Perfect Timing!

Every investor at some point gets to understand that real estate operates in cycles. It is an extremely important part of the whole investment equation because investment at the wrong time can be a major setback.

As a real estate investor, timing the real estate cycle is essential. Real Estate regularly goes through multi-year cycles of boom and bust periods, just like any other long-running asset class or trend. Generally, real estate cycles can be closely tied to the economy. However, you can’t assume that the housing market would do well just because the economy is, or vice versa.?

The real estate cycle is made up of four phases: recovery, expansion, hyper-supply, and recession. Understanding where the market is in the cycle is key to any investment decision you make as it will influence your buying strategy, the length of your holding period, and your exit strategy once you wish to realize your returns and capital gains. Moreover, real estate cycles can help predict the income and capital appreciation performance of an investment opportunity.?

1.Recovery

It can be tricky to identify the recovery phase of the cycle as most of the market will still be licking their portfolio wounds from the recession and will have a pessimistic outlook. Rental growth will remain stagnant, alongside dwindling upcoming supply. For investors, this is the ideal time to take advantage of below market value properties that have the potential to be special once the market recovers. You could wait out the rest of the recovery stage by adding value to these properties so that they’re ready to rent or sell outright as the economy shifts into the expansion phase. Timing is, obviously, key.?

2.Expansion

The economy is now starting to improve, job growth is getting stronger and there’s an increased demand for space and housing. The general public is now regaining confidence in the economy and the market, resulting in an increase in demand amongst renters and homebuyers.?As the market is on an upswing, it’s the best time to invest in developing/re-developing your existing properties that meet the current market’s preferences and sell for more than the market value.?

3.Hyper-Supply

If you’ve been following the Dubai property markets for the past couple of years, you’d know market commentators and even some developers were ringing the alarm bells about this stage. During the expansion phase, investors and developers alike can end up flooding the market with supply to meet growing demand. Sentiment might be too optimistic, with a “build it and they will come” mentality, but that rarely happens as population demographics and black swan events don’t necessarily follow economic or real estate cycles. During this point, the market enters a tipping point where either there’s far too much excess supply or the economy shifts in a way in which demand pulls back. Dubai was hit with a double whammy during the 2014-20 bear market where there was an excess of supply and a combination of economic factors, like multi-year long falls in oil prices, and geopolitical issues affecting foreign investment, causing demand to pull back.?

This is a great time to identify properties you feel confident will perform well in the next Expansion phase in the real estate cycle and follow a buy and hold strategy, so that you have exceptional stock ready when it comes time to sell again.?

4.Recession

The Recession stage is one that we’re all too familiar with for the past few years, until recently. Excess supply falls in FDI, low oil prices, and the first pandemic in a century derailed the Dubai property market to its most recent bottom in 2019-2020. During this stage, excess supply is far greater than demand by a wide margin, and property owners face high vacancy rates. Moreover, rental growth is non-existent, with landlords forced to reduce rental rates to attract renters who are also suffering from the economic downturn.?

The real estate cycle is a concept that every successful real estate investor must understand. All four phases of the cycle – recovery, expansion, hyper supply, and recession – cause the real estate market to dramatically shift, so investors must keep their hand on the pulse and eyes on the data to find opportunities in each stage of the cycle.?

The UAE property market looks to be well into its recovery stage and may enter the expansion stage in the coming years, as overall value and transaction data are reaching record-highs, so it’s the perfect time to start investing in real estate to maximize your returns once the next Hyper Supply/Recession cycle eventually comes.?