500

2000

2500

3000

3500

2010-01-01

2010-03-01

2010-05-01

2010-07-01

2010-09-01

2010-11-01

2011-01-01

2011-03-01

2011-05-01

2011-07-01

2011-09-01

2011-11-01

2012-01-01

2012

-03-01

2012-05-01

2012-07-01

2012-09-01

2012-11-01

2013

-01-01

20

13-03-01

2013-05-01

2013-07-01

2013-09-01

2013-11-01

2014

-01-01

20

14-03-01

20

14-05-01

20

14-07-01

20

14-09-01

20

14-11-01

20

15-01-01

20

15-03-01

20

15-05-01

20

15-07-01

20

15-09-01

20

15-11-01

20

16-01-01

20

16-03-01

20

16-05-01

20

16-07-01

20

16-09-01

20

16-11-01

20

17-01-01

20

17-03-01

Transactions6MonthRollingAverageTransactions9MonthRollingAverageTransactions12MonthRollingAverageTransactionsPrices

Prices,TransactionsandCorrelations

A look into London’s Past: Transactions and Prices

LondonAverageHousePricesvsVolume(2007-2009)

A similar relationship between volumes and prices can be witnessed in the London real estate market. The above graph reveals that volumedeclines preceded price declines at the beginning for the 2008 with a 6 month lag before the recession. Similarly in the recovery, volumesbegan to increase with prices following thereafter. The lag effect between transactions and prices has been a well established relationshipin real estate academia and it is highly probable that the relationship will continue to proliferate.

Source:BusinessInsider

What’s Happening with the Dollar?

“Witheverynewwaveofoptimismorpessimism,wearereadytoabandonhistoryandtime-testedprinciples,butweclingtenaciouslyandunquestioninglytoour

prejudices. ”BenjaminGraham

The Dollar Begins to Slide

TheDollarIndex:May2016- Jun2017

Analysts have been quick to attribute the softness in domestic asset markets to the strength of the USD. Given this diagnosis, it is puzzlingto note that the recent decline of the USD (a decline of more than 6.5% since the start of the year) has not been highlighted. By the samelogic, the recent weakness of the USD (which now apparently is expected to continue by the same analysts who were forecasting furtherstrength in the beginning of the year) should point to strength of the asset markets to complete the symmetry of the argument.

Source:

88

90

92

94

96

98

100

102

104

106

18-May-16 18-Jun-16 18-Jul-16 18-Aug-16 18-Sep-16 18-Oct-16 18-Nov-16 18-Dec-16 18-Jan-17 18-Feb-17 18-Mar-17 18-Apr-17 18-May-17

PeaktoNow-6%

Conclusions

Supply and Demand in Dubai Transactions has Gone up. Why haven’t Prices?

A bi-variate analysis of transactional activity and

prices reveals that the strength of the correlation

increases substantially with a lag.

What’s Happening with the Dollar? Conclusions

In 2016, in spite of the layoffs across various sectors in the

Dubai economy the population has continued to rise surpassing its historical

average of 5%

Since the beginning of the 2015 fears of an ‘over supply’ havecaptured the zeitgeist of investors. Recent data published fromthe Dubai Statistics Center reveals that in 2016 populationgrowth exceeded the housing stock growth by more than 2:1.Whilst this comparison is spurious as it does not account foroccupancy levels on the supply side, the outpacing of supplygrowth relative to population growth was highlighted as one ofthe concerns to look out for.

An analysis between the income brackets of Dubai populationbetween 2016 and 2015, reveals a shift upwards towardscreation of high value jobs

Over the last 12 months, there has been a sustained firming of sentiment.First expressed through the equity markets, there has been a steadyincrease in transactional activity across real estate communities in Dubai,followed by price rises (albeit gradual) in certain select areas.

As green shots continue to proliferate, there has been a steadily growingcacophony of skeptical voices that have appeared to focus on themacroeconomic headwinds that have dominated the headlines.

We opine that the resilience and the subsequent rebound in sentiment,activity, and prices will continue to rise.

Transactional activity has been leading indicator to prices in variousinvestment markets including real estate. Over the last 5 months in2017 we have seen steady uptick in transactional activity compared tothe same period last year.

A bi-variate analysis of transactional activity and prices reveals that thestrength of the correlation increases substantially with a lag. Over a 12month lag the correlation between both variable is +0.45, suggestingthat if transactional activity continues to ratchet higher we can expectcity wide price escalation in the coming months.

Analysts have been quick to attribute the softness in domesticasset markets to the strength of the USD. Given this diagnosis,it is puzzling to note that the recent decline of the USD (adecline of more than 6.5% since the start of the year) has notbeen highlighted.

By the same logic, the recent weakness of the USD (which nowapparently is expected to continue by the same analysts whowere forecasting further strength in the beginning of the year)should point to strength of the asset markets to complete thesymmetry of the argument.

GCP believes in in-depth planning and discipline as a mechanism to identify and exploit market discrepancy and capitalize on diversified revenue streams.

Our purpose is to manage, direct, and create wealth for our clients.

GCP is the author for these research reports

REIDIN.com is the leading real estate information company focusing on emerging markets.

REIDIN.com offers intelligent and user-friendly online information solutions helping professionals access relevant data and information in a timely and cost effective basis.

Reidin is the data provider for these research reports

Indigo Icon, 1708 Jumeirah Lake Towers, PO Box 500231 Dubai, United Arab Emirates

Tel. +971 4 447 72 20 Fax. +9714 447 72 21

www.globalcappartners.cominfo@gcp-properties.com

Concord Tower, No: 2304, Dubai Media City, PO Box 333929 Dubai, United Arab Emirates

Tel. +971 4 277 68 35 Fax. +971 4 360 47 88

www.reidin.cominfo@reidin.com

Our Aspiration and Motto

“No barrier can withstand the strength of purpose”HH General Sheikh Mohammed Bin Rashid Al Maktoum

The Ruler of Dubai and Prime Minister of UAE

REIDIN – DUBAI OFFICE

Concord Tower, No: 2304,Dubai Media City, PO Box 333929

Dubai, United Arab Emirates

Tel: +971 4 277 68 35Fax: +971 4 360 47 88

www.reidin.com info@reidin.com