When real estate deals are done at the bottom of the market, pushing it through takes an uncommon combination of chutzpah, sangfroid and hubris.
Listening to conventional wisdom gets you nowhere. While a certain amount of swagger is required to push through a vision that no one else sees. In a sense, this is what Dubai did when the freehold phenomena started in 2002.
Over the next two decades, Dubai has been a magnet for the super-rich, the global elite who used the latest real estate developments as a pad for their money, what the appraiser Jonathan Miller called the ‘modern day Swiss bank’. Developers who understood this actively encouraged the shift and have profited handsomely from the transition.
But in the world of real estate finance, where swagger and a no-hold barred approach is common, there are also the quiet operators who prefer to stay in the shadows, letting their money call the shots. Whenever there have been periods of excess, these players have voted with their money to reallocate their capital towards other opportunities the city may provide.
All focus on biggest, brightest
Amidst an influx of hedge fund operators, family offices and developers - who rushed to market with chest thumping announcements, backed by media that has chosen to hang on to their every word - there is this feeling that the frenzy in offplan (culminating in the headline grabbing launch and sell out of Palm Jebel Ali), has resulted in opportunities being overlooked in other areas of the market.
And in other areas of the city.
It is the sense that ostentatious projects that are largely capital-intensive in nature have a timeframe and a whole price cycle they have to go through (in the backdrop of a quantitative tightening cycle and a rapidly cooling global real estate market) that suggests the fall in secondary market activity is suggestive of a more subdued period ahead.
The shape shifting nature of the industry suggests once again that liquidity cycles are pointing towards a reallocation towards relative rather than absolute opportunities.
The narrative in Dubai has swung from oversupply to undersupply with astonishing speed. Little suggests that this cannot change again, especially as higher interest rates start to bite and luxury properties sit not only for longer periods of time on the market but make their way to auction.
Check the secondary market
In this zeitgeist, it is the quiet operators - not the number crunching analysts of the hedge find community who tweet out their latest opinions or let their passions get the better of them - who have looked at variables such as ‘replacement values’.
And quietly suggested the way to get marginal exposure is either through the secondary markets or through providing hard money loans that can push borrowers against the wall in an environment of higher for longer interest rates. Then, we have the scions who, steeped with wealth and polish, look to avoid the operatic failures of the past and instead open up new frontiers. And cast a spell on bankers, analysts and investors.
Retail investors who typically tend to ‘follow the crowd at chowtime’ have a similar sense this time about the naysayers in the room.
They look past the temptation of snapping up the latest and the greatest, and instead look towards areas that have either not performed as well - the midmarket segment - in the same space and/or look for liquidity premium trades (in the capital markets) where there is still some value left on the table.
In a sense, this is where a new chapter of the city begins, not only in terms of its growth trajectory, but also in market maturity. Where value trumps luxury and desire, and to move out before the vultures move in for the inevitable price cycle that leads to market squeezes.
From a sentiment perspective, there can be no doubt that Dubai has bucked the trend in an astonishing way. However, to look at it from that prism ignores the latest in a long line of achievements the city has accomplished.
Rather, it is about the dawn of a new gilded age of finance, the opportunities that are available to exploit it, and the adventures that come along in the way.
