Moody's reports: Arabian Gulf property sector enjoys largely positive market prospects

Despite a number of sector risks, the rating agency anticipates sustained real estate market growth in the region, based on fundamental factors that indicate that demand for new housing, office and retail space is likely to outpace supply in the medium term.

"Supported by rapid economic and population growth, the Arabian Gulf region today incorporates some of the most unique and ambitious projects in the world, limited not to individual sites, but indeed creating entirely new cities and land stretches," says Philipp Lotter, Senior Credit Officer at Moody's Middle East Limited in Dubai (DIFC) and author
of the report. "However, accurate analysis of the market is made extremely difficult by the still sketchy nature of official information, only gradually evolving regulation and the significant differences in market estimates, depending on the source."

In its first Industry Outlook on the Gulf property sector, Moody's assesses the pressure points for property companies in the region and any factors that might lead to a deterioration in credit quality. Moody's has identified eight key trends for the Gulf property sector, all of which have different rating implications, detailed in the report. Overall, Moody's views these various trends as underpinning an
expectation of broadly stable ratings for the rated entities in the sector.

These trends include the fact that the evolution of the Gulf's real estate sector remains closely tied with government support or initiatives, which is generally supportive of ratings, either through direct support -- in the case of the large government-owned or government-sponsored master developers that comprise a sizeable proportion of the sector -- or through general institutional support. Moody's report also examines a number of region-specific factors that support ratings and in some instances can lead to higher ratings than those of comparable peers elsewhere in the world.

"Indeed, the Gulf real estate market has a number of characteristics that make it unique compared with more mature markets and need to be considered when rating companies. The two overriding features are the large-scale
availability of land, which is made available to many master developers either for free or at very favourable prices, and the significant growth of the markets, fuelled both by speculative investors but also more sound fundamental factors, which have allowed developers to fund large parts of their projects from off-plan pre-sales proceeds," Mr Lotter explains.

On the other hand, many property companies in the Gulf are heavily exposed, both regionally to a certain country or even city, and operationally to a handful of large projects. "This exposure to a single market acts as the largest constraint on companies' creditworthiness," Mr Lotter adds.

Moody's currently rates six companies that, directly or indirectly, engage in the Arabian Gulf property industry. Four of these are based in Dubai (UAE), one is in Qatar and one in Saudi Arabia. All but one are government-related issuers (GRIs), i.e. companies that are wholly or partially government-owned and whose ratings incorporate government support in the hypothetical event of financial distress. All of them build, develop and, in most cases, maintain and sell commercial or residential real estate units.