Unitas Consultancy

(A GLOBAL CAPITAL PARTNERS GROUP COMPANY)

Q2 2016
STRICTLY CONFIDENTIAL

Dubai: This time its Different!

This document is provided by Unitas Consultancy solely for the use by its clients. No part of it may be circulated,
quoted, or reproduced for distribution outside the organization without prior written approval.

1
Office No. 1706, Indigo Icon, Plot No. F, Jumeriah Lake Towers, Dubai, UAE

Executive Summary
As the fears of a redux of the 2008 crash permeate through the ecosystem, a closer examination of the fundamentals at play
suggests that this time is different. A macro look into economy reveals that Dubai experienced a +4.1% growth in 2015, unlike
during the WFC (World Financial Crisis) where it incurred a negative growth of -4.3%.
In 2008/09 company formations remained stagnant in the DED jurisdiction, whereas in 2014/15 it grew by 7%. Other indicators
such as the housing starts and budget spends attests to the efficacy of the expansive fiscal policy that Dubai has currently
adopted. In contrast, Dubai in 2008, it was forced to cut back on spending leading to flurry of stalled and cancelled projects.
A peak to trough analysis of the Dubai Financial Markets reveals that in the 2008 crash the index fell by 77%, 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.

Similarly this time around the real estate markets have been relatively more resistant to the exogenous and endogenous factors
at play (i.e. low oil prices and the strong dollar). During the WFC city-wide prices fell by 31% in the first 22 months. However in
the current slump, prices have fallen by nearly 13% in the same time frame. This difference can signify the maturity of the
market and investor base, as Dubai continues to diversify its economy.
Within the rental market a similar dynamic has transpired. Using studios as a proxy, an analysis across various communities
from the RERA Rental Index reveals that the decline has been marginal compared to the 2008 crisis. Rents had fallen in the
range of 40-50% over two years from the peak in 2008, where as now it is still within single digit declines. This reiterates the
levels of irrational exuberance that were prevalent during the two bull rallies, which led to different troughs in each scenario.
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.

Contents
1. A Macro difference into then and now
2. Real Estate Prices and Rents
3. A look into the Equity Markets Reaction
4. Conclusions

A Macro Look into Then and Now

it is better to be roughly right than precisely wrong John Maynard Keynes

Macro Factors Indicative Strong Growth this time Around

Dubai GDP Growth
5.00%

DED Company licenses Growth

8.0%

Unitas*

4.10%

4.00%

7.0%
6.0%

2.00%
1.00%
0.00%
2014/2015

2008/2009

-2.00%
-3.00%

5.0%
4.0%
3.0%
2.0%
0.8%

1.0%

-4.00%
-5.00%

Percentage Change

Percentage Change

3.00%

-1.00%

Unitas*

7.1%

0.0%
-4.30%

2014/2015

2008/2009

The above graphs shed light on the difference between the health of the economy during the 2008 and 2014 crash.
During the WFC, GDP growth fell by 4.3% which coincided with a stagnation of company formation in the DED
jurisdiction. However, in the recent cycle, GDP growth has continued with a strong increase of 4.1%, along with an
increase of company formation by 7.1%. These macro trends indicate that the health of the economy remains positive.

*Data has been collected from the Dubai Statistics Centre

Budget Spending and Housing Starts Push Foreword

Building Permits Issued and Licensed Areas

Change in Budget Spending

180.000

Unitas*

159.983
160.000

12%
10%

140.000

8%

120.000

100.000

86.936

80.000
60.000
40.000

Percentage Change

000 (Sqft)

Unitas*

11%

6%
4%
2%
0%
-2%

20.000
0

14/'15

09/'10

-4%
2015

2009
-6%

-5%

Unlike, any other city in the region, Dubai increased its budget spending by 11% in 2015. This is inline with its
expansive fiscal policy, contrary to what transpired in 2008, where budgetary spending was curtailed by 5%. This was
possible through the further diversification of the economy into other sectors such as tourism, retail and
manufacturing. This increase in budget has led to further developments which can be witnessed in the number of
building permits issued. The latter revels that square footage of construction that was approved in 2015 was roughly
double that of 2009 levels.
*Data has been collected from the Dubai Statistics Centre

A look into the Equity Market

The stock market is a device for transferring money from the impatient to the patient Warren Buffet

A Look into the Peaks and Toughs of the Dubai Financial Markets
DFM (Highs and Lows)

DFM Price Changes

6.291

6.000

-10%

4.000
2.882

3.000
2.000

2014/2015

0%

5.374

5.000

Index

2008/2009

Unitas*

1.433

1.000

Percentage Change

7.000

-20%
-30%
-40%
-50%

-46%

-60%
-70%
-80%

0
2008 Peak

2009 Trough

2014 Peak

2015 Trough

-77%

-90%

A peak to trough analysis of the equity market, reveals that in the first crisis the DFM index fell by 77%. In contrast, the
recent crash driven by the fall in oil prices, the index declined by 46%. The difference can attest to the lower volatility in
the market, as investor remain positive in the outlook of the future.

