Investment Boutique has just released its report into the Dubai real estate market entitled the Dubai State of the Market report 2010. The report is very downbeat in places, but very upbeat in its forecast of a near-complete turnaround in 2012.
For instance: the firm believes that the over-supply of residential units will hit 110,000-115,000 by the end of 2012. This is one of the largest figures that have ever been put on the scale of Dubai’s residential over-supply problem.
On the other hand the report then takes a price-bottom being reached in the latter part of this year almost as a foregone conclusion, and also assumes that the “banks will slowly loosen lending criteria as they can fully understand the effects of the downturn and forecasting future results becomes easier.”
Another assumption the report makes is that confidence will return to the market in 2012. All these assumptions are made with very little reasoning behind them. On the other hand the firm predicts more project cancellations this year, as developers focus on completing those developments that are nearest completion, in order that they can collect on-completion bullet payments.
According to the report, the commercial sector will also continue to suffer from over-supply:
“The commercial real estate sector in Dubai is expected to remain over supplied in the coming years as new projects get handed over, whereas the number of office workers shows slow and steady growth. However, the planned office space is based on extremely optimistic growth forecasts, which are unlikely to be achieved and therefore the pipeline of supply after 2012 is expected to be delayed indefinitely until demand catches up with supply,” it states.
However, the report also predicts slow and steady growth in the commercial sector from next year, and a turnaround in the best areas in 2012.
In fact, overall, it seems like this is an upbeat forecast concealed in a downbeat report; a sceptic would be inclined to think that Investment Boutique has appeared downbeat in order to build credibility for what is really an upbeat forecast, aimed at building confidence in the market from next year.
Regardless of its reasoning, the report is based on a lot of assumptions; reliant on a lot of variables that are still far from certain. For instance: the banks will increase lending in 2011 because they have a better understanding of the downturn; what will they understand about the downturn after three years that they don’t after two? And what good will increased lending do without an increase in demand? Further; who can say that confidence will return before growth returns; and, if confidence doesn’t return how can growth?
The assumption that the market will bottom later this year is a near certainty for the simple fact that prices really can’t fall much further — prices are already at the point where growth began. But growth will not return without demand, which is still at record lows, and demand will not grow until confidence returns. Maybe the market will recover in 2012, but there are too many variables to make this anymore than a 50/50 chance and nothing in the Investment Boutique article to increase those odds in favour of a 2012 recovery.