Real estate prices in the United Arab Emirates (UAE) are likely to continue declining in 2016, says Standard & Poor’s Ratings Services in a most recent report. For the coming year, analysts at the rating agency see no sign of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment.
Pressures have arisen from low oil prices dampening the hiring and expansion plans of oil-exposed companies; non-oil private companies’ business activities having softened; the strong US dollar rendering UAE real estate more expensive for international investors holding non-US-dollar liquidities; and pressures on tourism negatively affecting retailers and their landlords, as well as hotel operators. That said, S&P do not foresee major negative movements in the real estate sector ratings over the next 12 months.
Generally, the rated property developers could absorb a 10% drop in residential sales prices in Dubai this year. Developers’ revenues should remain robust in 2016, despite headwinds. This reflects that most of their projects are presold — that is, the majority of units are already sold well before construction ends — and proceeds from buyers are blocked in an escrow account until completion. S&P rated real estate companies have secured lease structures with long lease tenures and more than 90% occupancies across the portfolio.
The lifting of geopolitical restrictions, such the sanctions on Russia and Iran, could strongly benefit the recovery of the UAE property market. This would open new investment flows into the regions’ real estate markets and partly compensate for the softening demand from other countries. A rebound in oil prices as well as weakening US dollar would also likely reverse the negative trend, in S&P’s view.