Construction

S&P warns that Dubai residential property prices approaching 2009/2010 levels

Prices and rents have fallen 25% to 33% since 2014; prices may fall 10% in 2019

Dubai residential property prices are approaching levels last seen in 2009-2010 property, a leading global ratings agency has warned, following a steady decline over the last few years after a peak in the second half of 2014.

In its report, entitled ‘Dubai Real Estate Downturn to Continue: Projections and Ratings Impact’, S&P said that property prices in Dubai are likely to stabilise by 2020, but that it didn’t see any meaningful recovery in 2021.

“Given the continued gap between supply and demand, in our base case we expect prices to fall a further 5 to 10 per cent in 2019 before a gradual stabilisation in 2020, though without a meaningful recovery in 2021,” remarked S&P Global Ratings credit analyst Sapna Jagtiani.

“In our stress case, we project a more pronounced decline in prices, with the market only stabilizing in 2021,” she stated.

Jagtiani added that weak market conditions will continue to translate in higher leverage in the real estate sector and have already led to some negative rating actions over the past six months. S&P pointed out that its ratings on banks and insurance companies already incorporate these weakening real estate prices.

“While not our base case scenario, a more pronounced price decline could conspire if supply isn’t reigned in especially if major developers continue to launch new projects in a weak market,” stated Jagtiani.

Dubai has developed a non-oil-based economy, and has instead made its name as an international business hub in the region. As such, like most service-led economies, the real estate sector has become an important contributor to GDP, with Dubai’s real estate sector representing about 7% of nominal GDP, alongside construction activities, which are also at about 7%. Additionally, the sector serves as an important barometer of investor sentiment in Dubai.

S&P said that the real estate sector had proven to be volatile, and subject to indirect economic effects of swings in oil prices, in addition to geopolitical risk.

The Dubai property market’s long decline since a peak in second-half 2014 has prompted speculation about when it will reach bottom and begin to rebound, stated the report. Since their last peak in 2014, prices and rents have fallen 25% to 33% in nominal terms, it added.

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