Dubai a Tale of Two Markets
19
Dubai: A Tale of Two Markets Unitas Consultancy (A GLOBAL CAPITAL PARTNERS GROUP COMPANY) Q3 2014 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 distribuTon outside the organizaTon without prior wriWen approval. STRICTLY CONFIDENTIAL Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, Dubai, UAE, [email protected]
description
Dubai a Tale of Two Markets
Transcript of Dubai a Tale of Two Markets
Dubai: A Tale of Two Markets
Unitas Consultancy (A GLOBAL CAPITAL PARTNERS GROUP COMPANY) Q3 2014
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 distribuTon outside the organizaTon without prior wriWen approval.
STRICTLY CONFIDENTIAL
Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, Dubai, UAE, [email protected] 1
ExecuTve Summary
2
• Historically, Trophy ProperTes have had superior growth rates to Affordable housing in the United States. However, in the last 2 years there has been a reversal of trends, which has accelerated in the last 7 months. These trends are also being witnessed in Dubai over the last 6 months, where the affordable segment (e.g. InternaTonal City) has been the best performer in the market (20% appreciaTon).
• In Dubai, Trophy ProperTes have outperformed the rental market over the last 5 years by 11%, however, recently we have seen a paradigm shi_. In the last 16 months, rental growth rates in the Affordable Housing market (50%) have doubled relaTve to Trophy ProperTes (24%). Currently, the Affordable housing segment returns a net rental income of 6.9%, which is substanTally higher than Trophy ProperTes at 4.4%.
• A market analysis between the transacted and listed prices, shows that the city-‐wide spread has started to converge by nearly 50%. Listed Price have been a leading indicator of transacted price, thus indicaTng a slow-‐down of price acTon. A granular analysis reveals that the spread between Trophy ProperTes have decreased by 50%, whereas Affordable Housing has remained unchanged implying that we may conTnue to see price appreciaTon within this segment.
Table of Contents
A) Affordable Housing Outperforms: Dubai and USA…………………….………………………...…....4
B) Affordable Housing; a BeWer Source for Rental Income….………………………………………….9
C) Market Analysis: The Spread between Transacted and Listed Prices………………………..14
D) Conclusions………………………………………………….………………………………….……………………….17
3
Affordable Housing Outperforms: Dubai and USA
4
“You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future” – Steve Jobs
Affordable Housing Out paces Trophy ProperTes in the United States
5
Metropolitan Area
High Tier Appreciation since 2000
Low Tier Appreciation since 2000
High Tier November 2013
YoY Appreciation
Low Tier November 2013
YoY Appreciation
Los Angeles 113% 112% 15.70% 23.90%
San Francisco 93.40% 64.70% 16.60% 31.00%
Seattle 66.20% 33.90% 10.10% 13.40%
Miami 91.10% 32.50% 14.40% 23.20%
Source: zillow.com
A recent study in the United States, shows that Trophy properTes have historically had superior growth rates to the affordable housing segment. However, a YOY analysis indicates a structural change, where the affordable housing segment has outperformed the market. In the ciTes tabulated below (all major desTnaTons of internaTonal trade and considered major metropolitan centers) have witnessed superior price appreciaTon in the mid and low Ter segment of the market, as the recent price recovery has gathered steam, itself indicaTve of the relaTve undersupply of units in these areas. In San Francisco and Los Angeles (the prime beneficiaries of t h e t e c h n o l o g i c a l b o om ) t h e outperformance has been the highest (a factor of 53% and 93% respecTvely).
6
A Closer Look at the New York Real-‐Estate Market (Boom-‐Bust Cycle)
29%
155%
-‐32%
185%
-‐13%
180%
-‐26%
130%
-‐50%
0%
50%
100%
150%
200%
1974-‐1980 1980-‐1989 1989-‐1996 1996-‐2006
Trophy Property
Affordable Housing
New York Real-‐Estate Market (1974-‐2006)
A Tme series analysis of New York over 32 years, reveals startlingly, a period of 16 consecuTve years whereby the mid income housing segment dramaTcally outperformed the higher end of the market. This encompassed both a boom and bust scenario, whereby mid income properTes exhibited greater resilience in the downturn, laying to rest the noTon that trophy properTes always outperform. Whilst the reasons are plenTful, they converge on the central premise that this segment of the market was systemaTcally undersupplied. We opine that similar trends are currently underway in Dubai.
