Caveat Emptor - the perils ahead for those investing in Dubai's for-profit private schools

The National 23/04/2017

It has been a tough few days for the UAE schools' market. Last week GEMS announced that their flagship ultra-premium school, GEMS Nations Academy will be 'merging' with GEMS Dubai American Academy (Education Journal Middle East 13/04/2017) and today The National has run two stories indicating that parents are shopping around because the 'High Cost of Education is the biggest challenge faced by parents.'

These stories indicate that the oversupply of schools is having an impact at every level of the UAE private schools market.

The failure of GEMS Nations is indicative that there is not a market for an ultra-Premium school in Dubai.

The effective closure of GEMS Nations Academy after only one year indicates that there is not a market for an ultra-Premium school in what is an already competitive Premium marketplace. This flagship school boasted the best teaching, small class sizes and Rolls Royce school facilities - all at an eye-watering price point that was 30% higher than most of its competitors. GEMS is a big enough organisation to absorb this loss and its merger with DAA is a useful Plan B. Its failure must serve as a warning sign not only to North London Collegiate School, Dubai who are also pitching into the market in September 2017 with ultra-premium priced product, but also to Brighton and Dwight who are coming to Dubai in 2018, and to other UK schools thinking of establishing franchise schools in the UAE.

Market forces are driving a readjustment in Dubai's private schools' market.

The National story on parents shopping around and moving children between schools represents a readjustment in the wider private schools market. It was only in the academic year 2014-15 that the number of places exceeded the number of pupils. Any under-supplied market has the potential for rich pickings for investors, this is all the more so when it is an 'essential' product that is being sold - ex-pat parents are required by law to put their child into a private school. The consequence was that schools were able to open and thrive that do not represent good value to parents. 

A market-driven schools sector is generally a good thing. Now that there is over-supply we are seeing market forces at work: parents moving children between schools, greater competition is driving up school quality, and prices are falling. However, we can also expect more school closures as 'the dark hand of the market' culls those who don't make the mark.

The challenge for school owners, governors and school leaders is to raise standards without raising prices.

The challenge for school owners, governors and school leaders is to raise standards without raising prices. This will be particularly difficult in a context of a global shortage of teachers and of rising costs due to the introduction of VAT in January 2018, and the inevitable subsequent wage-price inflation that will follow. It is likely that schools will be forced to absorb costs in order to retain market share, with the obvious consequence that returns for shareholders will fall.

These are exciting but difficult times for the private school sector. The streets of Dubai are not paved with gold - let anyone thinking of investing in the private schools sector beware - Caveat Emptor.