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Morgan Stanley report criticised
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The projected 10 per cent decline in Dubai's property market by 2010 as reported by Morgan Stanley on Tuesday has failed to take into consideration regional fundamentals, Dubai-based developers said yesterday.
"The report has assumed aggressive supplies and in our view it did not take into consideration many significant factors such as the expected oversupply is not going to be across all the market segments and economic growth potential," Zaid Ghoul, Chief Financial Officer, Union Properties, told Emirates Business.
"The report relied heavily on markets like Spain and Singapore and has derived its valuation methodology based on those and similar markets in Eastern Europe neglecting the fact that those markets are fundamentally different than the Dubai market and the whole Middle East as a wider region," Ghoul said.
He believes that the office market segment, villas and low-rise apartments will continue to be underserved and are expected to continue being in demand post-2009.
Dubai's economic growth has recorded a compound annual growth rate of 18 per cent over the past seven years with gross domestic product exceeding $54 billion (Dh198bn) at the end of 2007. Even the Dubai Strategic Plan 2015 has a goal to grow GDP to more than $100bn by 2015, and has revealed a plan with significant investments to support infrastructure and the increasing demand for real estate, tourism and leisure sectors.
Ahmad Al Matrooshi, Managing Director – UAE, Emaar Properties, said: "The performance of Dubai's real estate sector is essentially a reflection of the overall economy. Dubai projects an average annual growth of 11 per cent as outlined in the Dubai Strategic Plan. This is expected to sustain a buoyant real estate sector – which is still demand-driven. Although supply is expected to grow in the coming years, projections of Dubai's real estate sector must be based on economic growth realities. With the Middle East, including Dubai, emerging as the hub of investments in infrastructure building, demand for residential, commercial, hospitality and retail real estate will continue to increase."
Tarek Kandil, Chief Executive Officer, Define Properties, echoed the same sentiment. "I don't believe that property prices are likely to drop next year. Although we expect an increase in housing unit supplies, demand will still far outstrip supplies. In the worst case scenario, it may not rise, but will certainly stabilise, considering the strong economy of Dubai and it being rated as one of the safest places in the region."
According to Ian Powell, Business Development Manager of Bando Engineering & Construction, residential and commercial real estate prices are likely to remain positive well past 2014.
"We foresee continued growth in Dubai real estate market due to the high demand and interest from new international investors wishing to relocate to this part of the region."
U Balasubramaniam, Chief Executive Officer, Dubai Sports City, said: "Developers are charging exorbitant service charges from Dh10 to Dh18 a square foot and upwards. That in itself speaks of the demand in the market, which indicates that the realty market will go higher next year as well."
Union Properties objects to rating
Union Properties has disagreed with the "underweight" rating assigned to its share by Morgan Stanley based on a base case target price of Dh5.7 per share.
The stock fell 5.68 per cent to Dh4.89 on the Dubai Financial Market yesterday.
"The Morgan Stanley research team has not visited us requesting information that will allow them to initiate their coverage on Union Properties. We met with them a long time ago when they introduced themselves but none of the assumptions made was either obtained from our management or even discussed before the report has been issued. This is not the common practice and we have officially notified them of that," said Zaid Ghoul, Chief Financial Officer, Union Properties.
The base case target value was based on the assumption that the Dubai market will see a correction in 2009, leading to price declines. "This assumption is totally wrong considering the fact that the majority of the inventory expected for delivery has been sold at a significant premium to the original price launch in line with the price increase witnessed in the market. Adjusting this assumption will have a significant effect on the target value and the assigned rating," he said.
"The quality of research should be closely monitored. It is interesting to note that the analyst initiating the Morgan Stanley coverage and valuing Union Properties share at 40 per cent discount its net asset value, is the same analyst who initiated coverage valuing UP share at 1.6 times net asset value sometime ago," Ghoul said.
"The target value assumed will be affected by price declines resulting from the correction expected in 2009. This is very remote. The more reasonable scenario is that of the Bull Case that assumed a price increase of 20 per cent (as this has already been achieved) and a target value of Dh7.5 per share," the company argued in its reply to Morgan Stanley.
