Sentiments Versus Market Fundamentals

I have always based my investment decisions and corporate advisory for clientele on some deep analysis and market fundamentals. These two principles have always safeguarded my individual and institutional investors in the long term.

There is an on-going debate that questions the rationality of the current real estate sentiment in Dubai versus market fundamentals. Fact is, the real estate market is already signaling a faster than anticipated recovery despite the fundamental factors of the supply and demand argument, the corona impact, and the international travel restrictions.

By nature, many adapt their buying options transfixed on real estate investments while it is hot. Hence by then, the prices are already high. Missing early signals makes it difficult to decide whether it is time to buy or sell and requires industry experts to understand it.

What is driving the real estate market in Dubai right now is the positive sentiment trend driving the demand for ready properties.

Market sentiment is a qualitative measure of the attitude and mood of investors. Positive and negative sentiment drive price action and also create trading and investment opportunities. Because market sentiment cannot be defined or measured, there is no specific correct or incorrect way to conduct sentiment analysis.

Nevertheless, there are ways to use and combine other indicators that reflect market sentiment. For the past six months, a positive shift in buying behavior from investors and end-users has impacted prices to rise in specific segments. We have seen this clearly in the ready villas and townhouses inventory. In turn, we saw a strong momentum on ready property sales transactions versus off-plan sales from official data released by the Dubai Land Department.

Some brokers nowadays are complaining because property owners are adjusting their prices upward. The secondary real estate market created a challenge for many investors who believed market fundamentals are not supporting buying properties. Others still having a negative outlook on the whole market, missing the opportunity to pick deals at attractive levels.

Empirical evidence also shows that sentiment readings very often occur at turning points. Ultimately what moves prices is what people in the market think, regardless of whether it's in agreement with the fundamentals or not.

Sentiment drives supply and demand, which in turn spikes the price. It can also move the price in the same direction as with fundamentals or in the opposite direction. But in the short term, a sentiment often overrides fundamentals.