u/Terrible_Ear_9678

As a student of financial markets and history, i an interested in understanding what happens when real bond yields exceed the earning yields on equities. We have arrived at that inflection point for the fourth time in a 100 years.

Since 1900, real (after-inflation) bond yields have rarely paid more than stocks' earnings yield (1 ÷ CAPE). It’s happened on 3 occasion before:

1. 1929;
2. 1936–37; and
3. 1999–2000

In all 3 cases, what followed was a big bear market for equities.

I wonder if this time will be different with the unprecedented AI boom. Is it going to be different than the internet or the railroads? Is this the tulip mania?

10-year TIPS are paying about 2.9% after inflation vs. stocks' earnings yield of 2.4% with a CAPE ratioof 41.

This does not paint a pretty reading for holding equities.

Full disclaimer - i have moved capital towards short-duration low risk instruments and selective positioning in gold. I am not holding any long-term bonds - concerned about the rising yields which have further room to run. From an equity perspective, i feel we are in one of the frothiest markets with CAPE ratio of 41. I dont have a view on when the music stops but beleive that we are yet another step closer to an equity bear market. It may still take another year or more and play out differently. Conservatism has been quite costly for folks calling a top in equity markets. No one really knows.

I thing i know is that whenever CAPE ratio has exceeded 40x, real returns over the following 10 year period have been negative for equity holders.

As a prudent long-term investor (wannabe), I rather sit and watch from the sidelines and take positions when i am comfortable with the risk-reward proposition.

Would welcome insights and perspectives from folks you might have a deeper understanding or alternate data.

For a risk averse person, last 2 decades have been painful to see artificially low interest rates. It was obvious the party wont last forever but it did for a long long time and in this process it inflated all asset classes. I feel the most exposed are recent retirees exposed to long-dated fixed income portfolios and younger folks who entered the real estate market in the last few years.

As yields go up across the world, i wonder, where will they likely settle before the big bailouts happen again? Is is 6% for US 30 year tsy?

The capital and finance hungry $1tn annual AI build looks super scary as it is crowding out capital for other asset classes.

Furthermore, the macro backdrop looks increasingly fragile with rampant inflation and energy price shocks that are impacting the emerging world particularly adversely.

How would these yields reprice different asset classes, like real estate, infrastructure style low risk equities, etc.

In addition to the massive oversupply looming in dubai real estate, rising global yields are starting to reprice physical assets globally. Yields are the underlying force behind real asset cap rates. The rise in long yields to 20 year highs will accelerate the unwinding of the unprecedented upcycle the sector witnessed since 2020.

Dubai market is on the cusp of another reset (similar to the 2 witnessed in the last 20 years). Recall: market fell nearly 50% on 2 occasions previously (one flash crash in 2009/2010 and one slow and painful decline from 2014-2020 on the back of over supply). In both those cases, over supply and irrational exuberance, were the primary triggers for market cleansing.
Read my previous detailed post for more details:

https://www.reddit.com/r/UAERealEstateNetwork/s/ZhL1peNYDC

This time around, there are numerous headwinds:

1. ⁠3x larger Supply cycle than last 2 cycles
2. ⁠Geopolitical challenges
3. ⁠Rising yields (long-term rates hitting 20 year highs)
4. ⁠Demand increase constraints
5. ⁠70% of sales over the last 4 years have been offplan ($350bn worth)
6. ⁠Rental cycle has turned with average declines around 10-30% already depending on location

While off plan projects will get delayed, the supply tsunami is unstoppable as it represents nearly 60% of Dubai’s entire housing stock today.

I believe in the ingenuity of dubai government, the fiscal attractiveness of the tax haven, the relative safety of the country within the region, the consistent renivention of the government to adapt to changing environment.

