UAE Property Prices May Drop Further In 2016 Amid Weak Market Conditions, Says Report

• In the UAE, 2015 was the first year since the recession in which real estate prices declined, dropping 10%-13% on average according to industry experts.
• For 2016, we see no sign of improvement for the UAE real estate sector, despite housing affordability improving from the current price environment.
• Pressures have arisen from declining oil prices subduing the hiring and expansion plans of oil-exposed companies, and non-oil private companies' business activities having softened.
• Furthermore, the strong U.S. dollar has made UAE real estate more expensive for international investors holding non-U.S.-dollar liquidities, and weaker tourist sentiment has affected retailers and their landlords.
• Given rated issuers' prudence and regulatory oversight, we do not foresee major negative movements in our real estate sector ratings over the next 12 months.

 
April 27, 2016:  Real estate prices in the United Arab Emirates (UAE) are likely to continue declining in 2016, says Standard & Poor's Ratings Services in a report published today (see "Inside Credit: UAE Real Estate Prices May Slide Further In 2016, As No Positive Signs Emerge" attached). For the coming year, we see no sign of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment. Pressures have arisen from declining oil prices dampening the hiring and expansion plans of oil-exposed companies; non-oil private companies' business activities having softened; the strong U.S. dollar rendering UAE real estate more expensive for international investors holding non-U.S. dollar liquidities; and pressures on tourism negatively affecting retailers and their landlords, as well as hotel operators.
 
That said, we do not foresee major negative movements in our real estate sector ratings over the next 12 months. Generally, we believe that our rated developers could absorb a 10% drop in residential sales prices in Dubai this
year. 
 
Developers' revenues should remain robust in 2016, despite headwinds. This reflects that most of their projects are presold--that is, the majority of units are already sold well before construction ends--and proceeds from buyers are blocked in an escrow account until completion. All our rated real estate companies have secured lease structures with long lease tenures and more than 90% occupancies across the portfolio.
 
We still believe that the lifting of geopolitical restrictions, such the sanctions on Russia and Iran, could strongly benefit the recovery of the UAE property market. This would open new investment flows into the regions' real estate markets and partly compensate for the softening demand from other countries. A rebound in oil prices as well as weakening U.S. dollar would also likely reverse the negative trend, in our view.