"The report has assumed aggressive supplies and in our view it did not take into consideration many significant factors such as the expected oversupply is not going to be across all the market segments and economic growth potential," Zaid Ghoul, Chief Financial Officer, Union Properties, told Emirates Business.
"The report relied heavily on markets like Spain and Singapore and has derived its valuation methodology based on those and similar markets in Eastern Europe neglecting the fact that those markets are fundamentally different than the Dubai market and the whole Middle East as a wider region," Ghoul said.
He believes that the office market segment, villas and low-rise apartments will continue to be underserved and are expected to continue being in demand post-2009.
Dubai's economic growth has recorded a compound annual growth rate of 18 per cent over the past seven years with gross domestic product exceeding $54 billion (Dh198bn) at the end of 2007. Even the Dubai Strategic Plan 2015 has a goal to grow GDP to more than $100bn by 2015, and has revealed a plan with significant investments to support infrastructure and the increasing demand for real estate, tourism and leisure sectors.
Ahmad Al Matrooshi, Managing Director – UAE, Emaar Properties, said: "The performance of Dubai's real estate sector is essentially a reflection of the overall economy. Dubai projects an average annual growth of 11 per cent as outlined in the Dubai Strategic Plan. This is expected to sustain a buoyant real estate sector – which is still demand-driven. Although supply is expected to grow in the coming years, projections of Dubai's real estate sector must be based on economic growth realities. With the Middle East, including Dubai, emerging as the hub of investments in infrastructure building, demand for residential, commercial, hospitality and retail real estate will continue to increase."
Tarek Kandil, Chief Executive Officer, Define Properties, echoed the same sentiment. "I don't believe that property prices are likely to drop next year. Although we expect an increase in housing unit supplies, demand will still far outstrip supplies. In the worst case scenario, it may not rise, but will certainly stabilise, considering the strong economy of Dubai and it being rated as one of the safest places in the region."
According to Ian Powell, Business Development Manager of Bando Engineering & Construction, residential and commercial real estate prices are likely to remain positive well past 2014.
"We foresee continued growth in Dubai real estate market due to the high demand and interest from new international investors wishing to relocate to this part of the region."
U Balasubramaniam, Chief Executive Officer, Dubai Sports City, said: "Developers are charging exorbitant service charges from Dh10 to Dh18 a square foot and upwards. That in itself speaks of the demand in the market, which indicates that the realty market will go higher next year as well."
Union Properties objects to rating
Union Properties has disagreed with the "underweight" rating assigned to its share by Morgan Stanley based on a base case target price of Dh5.7 per share.
The stock fell 5.68 per cent to Dh4.89 on the Dubai Financial Market yesterday.
"The Morgan Stanley research team has not visited us requesting information that will allow them to initiate their coverage on Union Properties. We met with them a long time ago when they introduced themselves but none of the assumptions made was either obtained from our management or even discussed before the report has been issued. This is not the common practice and we have officially notified them of that," said Zaid Ghoul, Chief Financial Officer, Union Properties.
The base case target value was based on the assumption that the Dubai market will see a correction in 2009, leading to price declines. "This assumption is totally wrong considering the fact that the majority of the inventory expected for delivery has been sold at a significant premium to the original price launch in line with the price increase witnessed in the market. Adjusting this assumption will have a significant effect on the target value and the assigned rating," he said.
"The quality of research should be closely monitored. It is interesting to note that the analyst initiating the Morgan Stanley coverage and valuing Union Properties share at 40 per cent discount its net asset value, is the same analyst who initiated coverage valuing UP share at 1.6 times net asset value sometime ago," Ghoul said.
"The target value assumed will be affected by price declines resulting from the correction expected in 2009. This is very remote. The more reasonable scenario is that of the Bull Case that assumed a price increase of 20 per cent (as this has already been achieved) and a target value of Dh7.5 per share," the company argued in its reply to Morgan Stanley.