Property is still priced favourably

HOMEAPP & DAVIMA RESEARCH HOUSE

E-MAIL: [email protected]

 

PROPERTY IS STILL PRICED FAVOURABLY

 

We believe that UAE real estate market is priced favourably compared to its peer countries as demonstrated in exhibits below. This analysis is based on comparing property prices while considering public wealth and quality of living. In our analysis we used Dubai which on average has the highest property prices in the UAE.

 

As chart below demonstrates the real estate prices in UAE are still low relative to disposable income. Prices in Dubai are also favourable if taking into account the quality-of-life index.  We note that in the UAE there are some areas and/or buildings that may be overpriced relative to demand but overall, the market seems to be favourably priced.

 

Exhibit: Real estate prices remain attractive if weighted against the wealth of the population

 

 

Note: Price to Income is a fundamental measure for apartment purchase affordability, where a lower ratio indicates better affordability. It is typically calculated as the ratio of median apartment prices to median familial disposable income, expressed as years of income (although variations are used also elsewhere).

 

Sources: Numbeo

 

Exhibit: Prices also look good if considering quality-of-life index

 

 

Note: Quality of Life Index is an estimation of the overall quality of life in a city or country. It takes into account various factors that impact one's quality of life, including purchasing power, pollution levels, housing affordability, cost of living, safety, healthcare quality, commute times, and climate conditions. The index is designed to provide a comparative measure, where a higher index value indicates a better quality of life.

 

Source: Numbeo

 

In our view investors when pricing UAE real estate currently input additional risk premium by overestimating the following risks

 

1)      geopolitical risks,

2)      economic volatility,

3)      climate,

4)      perception of weak infrastructure,

5)      visa requirements

6)      Other aspects pertaining to a quality of life.

 

At the same time, during the last several years UAE has made tremendous progress in these areas. The country now has more liberal visa regime, significantly improved quality of life for different nationalities and religious believes, has a more diversified and resilient economy (making it less sensitive to oil price change), good education, transport infrastructure. UAE government ensure its position as one of the global economic hubs with a value-added economy and has demonstrated resilience to geopolitical instability in GCC being viewed as a “safe heaven”.

 

We believe that gradually investors will reprice its risk premium leading to higher demand towards UAE market. At the same time, the selection of individual properties should be done with the extreme caution as there could be wrong investment decisions. Going forward the individual analysis of properties will grow in significance.