However, i also believe in market cycles. No market has escaped the fate of over supply without a price clearing mechanism. I believe prices are likely to continue to drop over the next 18-24 months to such levels that prevent new projects from being launched and for demand to catch-up with supply. This will be a long, drawn out process in my view. The math of 30-40k housing unit demand increase per annum suggests it will take over 12-14 years to absorb the existing housing supply, let alone the continued launches of new projects.

Cracks are starting to show in rental rates and secondary sale prices. Furthermore, there is no real exit for off-plan SPA holders. Even folks willing to accept a 25% discount are unable to find any interest for prime properties. Just like any market, there are exceptions however. Some are faring better and some worse.

Patience is a virtue… caution warranted.

The declining rate environment over the last few decades, lit a fire under all assets. As yields dropped to near zero, assets generating a reasonable yield attracted a lot of capital. For those under late 40s, you have not see a period of rising long-term yields. You have seen the opposite where falling yields raise asset prices. We are now undergoing a paradigm change in yields globally with rising inflation and broken fiscals amongst western government (US deficit at $2tn is 6% of GDP and Europe). AI fueled boom requiring $1tn in annual capex spend now requires increase amounts of borrowing that competes with government borrowing. Consequently bond investors are demanding higher returns. Real estate investors today should also be demanding higher yields in a range of economic scenarios, least of which involves a lower rental rate environment that we will inevitably continue to witness.

This post is meant to offer an alternate perspective to the perma bulls who think markets only move in one direction. They are entitled to continue to believe that this time is different.

Someone wise said… history may not repeat itself, but it certainly rhymes

[effacé]

.In addition to the supply overhang, we are now witnessing capital reallocation towards Singapore, Milan and other jurisdictions.

I see a lot of posts inquiring about which areas are best suited for investment. Just as a rising tide lifts all ships, when the tide goes out you know what’s been swimming naked (warren buffett). In this hamam everyone is naked

Dubai has sold over $300bn in offplan properties over last 4 years. This will create an unprecedented overhang that’s not visible today.

As they say, follow the money - the trend is outward not inward

Caution is warranted. Be ware and protect your capital.

A cleansing process is underway that will shake out speculators. It will also create enormous opportunity for the patient value investor to take positions in the market in the next 12-18 months

Deposit rates are attractive relative to falling rental yields (with lot more to come)

Those who will have capital in 18 months will emerge as winners

For more data driven insights, Read my earlier post

https://www.reddit.com/r/dubairealestate/s/OsKIwIi4jL

Where are we on this journey?

Emotional Market Cycle - applies to all cyclical markets.

Following my earlier post on the subject, I am encouraged by insights and pragmatism of folks on this forum

https://www.reddit.com/r/dubairealestate/s/jx157RpnPW

I have seen this movie twice before in 2009 and 2014-2020

What is your read of the sentiment today?
My other post suggests we are enjoying the denial phase with smart money further along

Welcome real insights about sentiment from actual landlords and investors

Markets operate in cycles and smart money learns where we are in the cycle. Based on data, not on sentiment.
There are over 500k new homes under construction in Dubai. That’s nearly 60% new supply relative to the entire housing stock today. This supply wave is 300% larger than previous waves.

Even if we forget about the war, based on historical population growth of 200k per year, approx 30-40k new units are needed per annum. This means it will take 14 years to absorb the supply. Wait till 2040 to see the market tighten on fundamentals.

Even without the new supply online yet, rents are collapsing. Not everyone is reducing rental rates, which is creating an illusion of stability, but the market is clearing 10-30% below pre-war levels. Short rental rates are down 40-50% despite a lot of units exiting the market and pressuring long term supply. I say this as a landlord who put all his units on the market for sale, short-let and long rental prior to the war.

I also run a hospitality business. It died on day one of the war. Zero. It has since recovered to under half of last year’s revenue. That is my own P&L, not a forecast, and it tells you what happened to the demand side that everyone assumes is permanent.

