Dubai property firms 'better armed' as up to 20% price drop looms

Ratings agency S&P says additional supply, lower demand to result in 10-20% correction in real estate market
Dubai property firms 'better armed' as up to 20% price drop looms
By Staff writer
Mon 22 Jun 2015 01:50 PM

Dubai property prices could fall by up to 20 percent by early 2016 as the market continues to stabilise after three years of sharp appreciation, ratings agency Standard & Poor's (S&P) said on Monday.

S&P said in its latest analysis of the property market in the UAE that additional supply and lower demand is likely to result in a 10-20 percent correction in Dubai residential real estate prices.

"After reaching a peak in 2014, the property market in the United Arab Emirates is set to soften in 2015 and early 2016. The market is facing a turnaround in operating conditions that is likely to dampen performance," the ratings agency said.

It added that the forecast drop in prices will be "much less than what led to the Dubai crisis in 2009".

"We believe real estate companies in the UAE are better armed to deal with the current slowdown and should be able to absorb it with limited ratings impact," said Standard & Poor's credit analyst Franck Delage.

"The diversifying economy, positive demographics, and protective measures from local regulators should help prevent a crisis like that of 2009," S&P said.

S&P also said it expects hotel occupancies to continue to decline ahead of Dubai Expo 2020, with 50 percent more hotels needed to host the excepted 20 million visitors.

The report said the office real estate market is set to become even more polarised, with the gap between prime locations and lower-tier office buildings widening in terms of rent and vacancy levels in Dubai and Abu Dhabi.

“The effect may be marginal for best-located properties, but more severe for suburban locations. We believe we'll continue to see a flight to quality, with still-high vacancy levels in locations further out from the cities' financial districts. The low oil prices that we expect for 2015 and 2016 will limit the appetite of companies in related sectors to hire and increase office space,” said Delage.

S&P said that even if market conditions were to deteriorate further than it currently anticipates, with average selling prices dropping 30 percent, the ratings impact on GCC issuers would likely remain limited over the next 12-24 months as the current backlog and presales support cash flow.

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