Dubai's Emaar Properties faces a risk of oversupply in the emirate's real estate market, ratings agency Moody's said in a report on Tuesday, as the developer launches new projects and embarks on expansion of its existing assets.
Dubai is still recovering from its 2009 debt crisis but property firms have launched a slew of new housing, retail and hospitality projects - stoking fears of another boom-bust cycle in the emirate's real estate market.
Most recently, Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum announced plans on Saturday to build an entertainment and hotel district that will include the world's largest shopping mall and over 100 hotels.
Emaar has also launched many new residential projects this year and is also expanding its flagship Dubai Mall.
Moody's said while Emaar's hospitality and retail assets provide a cushion against market volatility, more developers are launching similar projects and thereby running a risk of overcapacity.
"There is a risk that the company embarks on a significant multi-year capital spending plan in the current market up-cycle to not only launch new developments but also expand its hospitality and retail assets at a time when competitors are increasingly becoming active in these sectors, which could create overcapacity," said Rehan Akbar, Moody's analyst and author of the report.
Moody's rates Emaar Properties at Ba1, one notch below investment grade, although its malls unit - which Emaar plans to list in Dubai later this year and which sold a sukuk for the first time last month - is two notches higher at Baa2 due to the strength of the company's retail business.
Dubai's market has rebounded strongly over the past two years and home prices have already reached the pre-crisis levels that were achieved in 2008.
Regulators have introduced a series of measures to curb speculation in the property market, including an increase in property registration fees.
But Moody's said these measures were not sufficient and added that home prices have already at the "upper bound of affordability" for many buyers.
"...recently launched projects are being traded at 5-30 percent premiums and developers are increasingly marketing projects with lax payment plans," it said.
The International Monetary Fund has repeatedly warned Dubai of a potential real estate bubble and said stronger measures were needed to counter property speculation.
Shares in Emaar were down 0.5 percent at 0705 GMT in line with the Dubai bourse which also retreated by 0.1 percent.