By Staff writer
Ratings agency S&P says additional supply, lower demand to result in 10-20% correction in real estate market
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.For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
This type of 'scaremongering' has to be justifiable and backed up with evidence. AB cannot just print headline type stories such as this without full transparency of the figures - where is the over-supply? Where is the 'lack of demand'? Prices have already dropped between 15 to 20% as an average during the last 12 months. What is the 'marginal' drop as referred to? Really, this is just weak and helps no one in this city who is part of the real estate market from construction through to developers.
I disagree with this article. I have never heard of prices being predicted to fall short term and the market obliging. My property prices are rising- bought a 2 bedroom for 2.5 mil in difc now offered 3.1. Rents are slow but will increase towards the end of the year. The market is perfectly OK. Do your own research and invest in high quality.
S&P are experts and working in the property market I have seen sale prices already reduce by 20% with rental prices reduced by 5-10%. We are all expecting further reductions in both area's. I can only tell you the facts that I experience.
Real Estate executives know this but may never openly admit it. The market is correcting itself. Sales are on but so much lower than what it could be.
Reasonable low competitive prices will only mean more buying and selling... Good news for most people!