Source: www.furmancenter.org
Note: ManhaWan is used as a proxy for Trophy ProperTes, while Brooklyn is for Affordable Housing
7
… Similar Trends Witnessed in Dubai in the Last 6 months
Price Index Segment-‐Wise AppreciaMon since 2007
AppreciaMon since last 6 months (Oct–Mar ’13)
Trophy ProperMes
Palm Jumeirah 325% 13%
Marina 90% 18%
Downtown 25% 16%
Affordable Housing
Discovery Gardens 33% 15%
InternaTonal City 28% 20%
Sports City -‐15% 19%
The Dubai real-‐estate market has exhibited similar characterisTcs to the United States market, where trophy properTes in the long-‐run have outperformed the affordable housing segment. Similar to the US, Dubai in the last 6 months has also witnessed a paradigm shi_, where growth rates in the Affordable housing segment have begun to exceed that of Trophy properTes given the demand/supply imbalance.
95
100
105
110
115
120
Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014
Affordable Housing
Trophy Property
www.reidin.com
-‐15%
-‐10%
-‐5%
0%
5%
10%
15%
20%
Nov 2008 Nov 2009 Nov 2010 Nov 2011 Nov 2012 Nov 2013
8
Spread between Trophy and Affordable Housing Tightens
USA: Trophy ProperTes – Affordable Housing Spread Dubai: Trophy ProperTes– Affordable Housing Spread
The above charts illustrate a price spread analysis that has been conducted between the trophy and the mid income segments of both America and Dubai. In the former market, spread compression was witnessed during 2005-‐2007, and again from 2011, where mid income housing has systemically outperformed trophy properTes since 2011. In Dubai, whilst spreads have been more volaTle, there has been a spread compression being witnessed from 2011 as well, to the point where it has entered negaTve territory (indicaTng a shi_ in market preferences towards the affordable housing).
www.reidin.com
Affordable Housing; a BeWer Source for Rental Income
9
“It's tangible, it's solid, it's beauTful. It's arTsTc, from my standpoint, and I just love real-‐estate” -‐ Donald Trump
Net Yields Remain Superior in Affordable Housing
10
4.4%
6.2% 6.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Trophy High-‐end Affordable
Community-‐wise Breakdown: Net Rental Yields Market-‐wise Breakdown: Net Rental Yields
A market-‐wise comparison shows that Affordable Housing has the highest net rental yield at 6.9%, whereas the Trophy Property segment has the lowest net return at 4.4%. Within the Affordable Housing segment InternaTonal City currently has superior net returns at 7.6%, followed by Discovery Gardens at 6.7%.
5.7%
4.1% 3.5%
6.6% 6.4% 5.7%
6.7% 6.5%
7.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Trophy ProperTes High-‐End Market Affordable Housing
www.reidin.com
www.reidin.com
11
70
75
80
85
90
95
100
105
110
Apr 2014
Nov 2013
Jun 2013
Jan 2013
Aug 2012
Mar 2012
Oct 2011
May 2011
Dec 2010
Jul 2010
Feb 2010
Sep 2009
Apr 2009
Affrodable
Trophy
Gross Yields Start to Diverge Between Market segments! Gross Rental Yields Index: Affordable Housing Versus Trophy ProperTes
Dubai Marina Downtown Palm
Jumeirah
2009 100 100 100
2010 88 112 123
2011 78 131 121
2012 83 127 111
2013 78 121 95
2014 65 108 71
InternaMonal City
Discovery Gardens
Sports City
2009 100 100 100
2010 95 78 107
2011 91 77 116
2012 95 58 127
2013 95 56 120
2014 91 60 139
Affordable Housing
Trophy ProperTes
The recent Central Bank report, indicaTng a fall in yields relaTve to historical norms is therefore most visible at the trophy end of the market, whereas in the affordable segment, yields conTnue to offer superior cash returns. We expect this trend to conTnue to diverge as the imbalance of supply and dynamics widens.
www.reidin.com
12
50
60
70
80
90
100
110
Apr 2014
Oct 2013
Apr 2013
Oct 2012
Apr 2012
Oct 2011
Apr 2011
Oct 2010
Apr 2010
Oct 2009
Apr 2009
Trophy
High
Affordable
80
90
100
110
120
130
140
150
160
Apr 2014 Jan 2014 Oct 2013 Jul 2013 Apr 2013 Jan 2013
Trophy
High
Affordable
Rental inflaTon indicaTng supply shortages
Market-‐Wise: Rental Index (2009-‐2014) Market-‐Wise: Rental Index (2013-‐2014)
Historically, the structure of the freehold market was leaning towards the holiday home and the trophy segment of the market as Dubai dazzled the world with its spectacular array of freehold projects. However, in the last 18 months a trifecta of forces (job creaTon at the mid end, supply shortages and preface for mid income communiTes closer to work) have converged to accentuate demand in this segment, resulTng rents spiraling up by 50% in the last year and a half. This trend is unlikely to be arrested unless the current supply dynamic is altered towards mid income supply*.
