What's at Stake this week? | June 18, 2023

Is it still a surprise when Dubai reaches another peak? This time, The Economist has ranked Dubai third in its list of the top global cities, surpassing the likes of New York and London. This commendable positioning reflects the city's dynamic leadership and the effective execution of the Dubai Economic Agenda (D33)! The ranking considered multiple indicators including population growth, economic development, and housing price trends over the previous three years. Notable benefits contributing to Dubai's high rank were its pragmatic approach and controlled response to the pandemic and its appealing climate designed for entrepreneurship and growth. Miami and Singapore led the list, securing the first and second spots respectively.

?? ICYMI: What’s happening globally?

How global markets are defying predictions

A Take from Stake | By David Harte , Operations & Strategy Manager

While our focus may be on markets in the Middle East (at least for now anyway..!), we keep our ears close to the ground about what’s going on across the globe. The last couple of years have been interesting, to say the least, with many economists and financial advisors expecting somewhat of a real estate ‘bloodbath’ as we emerged into a post-COVID world.?

While it may have been more of a nosebleed than a bloodbath, global real estate markets did indeed see a decline. However, in the face of broader economic uncertainty and an interest rate environment few could have anticipated, it is perhaps more noteworthy to look at the resilience of global real estate, and why it didn’t fall as dramatically as experts expected.?

To give a quick recap, the month that the Federal Reserve started raising interest rates, in March 2022, the average house value in a ‘wealthy’ country had risen c. 40% versus 5 years prior. Since then, central-bank policy rates have risen by more than three percentage points on average globally, making mortgages more expensive and slowing the economy. This, of course, trickled down to housing prices, and they are now 3% below their recent peak (slightly more when we adjust for inflation). Not quite the massacre seen in the ‘07/08 financial crisis. What also makes this episode different, is that it followed a pandemic ‘boom’ in which prices rose at their fastest rate of all time.?

In a recent article by The Economist, they cited three primary factors to explain why the ‘wealthy’ world’s housing market has been particularly resilient.?

1. Migration: The developed world has seen record levels of migration in recent years, and the demand from new arrivals is playing a supportive role in these markets.
2. Household finances: Wealthier people drove the housing boom, with post-financial crisis mortgage regulations closing the door to less creditworthy buyers. Wealthier households can more easily absorb the higher mortgage rates, and in fact, many of them locked in more palatable rates in past low-interest rate environments. Even as rates have risen, the average ratio of debt-service payments to income across the rich world remains lower than its pre-pandemic norm. Finally, the pandemic itself had a direct role to play, in that the resultant reduction in consumption led a lot of people to have “excess savings” which acted as a cushion for higher rates.
3. Preferences: The Bank of England's study suggests that evolving preferences, like the increased demand for home offices, drove half the pandemic-era rise in UK house prices. Additionally, shrinking average household sizes, as seen in many developed nations, indicate a reduced interest in shared living. If such trends persist globally, the post-pandemic housing demand might remain high.

The bottom line? There are strong indications that even with the recent ‘blip’ (refer to illustration above), the global real estate market is in a very healthy position looking forward. After reaching an all-time low last year, consumer confidence across wealthier nations is on the rise again, households still have plenty of excess savings, and a structural shortage of housing means demand is always there. While we have, in the past, spoken at length about the Dubai real estate market going from strength to strength, it is very exciting to see global markets showcasing the resilience of the asset class!?

?? Market Watch: Dubai, UAE

Resilient sectors propel Dubai's economic recovery to pre-pandemic levels

Dubai's economic comeback story post-pandemic has been nothing short of remarkable, with the city regaining 98% of its pre-pandemic size, as reported by research firm BMI with retail, transportation, and storage sectors leading this recovery.?

However, a slight deceleration in Dubai’s gross domestic product (GDP) growth is expected, with projections indicating a decline from an estimated 4.2% in 2022 to 3.4% in 2023 due to lower oil prices. Despite this anticipated slowdown, the city's growth forecast remains positive, with GDP rates predicted to exceed the 2015-2019 average of 3.1%.

This optimistic projection is rooted in the ongoing recovery of key sectors yet to fully bounce back from the pandemic with growth this year expected to remain above the historical trend as suggested by the report. A slower growth rate is foreseen in sectors such as accommodation and food services, with an estimated 10% rise in tourist arrivals in 2023, down from the robust 55% surge witnessed in 2022.

Nonetheless, Dubai's tourism sector showcased its resilience in April 2023, attracting over 6 million visitors in just the first four months, an 18% increase from the previous year. A record-breaking Ramadan season added to this, drawing 1.35 million visitors, up 19% from 2022 and a 50% jump compared to pre-pandemic levels in 2019.

The report highlights that sectors including wholesale and retail, transportation and storage, finance and insurance, as well as manufacturing, real estate, and construction, are poised to significantly contribute to Dubai's GDP in 2023. The recovery of Dubai's main trading partner, China, and resilient demand from neighboring Gulf countries, coupled with increased efforts to boost foreign trade, will likely keep the growth in the transportation and storage sector high.

Lastly, the financial sector is anticipated to maintain its positive trend, propelled by company listings on the Dubai Financial Market and sustained momentum in the local private equity market.

The bottom line? Despite the challenges of the pandemic, sectors like finance, wholesale, retail, and real estate are set to turbocharge Dubai's economy in 2023 on its path to recovery… As we like to say at Stake, the future looks bright!?