Lack of liquidity ‘biggest threat to Dubai real estate’ in 2016

Recovery of market could be delayed further, says Phidar Advisory

PHOTO: Dubai property values dropped by an average of 12.7% last year. Credit: Shutterstock

A lack of liquidity for investors will be the biggest threat to Dubai’s real estate market in 2016, even as property values continue to drop, according to a report by Phidar Advisory.

Unless a new dynamic comes into play, a recovery of the market could be delayed further into 2017, the Dubai-based consultancy said.

“As liquidity tightens, there is even less capital available for investment in completed units, which are often preferred during a down cycle and/or risk-averse climate,” it warned.

With there being less money to spread around, there will be an impact on property values as well, the report added.

“Even if construction delays reduce the completed supply available to end users, this supply still impacts investment demand,” Phidar Advisory said.

As a result, for developers planning the timing of their project launches this year, these are details that will need to be considered carefully, according to a Gulf News report. A couple of key launches at the top end of the market, essentially the adding of new phases for existing projects, are likely in January 2016, it added.

Phidar’s report asked if the market can continue to absorb new off-plan supply at a time when it is still “in the throes of a downturn now into the 18th month”. Off plan sales, especially in Dubai’s volatile market with short cycles, will absorb liquidity long after the boom is over, the report said. “For example, although the market has been in decline, projects launched in 2013-2014 continue to absorb market liquidity,” it said.

Master-developers with deep pockets can get away with taking a longer term view, but mid-tier developers will face challenges, with few exceptions, Phidar said. This is because they will need faster sales cycles to recover their investments, at a time when property values dropped by an average of 12.7% last year.

Even if investors are keen on picking up ready mid-market properties, they may not have the funds on call to buy. Taking out mortgages to finance the purchase, especially for first time buyers, will leave many dependent on the banks. That then raises the question of whether local banks will come to the rescue with the much needed liquidity.

“Global economic dynamics are tightening liquidity, increasing capital costs, and slowing growth in the region. These trends could continue for two years. Improving transparency can help bring down market risk, which is critical in the current environment,” said Jesse Downs, managing director at Phidar Advisory.


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