*This analysis was highlighted in the last Research Report “The Trophy Buying Phenomena”, which can be found on www.unitasconsultancy.com or www.reidin.com
www.reidin.com www.reidin.com
13
Supply Shortages Across the Affordable Segment are Reflected in the Form of the Highest rental growth rates
Community-‐wise Breakdown: Rental Index (2013-‐2014)
A community-‐wise break down shows that Sports City (55%), followed by InternaTonal City (49%) and Discovery Gardens (46%) are the best performers in the rental index over the last 18 months. The worst performers are Palm Jumeirah and Arabian Ranches at 13%, indicaTng resistance to upwards pressures at the top end.
90
100
110
120
130
140
150
160
Apr 2014
Mar 2014
Feb 2014
Jan 2014
Dec 2013
Nov 2013
Oct 2013
Sep 2013
Aug 2013
Jul 2013
Jun 2013
May 2013
Apr 2013
Mar 2013
Feb 2013
Jan 2013
Sports City
InternaTonal City
Discovery Gardens
JLT
Emirates Living
Arabian Ranches
Business Bay
Dubai Marina
Downtown
Palm Jumeirah
Affordable Housing
High-‐End Market
Trophy ProperTes
www.reidin.com
14
Market Analysis: The Spread between Transacted and Listed Prices
“When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. And the same principle works in invesTng.” – Warren Buffet
Spread between Listed Price and Transacted Fall in Trophy ProperTes
15
5%
10%
15%
20%
25%
30%
Jan-‐13
Feb-‐13
Mar-‐13
Apr-‐13
May-‐13
Jun-‐13
Jul-‐1
3
Aug-‐13
Sep-‐13
Oct-‐13
Nov-‐13
Dec-‐13
Jan-‐14
Feb-‐14
Mar-‐14
Apr-‐14 -‐10%
-‐5%
0%
5%
10%
15%
Jan-‐13
Feb-‐13
Mar-‐13
Apr-‐13
May-‐13
Jun-‐13
Jul-‐1
3
Aug-‐13
Sep-‐13
Oct-‐13
Nov-‐13
Dec-‐13
Jan-‐14
Feb-‐14
Mar-‐14
Apr-‐14
Listed Price – Transacted Price Spread: Trophy Property Listed Price – Transacted Price Spread: Affordable Housing
Historically, there has always been a spread between listed and transacted prices as the charts above reveal. This normally reflects aspiraTonal selling prices of exisTng investors, as well as market dynamics of the parTcular market segment that they are operaTng in. The spread has narrowed by 50% in the trophy segment, whereas in the affordable segment it has remained flat (a rolling analysis indicates even a slight increase). This is perhaps the most compelling indicator of price expectaTons in the trophy market ratcheTng downwards in response to lower demand, whereas no such shi_ has been discernable in the affordable segment and in a rendiTon of Keynes dark forces of Tme and uncertainty, is a prelude for an imminent price correcTon in the trophy segment.