Which brings me to something I am seeing more of every week: a lot of businesses coming up for sale. Not just holiday home operators. F&B, fit-out, small contracting, logistics, clinics. Some of it is the usual churn of people who bought a licence and got bored. But a meaningful amount is real businesses with real customers whose owners have run out of working capital. That is the part of this cycle that does not show up in a property index. Jobs go, then businesses go, then units come to market, then landlords who swore they would never reduce suddenly accept 12 cheques. That sequence has already started.
Turkeys don’t vote for Christmas - commission agents have no incentive to take a bearish view unless you are a seller. Do your own research and formulate your own opinion. If you really want to speculate, it’s better to invest in the stock market which is liquid.

Real estate is not a short term investment. Cycles can take 10 years to play out. Supply management and delays don’t change the picture. They just change the pace of price adjustment.

I’ve been investing in Dubai real estate for 20 years. Track record: 80% of purchases at the bottom and 20% mid-cycle. This is the single asset class where I accumulated my savings.

I sold 70% of my portfolio in the last 12 months within 10% of peak. At bank interest rates I am generating the same return I would through rentals without witnessing painful capital depreciation. Long yields are competitive — the 30 year US bond now yields around 5%.

Dubai property investment makes sense if it yields 5% net of all costs at bottom rental rates.

One example: a one bed unit in Downtown 20 years ago was over 2m. I purchased it in 2011 for 1.1m. Price went up to 2.2m in 2013. Went down to 1.1m again in 2019/2020. I sold it for 2.5m in August 2025. Similarly rental peak was 140k and trough 75k. I have seen those same levels twice.

The question is — what would prevent the same price action from occurring when:
Current supply wave is 3x previous cycles

War has removed the permanent safety conviction

Demand will exceed supply in 2040+ assuming pre-war growth assumptions

I built this thesis last year and am sharing it to provide folks a data driven perspective.

I love Dubai and am a big believer in its ingenuity to reinvent itself and create supportive conditions for turnarounds and demand growth. I will allocate a lot more capital but will learn from data and prior mistakes.
Despite recent price declines and selective distress opportunities, I am going to resist the temptation to buy mid cycle. The beauty is that a patient investor has a lot of time to shop at the bottom. In 2008, prices bounced along the bottom for 3 years. From 2014-2020 prices declined 50% over 6 years and then recovery started, taking prices to unprecedented pre-war levels only after 2021.

I see folks still trying to analyse the market based on wishful thinking through the rear view mirror. They say this is like Covid and prices will bounce soon, in 1-2 years. They forget prices had already declined 40% from 2014-2019, i.e. prior to Covid. These declines were due to continuous launches and supply overhang. Bizarrely the decline started nearly on the day EXPO2020 was announced. Covid was only the final blow, taking the total decline to roughly 50%.

This time is NOT different — cycles always repeat and the Dubai market is cyclical on steroids.
Government and policy actions are fantastic at engineering reversals through new demand creation. But no government in the world can prevent market cycles from cleansing supply demand imbalances. The market was being carried on euphoria, with properties priced on the assumption that demand would arrive faster than the concrete.

Off plan is always massively overpriced globally on the promise of capitalising gains on payment plans. This is no different in Toronto, where supply overhang has led to price declines for the last 4 years with some prices reverting to 2017 levels. Off plan only makes money if you buy early in the upcycle and exit before buyers disappear. When they disappear you are holding an unbuilt asset with instalments still due and no exit. I anticipate some off plan price declines close to 70%.
If you are an agent, please don’t bother posting a script that’s getting old. If you have tangible data driven insights, please share so we can all become more informed.
For sellers and buyers, please share what you are actually seeing in the market:
Sold recently? Asking vs what you got, and how long it took.

Landlords, what did you get for rental vs the old contract, and how many days empty?

Buyers? What is your greatest fear? What discounts are you seeing in established communities?

Anyone selling a business, or looking at one? What are you seeing on price and volume?

Investors looking to connect, please dm me. If you ask a throughout, well researched question, I will take the time to respond.

Some readers will be upset and I apologise. I suggest you do your own research and formulate a hypothesis.