25 June 2008

Merrill Lynch issues caution on UAE Real Estate

Despite taking in a chunk of money from external sovereign wealth funds, ML is turning bearish on the GCC Property Boom. This has impact on our sector.

According to UK based Oxford Business Group, US financial services giant Merrill Lynch has issued a word of caution against over-supply in the coming years. Predicting that Dubai may switch from under to over supply within the next two years, a recent report on the GCC warns that "oversupply in Dubai may result in relocation away from the Northern Emirates".

As the economy in the GCC is being based on the property value boom itself built on (what used to be called) petro dollars, this is a worrying trend and an indication that the bubble may have a finite time before it deflates. Couple this with rampant inflation (it just topped 10% in Kuwait officially. Unofficially it is higher than that in certain sectors and countries), and this is just not a good situation.

For travel this could occur at an inopportune time. Airlines in the Region represent the only market where significant growth is occurring without concern for the economics. India's growth has already moderated due to rapid rise of crude and despite strong demand the current crop of Indian Airlines are not making money. If we discount China for the moment - the whole Airline market is in recession already. Airbus and Boeing are going to start looking at their order books and production rates nervously if the Middle East market fizzles out.

Food for thought.



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