Moody's assigns 'negative' outlook to GCC property sector

Tight liquidity, weak demand, and over supply in the GCC’s real estate market saw ratings agency Moody’s slap a ‘negative’ outlook on the sector for 2009 on Wednesday.

Access to finance - exacerbated by the liquidity crunch - had become more difficult since September 2008 and poor investor sentiment had pushed speculative buyers out of the market, Moody’s noted in a new report , which assessed credit conditions in the industry over the next 12 to 18 months.

"Although drivers of demand vary considerably among the Gulf Cooperation Council (GCC) countries, residential and commercial real estate are under pressure due to lower demand, lack of funding, worsening consumer sentiment and risk of over-supply," the report said.

The ratings agency also blamed population contraction due to widespread job losses among expatriate workers for its bearish outlook on property in the Gulf.

"Furthermore, long-term population growth rates - in excess of five percent for most countries in the region - are no longer realistic in the short term and may become negative over the coming quarters as investments in commercial activities, including foreign direct investments, are drying up,” the report warned.

Last week Egyptian investment bank EFG-Hermes forecast that the UAE’s population would shrink by 5.5 percent in 2009, with Dubai’s contracting 17 percent.

Refinancing, the agency said, would be a problem for companies with ‘uncommitted short-term bank lines’.

Moody’s cited Saudi Arabia as one exception to its negative rating for Gulf real estate due to a growing local population fuelling demand for housing.

However, there was cause for optimism due to the high level of support the real estate sector had received in the form of financial bailouts and stimulus packages from governments, Moody’s added.

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