Realty green shoots or a mirage in the Dubai desert?
Posted on 02 June 2009 with no comments from readers
Shares in Dubai’s bell weather stock Emaar Properties rallied strongly yesterday on the publication of a buy note from HSBC, which also disclosed its one per cent stake in the company as well as multiple commercial interests.
However, what really caught the intention of investors was an on-the-ground analysis of recent trends in the local secondary property market. HSBC’s survey claimed that prices had bottomed out and rebounded by four per cent in April and five per cent in May.
Very cautious optimism
The bank immediately cautioned against reading too much into a small bounce after such a big fall, and provided a host of caveats about whether this trend could be maintained. These range from upcoming over supply to the loss of population over the summer, as well as the potential for further oil price weakness and further global economic weakness.
A careful look at the detail provided in the report also casts some doubt on its conclusions. The most surprising was that villa agreed prices had fallen 49 per cent since September while apartment prices were only down on average by 16 per cent.
The apartment average is certainly misleading because it conceals a wide range of price changes in the three months to the end of May: from -38 per cent in the Greens and -30 per cent on The Palm Jumeirah to a difficult-to-fathom 109 per cent rise at the Jebel Ali apartment development by Limitless.
So is HSBC presenting a picture of real estate green shoots in Dubai, or a mirage created by the careful presentation of statistics? The truth seems to lies somewhere in between these extremes.
Green shoots only
There do seem to be a few green shoots in the secondary market. As HSBC reports: ‘The distressed stock is gradually clearing due to renewed interest as well as some sellers repricing, pulling their property off the market or putting them up for lease.’
What this means is that the most depressed price levels since the September property crash have turned slightly up in April and May. But it does not preclude a further downturn over the traditionally quiet summer months, nor the resumption of market weakness this autumn if the global economic recovery proves largely an illusion, nor further price falls as more property is dumped onto a weak market, nor the knock-on impact of more scandals in the off-plan market.
The old British adage that two swallows do not make a summer comes to mind, and buying into an early recovery in Dubai property might well be a mistake.
