Dubai Property: Yield Fallacy

A look into the international real estate markets reveals that over the years there has been yield compression. In the United States from the 1960’s yields have declined by 29%, whereas in the Hong Kong from 1999 yields have compressed by 34%. This secular decline (over a longer period of time for the US) reflect the structural decline in long-term interest rates.

Elite City UAE170921_10-300x140 Dubai Property: Yield Fallacy Property Updates

Similar to the international markets we witness that there has been a yield compression in Dubai from 9% to 7% in the apartment space. The yield compression has transpired as a function of price growth outpacing rents. In the 18 months, prices have remained flat-lined but rents have decelerated.

Across major cities throughout the world, there has been a downward trending yield trajectory. Of all the major cities analyzed, Dubai remains far and above the highest yielding city, suggesting that there is ample room for further yield compression (partly a function of investors accepting lower risk premia) in the years ahead.

This suggests a different outcome of discourse, from the consensus-based cacophony of analyst concerns that have been expressed.

Source: REIDIN, 2017

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