REDIN, 9 January 2019
Primary Markets, are defined by units offered directly by the developer and secondary market are units available in the open market. The price comparison between both markets reveals that they trade close to parity, but however optically it may seem that the secondary market is trading a sizeable discount. However after taking into consideration the cost of money or ‘interest payments’ the difference diminishes.
Over the last 12-18 month there has been a wave of offerings of ready units with post-handover payment plans directly from developers, leading to a surge in activity in the primary market. In communities such as Furjan and Arabian Ranches 2, primary sales in the ready space account for more than 60% of activity (up a massive four fold from 15% in 2017). Other factors such as hidden fees, ease of transactions, and rise of interest rates have deterred buyers away from the secondary market and towards the primary.
Barriers of Entry Primary vs Secondary Market
The gap between the primary and secondary market values will continue to be a function of a)interest rates and b)liquidity premium. This is well grounded in economic theory. Developers will be incentivized to offer payment plans to clear their inventory, especially at the expense of the secondary market, but at some point the gap between the primary and the secondary market becomes wide enough to be capitalized on.
This suggests that as the interest rate cycle peaks (which is expected this year), the secondary market values will likely stage a rebound, albeit a modest one, independent of the demand dynamics that are linked to the World expo event and other stimulus measures.
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