Summary
The 25% vacancy rate in Dubai is one more outcome directly related to hyperinflation in housing which is unsustainable in the new era of illiquidity. Even the previously unassailable American conclaves of wealth, privilege and luxury (Vail Village and Aspen, Colorado) show the inevitable drag of diminished wealth and the painful consequences of de leveraging, and moreover the fear that the worst is far from over. Market forces, regardless of the pain are the only lasting corrective measures.
Analysis
I am hoping that Dubai lacks the Emirate's equivalent of our Federal Reserve or in the alternative, the restraint to allow market forces to readjust to the housing oversupply. It is high time that we start valuing residential real estate (aside from our own homes) as assets which have a value mostly determined and supported by a valuation model dependent on sustainable net income.My advice to the Dubai risk holders is to think of their vacant homes as being worth no more than the reasonable rate of return to be extracted from careful management of these now vacant assets. Once valued in that fashion, responsible tenants become the buyers and the oversupply will be absorbed by creating new homeowners. .
If allowed to self correct in this fashion, Dubai will provide a more successful and confidant model of Home Affordability (than the US) allowing the market to reset prices based on supply and demand and without the very visible hand of a central bank whose focus is artifice as a recipe to prop up the overheated real estate market of yesteryear.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