*Data has been collected from the Dubai Statistics Centre

A Closer Look into Equity Markets Trading Values

DFM Trading Values (Highs and Lows)
25.00

Unitas*
6.56 B Average

4.56 B Average

15.00

10.00

1-Nis-16

1-Oca-16

1-Eki-15

1-Tem-

1-Nis-15

1-Oca-15

1-Eki-14

1-Tem-

1-Nis-14

1-Oca-14

1-Eki-13

1-Tem-

1-Nis-13

1-Oca-13

1-Eki-12

1-Tem-

1-Nis-12

1-Oca-12

1-Eki-11

1-Tem-

1-Nis-11

1-Oca-11

1-Eki-10

1-Tem-

1-Nis-10

1-Oca-10

1-Eki-09

1-Tem-

1-Nis-09

1-Oca-09

0.00

1-Eki-08

5.00

1-Tem-

(AED Billion)

20.00

The above graph shows the trading volume during both the cycles. In the first cycle volumes dipped by 59% from 2009
to 2010, whereas in the second cycle from 2014 to 2015 it fell by a more modest 42%. What is of relevance is that the
average volumes have been substantially higher in this cycle as compared to 2008-10 period.

What Happened in the Real Estate Market Crashes?

"What Is and What Should Never Be Jimmy Page

10

An Analysis of 2008 and 2014 Crashes in the Real Estate Markets

Price Performance between 2008 and 2014 Crashes

2008 Crash

2014 Crash

1.500
1.400

1.200

22 months
56 % Difference

1.100
1.000

Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Month 13
Month 14
Month 15
Month 16
Month 17
Month 18
Month 19
Month 20
Month 21
Month 22
Month 23
Month 24
Month 25
Month 26
Month 27
Month 28
Month 29
Month 30
Month 31
Month 32
Month 33
Month 34
Month 35
Month 36
Month 37
Month 38
Month 39
Month 40

REIDIN

Peak

900

A comparison between the price action of the real estate markets in 2008 and 2014, reveals that the former had a
steeper rate of decline than the latter. In 2008, asset prices fell by 56% more than 2014 in the first 22 months.

800
700

Price per Sqft

1.300

Rentals Less Volatile than Previous Crash

Rental Analysis (2008 vs 2010) and (2014 vs 2016)
JLT (Studio)

Downtown (Studio)

Greens (Studio)

International City (Studio) Dubai Marina (Studio)

5%
0%

-5%

0%

-3%

-4%

-7%

Percentage

-15%

-25%

-35%

-45%

-44%
-47%

-55%

-65%

-53%
2008/2010

-52%
-55%
2014/2016

Unitas*

A rental comparison, using the RERA indices, reveals that rents during the first cycle had fallen by 50%. Whereas in the
second cycle rental rate declines remain in the single digits. This attests to the lower vacancy rates and more stable
expat population within the emirate.

*Data has been collected from the RERA indices

Off Plan Launches Still above 2008 Crash levels in First 5 months of 2016
Off-Plan Launches (2006-2016)
70.000

REIDIN

64.438

Peak
Number of Launches

60.000

Peak

50.000
43.587
40.000

35.812

30.000
20.000

21.185

19.071

18.823

11.840

Q1/Q2 2016

10.000

2006

2007

2008

2009

2.573

3.719

3.886

2010

2011

2012

2.513
2013

2014

2015

2016

Using launches as a lagging indicator, we witness that in both cycles the number of off-plan launches subsided as price
momentum faded away. In 2010, launches reached a low of 2,573 units after the first crash. Whereas in the current
landscape, launches have also decreased, but at a lower rate. In the five months of 2016 the number of launches are at
parity with the lows of first cycles. This indicates that investor and end-user appetite remains strong as developers
continue to launch new projects.

Conclusions
Unlike, any other city in the
region, Dubai increased its
budget spending by 11% in
2015, which is inline with its
expansive fiscal policy,

The Macro Difference

A look into the Equity Market

A comparison of the macro economic indictors

during both the crash periods, reveals startling
differences.

A min to max analysis of the Dubai Financial Markets

during both downturns reveals that the 2008 crash
had a steeper rate of decline compared to 2014.

In 2009, GDP had a negative growth rate of -4%,

whereas in 2015 Dubai continued to grow at +4%.
This is reflective of the expansive fiscal policy
taken this time around, by increasing budget
spend by 11%.

The index fell by 77% during the World Financial

Crisis, compared to 46% fall in 2014/15 driven by
the slump in oil prices.

Other factors such as the housing start and

company formation growth have been
diametrically opposed in both scenarios as well.

A comparison between the

price action of the real estate
markets in 2008 and 2014,
reveals that the former had a
steeper rate of decline than the
latter

In the dissection of transactional value, we can

witness that in the first cycle the lows touched 1.0B
per month, compared to 2015 where the minimum
was 2.84 B

Real Estate Market Crashes

Conclusions

Comparing the peaks and troughs of the real estate

market, we can witness that the decline in 2008
was much steeper compared to 2014.

A look into the factors at play during both crash

scenarios, we can witness that the health of Dubai
economy and markets are in a much better
position today compared to 2008.

The city-wide index crashed by 31% in 2008 in the

first 22 months. In 2014/15 it fell by 13% in the
same time period. Similarly in rentals, prices
corrected by 50%, whereas today the declines
remain in single digits.

The current fall in rental rates is the last leg of the

real estate price cycle, implying that we could soon
be entering into third bull cycle, barring any
exogenous events in the global markets.

Using off-plan launches as lagging indicator to

measure the health of the market, we can witness
that the number of launches in 2009/10 were at
2,573 units. Whereas in 2016, the same number of
units have been launched in first few months.

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.

GCP believes in in-depth planning and discipline as a

mechanism to identify and exploit market
discrepancy and capitalize on diversified revenue
streams.

REIDIN.com is the leading real estate information

company focusing on emerging markets.

Our purpose is to manage, direct, and create wealth

for our clients.

REIDIN.com offers intelligent and user-friendly online

information solutions helping professionals access
relevant data and information in a timely and cost
effective basis.

GCP is the author for these research reports

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.com
info@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.com
info@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