The market has entered into a new dynamic, where supply is now met by strong demand. Unlike all our expectations, price/equilibrium discovery is nearing an end and we are likely to see recovery in prices very soon. We also expected transactions volumes to slow, and that again has surprised us, where June/July are set to be very busy months. This could be attributed to a number of factors:
- Actual supply is now being met by real (not speculative) demand
- Speculators/flippers have now been cleaned up. In other words, they stopped buying and they have likely finished selling (after submitting to the reality of the new market norms) - leaving the market to real economic supply/demand factors
- Rental values have been much less volatile compared to sale values, signaling that prices are now adjusting and finding a new equilibrium point
- The new reality of oil prices: Oil price had a significant drop (from around $115 per barrel of Brent Crude, to $43 per barrel per of Brent Crude, before adjusting to around $63 per barrel of Brent Crude today). Prices have stayed steady for the past 3 months and market participants have submitted to this new reality.
- Currencies: The Euro has strengthened (from 1.04 US Dollars per Eurom, to 1.13 US Dollars per Euro). The GBP has strengthened against the USD (from 1.47 per GBP to 1.56 per GBP). The Ruble, the story of the year, has also strengthened (1 US Dollar bought around 75 Rubles at some point 4 months back, today it can only buy you 54 Rubles).
- War in Yemen has taken a step back, and new discussions in Geneva between Saudi Arabia and Yemeni Rebels could set the scene for peace negotiations.
- Iran nuclear deal and lifting the sanctions on Iranian Companies/Businesses could be a double edge sword. On the one hand, this means Iranians can trade/buy/sell annywhere and everywhere. This could also mean that some Iranians may elect to return to Iran to do their business. With Irans history with sanctions, I would bet on the fact that most will still elect to stay in Dubai and operate their businesses from here in order to avoid possible future sanctions.
All the above are reasons to remain positive about the market. The trend that you will likely see in the coming months is a big shift for hard assets (I.e. Real Estate). Stock markets are arguably inflated everywhere, with P/E multiples crossing the 20 level on average across the Globe. Commodities are very difficult to value, especially with the currency war going on at the moment as well as inflationary pressure from Global Central Banks. Bonds will also face significant pressure as most central banks, will start raising interest rates, and that will be detrimental for Bonds, especially those with higher tenure.
The shift into hard assets is something that will be witnessed in the coming months. We have already seen an increase in transaction activity as well as inquiries. This is because Real Estate as an asset class is much less volatile than stocks, which investors are wary can be very volatile in the coming months because of all the uncertainty. When investors cash out of stocks, bonds, or commodities, the safer haven they look for is property and Real Estate.
The trend towards funds will be witnessed in the Property market here, where yields are very attractive compared to global markets. Commercial property (Warehouses and labour camps) will take the bigger slice of the cake. Watch this space
Food for thought!