50% down
No change
www.reidin.com www.reidin.com
16
Dubai Marina
Discovery Garden
Dubai Sport City JLT InternaMonal
City Palm
Jumeriah Business Bay The Greens Average
Jan-‐13 11% -‐13% 15% 17% 4% 42% 7% 5% 11%
Feb-‐13 8% 4% 7% 11% 5% 19% 20% 4% 10%
Mar-‐13 20% -‐8% 5% 7% -‐3% 13% 24% 11% 9%
Apr-‐13 20% -‐11% 3% 9% -‐4% 5% 12% 12% 6%
May-‐13 18% -‐4% 3% 9% 19% 20% 12% 11% 11%
Jun-‐13 18% -‐6% 0% 7% 1% 5% 13% 7% 6%
Jul-‐13 22% -‐15% 0% 8% 4% 9% 8% 7% 5%
Aug-‐13 19% -‐5% -‐9% 13% 16% 35% 8% 16% 12%
Sep-‐13 18% 10% 5% 5% 14% 15% 17% 8% 12%
Oct-‐13 28% -‐6% 2% 12% 2% 20% 7% 11% 10%
Nov-‐13 25% 3% -‐2% 10% -‐2% 11% 8% 26% 10%
Dec-‐13 15% 6% 3% 6% 3% 15% 8% 0% 7%
Jan-‐14 23% -‐9% 11% 19% -‐4% 10% 4% -‐1% 7%
Feb-‐14 19% 0% 1% 11% 4% 20% 27% 2% 11%
Mar-‐14 15% -‐5% 7% 13% 3% 5% 7% 7% 7%
Apr-‐14 16% 0% 5% 5% 1% 11% 10% 2% 6%
Community-‐Wise Spread Between Transacted and Listed Prices
A city wide analysis of the gap between transacted and listed prices shows a narrowing across the board for most property segments in the higher and the t rophy segment , whereas In communiTes such as Discovery Gardens, it as actually widened, indicaTng strong investor demand and indicaTve of the fact that investors are both cognizant of the supply shortages in this segment as well as aligning themselves with the job creaTon which is the source of the demand in the first place
50% Convergence in Average Differences Between Transacted and Listed Prices
www.reidin.com
Conclusions Affordable Housing Outperforms Affordable Housing BeWer Rental Yields
Analysis of Transacted and Listed Prices Outlook
The middle-‐income segments accounts for 43% of the total popula8on, and will be the key d emand d r i v e r f o r t h e affordable housing in the coming years
The Dubai real-‐estate market h a s e x h i b i t e d s i m i l a r characteris8cs to the United States market, where trophy proper8es in the long-‐run have outperformed the affordable housing segment. However, recently a reversal of trends have transpired
There have been periods in Tme, as seen in the bust and boom cycles of the New York real estate market, where Affordable Housing has had superior growth rates to that of Trophy ProperTes. A recent study in the United States illustrates that in the last 2 years there has been a structural change in major metropolitan ciTes where Affordab le Hous ing CommuniTes have appreciated faster Similar trends are witnessed in Dubai in the last 6 months , whe re commun iTes such a s InternaTonal City has outperformed Marina, Downtown and Palm Jumeirah
A community-‐wise analysis shows that affordable housing communiTes produce the superior net rental yields at 6.9%, which is higher than both High end segment (6.2%) and Trophy ProperTes (4.9%) A Tme series analysis of 5 years indicates that rental growth rates have been higher in Trophy compared to affordable housing communiTes by 10% However, in the last 14 months, we have seen a reversal of trends, driven by lack of supply and mid-‐income job creaTon leading to rental growth rates within the Affordable housing market out preforming
Historically, there has always been a spread between listed and transacted prices. The spread has narrowed by 50% in the trophy segment, whereas in the affordable segment it has remained flat. A city wide analysis of the gap between transacted and listed prices shows a narrowing across the board for most property segments in the higher and the trophy segment, whereas In communiTes such as Discovery Gardens, it as actually widened, indicaTng strong investor demand
it is evident that there is an acute shortage of mid income housing, leading to extra ordinary price and rental appreciaTon levels in this segment Dubai's phase of real estate price cycle has been one where trophy properTes have outperformed as developers have offered a spectacular array of dazzling projects. However, the job engine going forward is predominantly in the mid income segment Investors will start to snap up properTes, and even buy land in mid income areas such as DWC, Al Furjan, DSO, DRC, Arjan, Majan and Jumeirah village.
REIDIN.com is the leading real estate informaTon company focusing on emerging markets. REIDIN.com offers intelligent and user-‐friendly online informaTon soluTons helping professionals access relevant data and informaTon in a Tmely and cost effecTve basis. Reidin is the data provider for these research reports Concord Tower, No: 2304, Dubai Media City, PO Box 333929 Dubai, United Arab Emirates Tel. +971 4 433 13 98 Fax. +971 4 360 47 88 www.reidin.com
Unitas believes in in-‐depth planning and discipline as a mechanism to idenTfy and exploit market discrepancy and capitalize on diversified revenue streams. Our purpose is to manage, direct, and create wealth for our clients. Unitas is the author for these research reports
Palladium Tower, No: 103, Jumeirah Lake Towers, PO Box 500231 Dubai, United Arab Emirates Tel. +971 4 447 72 20 Fax. +9714 447 72 21 www.unitasconsultancy.com
17
Our AspiraTon and MoWo
“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
