DFM rising strongly, but for how long?
The summer doldrums for the DFM seem to be quite over, with the markets going up on much larger volumes than we’ve seen since the beginning of the summer vacation season (temperatures did not break 40 today).
Again, the problem is that the DFM is mostly based on property: Emaar and the finance companies.
Emaar has many projects outside the UAE, but the Saudi Project (e.g.) is part of a Saudi IPO, so it is not clear if any of the profits will accrue to the Dubai shares.
It is clear that the profits on Emaar’s Dubai projects will provide returns to Emaar's DFM shareholders, but will these profits continue?
Basically, we have a commenter on this blog reporting that, from his flat, he can see that most of the flats around him are empty, owned by investors who have been hoping to sell at a profit but have been unable to find buyers; and we have predictions that rents and prices will fall drastically in 2007, with, presumably, an adverse impact for Emaar and the home finance companies.
However, Dubai has a 15% cap on rental increases. Two properties with which I am familiar are renting to new tenants at rates more than 25% above what they are allowed to charge existing tenants. Even should rents decline by 10%, new tenants will benefit, but existing tenants will face another year of 15% increases to bring their rents up to the new, lower levels.
Dubai has had rent declines of 10% before, but not major crashes in rental prices; however, Saudi did see declines of more than 50% (when oil was less than $10 per barrel), and this could happen in Dubai, though, given current conditions, the immediate prospect of such drastic declines seems quite remote.
Properties from some developers other than Emaar, Nakheel, and Dubai Holding are said to be selling at discounts rather than premiums, but this would not necessarily affect Emaar.
Oil is also due to fall in 2007, but it is not clear how much of the demand for Dubai is from Dubai’s oil-rich neighbours looking for a vacation spot where they can play; Europeans, South Asians, and East Asians are coming to Dubai, and their disposable incomes will go up if oil declines.
So, for the short to medium term investor, it does look like a fairly good time to get into the DFM.
Longer term is a much murkier prospect, but that’s because prediction is always difficult if it’s with respect to the future.
Again, the problem is that the DFM is mostly based on property: Emaar and the finance companies.
Emaar has many projects outside the UAE, but the Saudi Project (e.g.) is part of a Saudi IPO, so it is not clear if any of the profits will accrue to the Dubai shares.
It is clear that the profits on Emaar’s Dubai projects will provide returns to Emaar's DFM shareholders, but will these profits continue?
Basically, we have a commenter on this blog reporting that, from his flat, he can see that most of the flats around him are empty, owned by investors who have been hoping to sell at a profit but have been unable to find buyers; and we have predictions that rents and prices will fall drastically in 2007, with, presumably, an adverse impact for Emaar and the home finance companies.
However, Dubai has a 15% cap on rental increases. Two properties with which I am familiar are renting to new tenants at rates more than 25% above what they are allowed to charge existing tenants. Even should rents decline by 10%, new tenants will benefit, but existing tenants will face another year of 15% increases to bring their rents up to the new, lower levels.
Dubai has had rent declines of 10% before, but not major crashes in rental prices; however, Saudi did see declines of more than 50% (when oil was less than $10 per barrel), and this could happen in Dubai, though, given current conditions, the immediate prospect of such drastic declines seems quite remote.
Properties from some developers other than Emaar, Nakheel, and Dubai Holding are said to be selling at discounts rather than premiums, but this would not necessarily affect Emaar.
Oil is also due to fall in 2007, but it is not clear how much of the demand for Dubai is from Dubai’s oil-rich neighbours looking for a vacation spot where they can play; Europeans, South Asians, and East Asians are coming to Dubai, and their disposable incomes will go up if oil declines.
So, for the short to medium term investor, it does look like a fairly good time to get into the DFM.
Longer term is a much murkier prospect, but that’s because prediction is always difficult if it’s with respect to the future.
posted by Dubai@Random at 11:09 pm
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