UAE liquidity squeeze driven by real estate fears

by Amy Glass Wednesday, 08 October 2008

The UAE's liquidity squeeze is being driven by fears over the real estate sector rather than the global financial crisis, Standard & Poor’s (S&P) said on Wednesday.

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The ratings agency said in report tightening liquidity was "only slightly related" to the global credit crunch and was mainly driven by country-specific factors including speculative investor activity surrounding the dirham’s peg to the US dollar, concerns over the real estate sector and rapid domestic growth.
S&P said economic growth could be hit by developers struggling to find funding for future projects.

However, a slowdown in growth was "not necessarily a bad thing" as it would alleviate infrastructure and resource pressures, while preventing a real estate oversupply, the ratings agency said.

S&P said that while financing conditions were becoming more challenging, it did not expect the credit-worthiness of rated domestic entities to be affected.

“Refinancing risks will be contained, and the willingness and ability of the government to provide implicit or explicit support in the event of serious financial distress remains strong,” the ratings agency said.



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